In the legislative session that was regular in the springtime, the public expressed some concern regarding what’s known as the Permanent Fund earnings reserve -that is the part of the fund used to pay for services provided by the government as well as pay dividends for residents. With so many other legislative bills and hearings on the table the reserve didn’t receive much attention.
In July, at its quarterly gathering of the Alaska Permanent Fund board of trustees the CEO Deven Mitchell announced that even with positive investment returns the spending portion of the fund could be exhausted in the summer of 2027.
“Most people did not want to hear about it,” said Sen. Bert Stedman. “But those who work who work in finance realized that the alarm for fire is beginning to sound.”
Stedman has been a member of the Legislature for the past 20 years. As a private capital manager prior to becoming a politician in the state, Stedman was appointed by the then-Gov. Frank Murkowski because of his financial expertise. He is a staunch conservative in the traditional sense The truth is that he’s not planning spend his Permanent Fund — the state’s $80 billion oil-wealth savings egg -to solve immediate budget issues or to please those who are new members who’ve been promised huge dividends.
However, he’s just one of the 60 lawmakers. It’s not like every legislator in the capitol or in the governor’s office has the same view.
“If the Legislature is wildly chaotic and begins to do all these draws, and then begins to withdraw like, $2.8 billion for dividends then the house is in financial turmoil and will not be simple to get out,” Stedman said. “So this was one of the main reasons for the reason that the Senate did not want to draw more from to the Permanent Fund, and refused to pay a huge dividend. It wasn’t that we didn’t wish to pay for things that the people would like. Sometimes it’s a matter of financial necessity you need to address as you would with your personal bank account. Sometimes, you need to do what you have doing.”
This means that it is not possible to limit the size of dividends from the permanent fund. Since the last half-dozen or so years the Legislature has allocated 5 percent of the market value of the Permanent Fund in the reserve for earnings, in which it can be used. Governor Scott has advocated for 50-50 division of the reserve’s earnings between state government and dividends.
The Senate opposed the proposal, and approved a dividend based using just a quarter the earnings reserve. This will still amount to around $1300 per Alaska resident. The House hasn’t yet ratified the new split, so additional measures were taken to keep the reserve in check, including cutting corners in the process of inflation-proofing this year’s Permanent Fund itself. In any other year in the past, lawmakers in the Legislature would have paid out more than four billion in funds to their main accounts. This year, it was not the case.
“I believe we contributed a little more than 1 billion,” said Stedman. “Holding the liquidity back, we could achieve the same feat next year. In their (Alaska Permanent Fund Corp.) calculations they consider completely funding the inflation-proofing. It is possible to skip it for a couple of years should we need to or reduced it as we did this year, to ensure that the dividend stream is maintained but then ramp it up as the markets get more robust. However, what you shouldn’t do is to begin dipping into your Permanent Fund.”
Another option is getting more attention in the Legislature and could bring an end to the debate over the reserve for earnings, and that’s a way to eliminate the reserve’s own earnings. Instead of having two accounts, only have one account, the Permanent Fund account, and put a limit in the constitution on withdrawals. This will keep future lawmakers from spending the entire fund to the tune of.
Stedman is a huge Stedman fan.
“Yes there’s I don’t think there’s any doubt about that,” he said. “And this would safeguard the Permanent Fund, except if there was a need that was so urgent that you’d have to present it to the public and then to decide whether to take the fund out. This is what people would do in the event of huge earthquakes or terrible catastrophe. However, other than this, I don’t believe that they would. This could make it impossible for the Legislature as well as the administration and the whole state to live within a 5-percent limit. However, it requires an amendment to the constitution.”
Stedman believes that Stedman considers the Alaska Permanent Fund — in terms of scale, to be among the biggest sovereign wealth funds around the globe. Norway as well as Saudi Arabia have more money however, they also have more people. He’d prefer to see an investment in the Permanent Fund last in perpetuity and not expire in the next generation or two, even if it means a lower dividend payment. As co-chairman of the Senate Finance Committee, and responsible for the state’s operating budget the senator has an enormous amount of leverage to assist other legislators in seeing things in his manner. However, he also has more than two decades of service in the Senate to his name and knows how important it is to look in the opposite direction when the alarm goes off.
“I believe it’s due to the experience and territory Certain people can anticipate a collision, but certain people don’t” he said.
