The spendable portion of the Alaska Permanent Fund is dwindling and could be exhausted entirely within three years, fund leaders were told during a regular quarterly meeting on Wednesday in Anchorage.
Deven Mitchell, CEO of the Alaska Permanent Fund Corp., presented the results of limited modeling that estimates the fund’s performance over the next three years.
Under the “low” scenario, the fund would be unable to pay for state services or dividends by summer 2026. The “mid” scenario calls for the spendable portion of the fund to be exhausted by summer 2027.
Mitchell noted that the “low” forecast is “potentially optimistic” because it anticipates an inflation rate of 2.5%, and actual rates have been higher than that.
“The outcomes of this are quite troubling, and they’re quite troubling regardless of how you model it,” said Craig Richards, a member of the corporation’s board of trustees, reacting to Mitchell’s presentation.
“It’s a big deal,” Richards said.
The board of trustees is scheduled to examine the issue in further detail at a meeting in September and could recommend legislative action to fix the problem.
An annual transfer from the fund to the state treasury makes up more than half of the state’s general-purpose revenue, paying for services and the annual Permanent Fund dividend, but spending from the fund exceeded earnings in the fiscal year that ended in June 2022 and likely did so again in the fiscal year that just ended.
Exact year-end figures were not yet available on Wednesday, but as of May 31, the Permanent Fund’s total fund balances stood at just under $76.1 billion. On the same date in 2022, they were $79.5 billion.
Those figures obscure the looming problem somewhat, because the fund consists of two main accounts. One account, the fund’s principal, or corpus, cannot be spent without amending the state constitution.
That principal is invested, and money earned from those investments go into a second account, the earnings reserve.
That account can be spent with a simple majority vote of the Alaska Legislature and the assent of the governor. As of May 31, only $4.8 billion of the earnings reserve is uncommitted and available for spending.
In 2018, the Legislature approved an automatic system that transfers a rolling 5% average of the total fund’s value from the earnings reserve to the state treasury.
That transfer, coupled with cuts to services, the dividend and other state savings, has allowed the state to avoid imposing a statewide sales tax or income tax or raising oil taxes despite drops in oil revenue.
Some observers have said that dividend and service cuts are themselves a tax, and legislators have been repeatedly warned that the Permanent Fund alone cannot provide a sustainable financial basis for the state.
Nevertheless, lawmakers have been unable to agree on an alternative, and the latest modeling follows three other prior rounds of economic modeling, by a variety of outside firms and internal groups, that show growing risk.
One potential solution, endorsed by the trustees in 2020, calls for a constitutional amendment that merges the corpus and the earnings reserve into a single account.
Doing so would solve the looming threat and firmly cap the Legislature’s spending power, but lawmakers have thus far been unwilling to approve the proposal and send the idea to voters.
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