State Sen. Bert Stedman says that the Legislature will not allow the earnings reserve of the Alaska Permanent Fund to run dry over the next four years, which would mean no annual dividend check for residents.
Nevertheless, the Sitka Republican and co-chair of the Senate Finance Committee says there is an alarm bell ringing, and legislators are going to have to make some tough – and possibly unpopular – decisions to keep the Permanent Fund healthy.
Stedman was recently back in his hometown, and spoke with KCAW’s Robert Woolsey.
There was concern over the Permanent Fund earnings reserve – which is the portion of the fund available to both pay for government services and pay dividends to residents – during the regular legislative session this spring, but with so many other bills and hearings in play, it didn’t get much notice.
Then in July, at the quarterly meeting of the Alaska Permanent Fund board of trustees, CEO Deven Mitchell reported that – even with relatively favorable investment returns – the spendable portion of the fund would be exhausted by the summer of 2027.
“Most people didn’t want to hear it,” Stedman said. “But the people in the financial arena recognized the fire alarm is starting to ring.”
Stedman has served in the Legislature for 20 years. A private capital manager before entering state politics, Stedman was appointed by then-Gov. Frank Murkowski because of his financial acumen. He is an ardent conservative, in the original sense of that word: He is not going to spend down the Permanent Fund – the state’s $80 billion oil-wealth nest egg – to resolve short-term budget problems, or to placate the constituencies of newer members who’ve been promised unrealistically large dividends.
But he’s only one legislator among 60. Not everyone in the Capitol – or in current Gov. Mike Dunleavy’s office – is on the same page.
“If the Legislature goes haywire and does all these overdraws, and starts pulling out, you know, $2.8 billion for dividends, the house will be on financial fire and won’t be easy to put out,” Stedman said. “So that was one of the big driving factors why the Senate refused to overdraw the Permanent Fund, and refused to do a large dividend. It wasn’t because we don’t want to pay out things that are popular and the people want. Sometimes there’s just financial necessity you have to deal with, just like your personal checkbook. Sometimes you just got to do what you got to do.”
That means limiting the size of Permanent Fund dividends. For the last six years, the Legislature has put 5 percent of the Permanent Fund’s market value into the earnings reserve, where it can be spent. Dunleavy has argued for a 50-50 split of the earnings reserve between dividends and state government.
The Senate disagreed, and passed a dividend calculated on just a quarter of the earnings reserve, which would still come to about $1,300 for every Alaska resident. The House hasn’t accepted the new split yet, so other measures were enacted to keep the earnings reserve afloat, such as cutting corners on inflation-proofing the Permanent Fund itself. Any other year, the Legislature would have returned over $4 billion to the fund’s main account. This year, that didn’t happen.
“I think we put in a little over a billion,” Stedman said. “Holding back some liquidity, we can do the same thing next year. In their (Alaska Permanent Fund Corp.) calculations, they look at fully funding the inflation-proofing. We could skip it for a year or two if we had to, or reduce it, like we did this year to keep the dividend stream going, and then pick it up when the markets become more robust. But what you can’t do is start over-drawing the Permanent Fund.”
There is another strategy that’s gaining momentum in the Legislature, which would end the fight over the earnings reserve, and that’s ending the earnings reserve itself. Instead of two accounts, the plan calls for maintaining only the main Permanent Fund account, and setting a hard cap – in the state Constitution – on withdrawals, which would prevent future Legislatures from spending it all away.
Stedman is a fan.
“Yes, no doubt about it,” he said. “And that would protect a Permanent Fund, except if there’s a super need where you had to go to the public and then have to vote to take it out – which people would if we had a big earthquake or some really nasty disaster. But other than that, I don’t think they would. And that would force the Legislature and the administration and the entire state to live with a 5 percent range. But it takes a constitutional amendment.”
Stedman considers the Alaska Permanent Fund to be one of the largest sovereign wealth funds in the world, on a per-capita basis. Norway and Saudi Arabia have more money, but they have far more people. He’d rather have the Permanent Fund last in perpetuity, and not be exhausted in a generation or two – even if that means a lower dividend check.
As co-chair of the Senate Finance Committee, and in charge of the state’s operating budget, he’s got a lot of leverage to help other legislators see things his way. But he’s also got two decades in the Senate under his belt, and he understands the price of looking the other way when the alarm bell rings.
“I guess it comes with the territory and experience, some people can see a collision coming and some people can’t,” he said.