There’s a nearly 50-50 chance that the Alaska Permanent Fund won’t have enough spendable money to pay dividends and the state’s bills at least once over the next decade — unless lawmakers change the structure of the fund to function more like a university endowment.
That’s the message Permanent Fund leaders and the Legislature’s chief budget analyst delivered to lawmakers on Tuesday.
The head of the Legislature’s nonpartisan budget analysis agency, Alexei Painter, presented lawmakers with a financial model showing a 46% chance that the fund’s spendable account would not have enough money to provide a payment to the state’s general fund that makes up the second-largest overall source of state revenue — second only to the federal government.
Permanent Fund Corporation Executive Director and CEO Deven Mitchell and Board of Trustees Chair Jason Brune told the Legislative Budget and Audit Committee that the issue is not with the $80-plus billion Permanent Fund itself, but with the fund’s two-account structure.
“We want to ensure that there's an ability to provide a payment to the state of Alaska each and every year,” Mitchell said. “We don't want to have a 46% probability of failure. We don't want to have any probability of failure for this revenue stream at this point.”
The Permanent Fund is separated into two accounts. The $60 billion principal can’t be spent without a vote of the people.
The earnings reserve account, which has about $9 billion in spendable money, is more flexible. Legislators could spend every last dollar of the account — and possibly more in unrealized gains — by a simple majority vote.
Lawmakers have drawn 5% of the fund’s value every year to fund dividends and state services since 2018 after oil prices crashed in the mid-2010s. Today, the Permanent Fund provides more than half of the state’s general-purpose revenue.
This year, lawmakers are considering amending the Alaska Constitution to combine the two accounts into one.
That would solve the problem, Painter said.
“The [earnings reserve account] balance would no longer be something that would stop us from continuing to draw,” he said. “That would reduce the risk to zero. There'd be no risk at all.”
Lawmakers in the largely Democratic majority caucuses in the House and Senate have introduced amendments that would combine the accounts. Minority Sen. James Kaufman, R-Anchorage, has introduced a similar proposal.
The amendments would also place a constitutional cap on the annual draw. The current 5% cap is set in statute, but lawmakers could vote to ignore the law by a simple majority.
A pair of similar proposals sponsored by the Senate Finance Committee and Rep. Calvin Schrage, I-Anchorage, would constitutionalize the current 5% maximum draw rate.
Kaufman’s proposal would cap it at 5.5% to provide what called “headroom,” though he said at a news conference Tuesday that he was open to changing the maximum figure. It would also require the state to pay a dividend set by a formula set in law, though the proposal is silent on what the formula should be. Kaufman is a cosponsor of a bipartisan bill that would set the dividend at 25% of the state’s annual draw from the Permanent Fund.
Brune, the Permanent Fund board chair, said combining the two accounts and capping the draw would provide “predictability and sustainability” for the fund going forward.
Sen. Bert Stedman, R-Sitka, said limiting the draw with a constitutional amendment would prevent lawmakers from raiding the fund when facing a deficit. Lawmakers are currently looking for ways to fill a more than half-billion dollar hole in the state’s budget.
“The little piggies in the trough are getting hungry in this building,” he said.
Stedman, a co-chair of the powerful Senate Finance Committee, has suggested on more than one occasion that the 5% draw rate may be too high to be sustainable.
Combining the accounts and capping the draw is broadly popular among senators in both the largely Democratic majority and the all-Republican minority. The Permanent Fund’s board has been pushing to combine the accounts for decades. Last year, they published a rare analysis paper illustrating the importance of the concept.
Lawmakers could place a constitutional amendment on the ballot for the next election with a two-thirds majority vote in the House and Senate. The governor would not be able to veto it.
