Permanent fund managers exploring options for changing fund’s structure

ANCHORAGE, Alaska (KTUU) – Alaska Permanent Fund leaders are asking state lawmakers to consider making changes to the fund’s structure so future generations will have access to its dividends.

The permanent fund has two accounts: A strong, growing principal account, and an earnings reserve account which is starting to dwindle away.

Every year investment returns on the principal are transferred into the reserve account, which is then used to fund statewide services and Alaskans’ dividend checks.

Even though the total fund value is sitting strong at roughly $75 billion (as of Oct. 13), investment returns have underperformed, and not kept up with the rate of inflation.

In 2022, the permanent fund return recorded a loss of -1.32%. It earned a little more than 5% in 2023 but missed its goal of 7.97% when adjusted to the rate of inflation.

Additionally, withdrawals from the reserve account have exceeded earnings in four of the last five years, said the CEO of the Alaska Permanent Fund Corporation Deven Mitchell.

In 2021, the total earnings in the reserve account were more than $21 billion. In 2023, the fund is estimated to have $10.4 billion.

Mitchell said there is concern the spending account might run dry in the next four years if nothing is done.

“If it starts looking like the earnings reserve account, that spendable portion of the permanent fund, is going to be deficient, that they should be considering supporting a change to the how the permanent fund is accounted for and updating that methodology,” Mitchell said.

The CEO said he and other fund managers are recommending state lawmakers consider passing a constitutional amendment this upcoming session that it can then put before the voters in the next general election.

Mitchell said since 2000 the board of trustees has wanted the state to consider changing the structure of the fund from a two-account system into a more updated endowment structure where the state doesn’t have to rely on an annual inflation proofing transfer, or “optionality and how much you can appropriate out of the fund from year to year,” he said.

“The construct that we currently use for making money available from the permanent fund is based on an old methodology. A methodology that existed for endowments back in the 1970s, when people just bought US Treasury bonds and held them to maturity and they took the coupons. That’s how they defined revenue. Now we have these sophisticated asset classes,” Mitchell said.

Additionally, Mitchell said a structural change to the fund would not have an adverse effect on PFD checks.

“It wouldn’t make any change, from my perspective, necessarily, from what we have right now. It would just take away some of the complexities and some of the uncertainties of what we have right now,” Mitchell said.

In order for a constitutional amendment to be passed, two-thirds of the House and Senate would have to vote in favor of it, as well as a majority of the voters in the next general election.

Mitchell said the trustees of the permanent fund are also talking about the potential of different asset allocations, as well as the use of different tools to potentially increase the expected future value of the permanent fund.

“It’s something that right now is, again, just being discussed as potential ways of increasing fund value, but not as a way to deal with this issue that we were talking about,” Mitchell said.

A special meeting of the board has been scheduled for Oct. 30 to focus on this planning effort and final recommendations. The meeting will be held in Juneau via webinar.

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