The body overseeing Alaska’s $64.7 billion sovereign wealth fund has warned the state’s lawmakers that using the fund to boost budget shortfalls will put its long-term sustainability at risk.
The board of trustees of the Alaska Permanent Fund Corporation has issued a resolution calling on the state’s lawmakers to adhere to a rules-based system for overseeing transfers into and out of the fund.
In 1976, Alaska’s constitution was amended to establish the permanent fund, and stipulates that at least 25% of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments, and bonuses received by the state must be deposited into the permanent fund. Every qualifying Alaska resident receives a dividend each year from the fund.
“The board of trustees acknowledges the fiscal challenges facing the state have resulted in multiple stakeholders proposing and analyzing new rules-based frameworks to change how fund transfers occur,” said the board in its resolution. “There should be clear and publicly disclosed policies, rules, procedures, or arrangements in relation to the fund’s general approach to funding, withdrawal, and spending operations on behalf of the government.”
The trustees said that a rules-based system improves the likelihood that the fund will be sustainable over time, and that having a framework rationalized by policymakers regarding the rules for savings, withdrawals, and growing the funds value provides a consistent approach to transfers over the long term.
“This is a core element to ensuring sustainability,” said the trustees. “Conversely, the reliance on ad-hoc draws to support government spending would substantially increase the chance of a non-sustainable withdrawal in any one year, and the risk of nonformulaic draws compounding in an unsustainable manner over multiple years.”
However, the resolution, which was distributed to members of the state’s Senate and House of Representatives, hasn’t yet convinced lawmakers to leave the fund alone. Earlier this week, Alaska’s House of Representatives voted to raise the dividend payout to $2,700 next year as part of its annual state operating budget proposal. The dividend paid out varies from year to year, ranging from a low of $331.29 in 1984 to a high of $2,072.00 in 2015. Last year and in 2018, the payout was $1,100 per resident.
The House’s budget vote would pay dividends in line with the current formula, but would reportedly add $900 million to the amount of cash that the House would withdraw from the Permanent Fund to balance its budget this year.