For this opinion piece I wanted to concentrate on a matter central to Alaska which will impact our success or failure long into the future. That is the Permanent Fund itself. Eyes roll when talking about billions and billions, but it is extremely important we understand the Permanent Fund, realize its importance, and acknowledge that it may be the biggest single-issue facing Alaskans.
We are the envy of other states who would kill to have the savings we do. No state but Alaska has $65 billion in the bank. Our forefathers were wise to establish the fund. The Legislature was wise to inflation proof it over the years, and the public has been wise in not allowing the legislature to overdraw the fund for immediate satisfaction. If we do not protect it, the Permanent Fund could be nickel-and-dimed to death.
After years of oil taxes paying our bills, we have now reached the point where interest from our investments are now greater than the tax on oil. We should all have been wise enough to save when younger, building a nest egg to see us safely through tough times. At one-point, oil revenues funded some 90% of our budget but now only fund some 30%. Just by itself, that should make you realize the financial pickle the state is now facing.
The value of the fund today is now over $65 billion. Who can envision such a gigantic pot of money? Some say, “Give me my share now.” But that would be unwise. What is wise is to protect it, allow it to grow so it will have an impact not only on us today, but the lives of our children, grandchildren, and all Alaskans hundreds of years from now.
The Permanent Fund is a mixture of savings in the principal, earnings in the Earnings Reserve, as well as unrealized gains from investments we have not yet sold. Today the principal totals over $54 billion in two parts. One is $46.7 billion in permanent savings and the other is $7.5 billion in unrealized gains. As for the Earnings Reserve Account, it now totals over $10 billion in three parts: $6.3 billion in realized earnings, $3.1 billion committed to the 2022 Percent of Market Value (POMV) draw, and $1.5 billion in unrealized gains.
A little more on the Percent of Market Value (POMV). The Legislature studied other giant funds like ours and learned most spin off a percentage to help fund the governments holding them. It was determined a 5% POMV could be withdrawn each year to do three things: 1. Inflation proof the Permanent Fund, so it does not lose value (Elmer Rasmussen was quite right in calling inflation the thief in the night); 2. Provide a dividend or PFD to every man, women, and child in Alaska; and 3. Help fund government services like schools, health and social services, transportation, police protection, etc. etc. The 5% POMV available for last year’s general fund was $3.8 billion. Without it we would be in very deep trouble since we operate with no state income or sales tax. The projections for next year indicate our Permanent Fund will be up to $71 billion. By 2030 the PF is projected to be over $80 billion.
I trust you can see the wisdom of not overdrawing the fund. If we leave it alone, only drawing out 5% a year, it will quickly reach $100 billion with a POMV of $5 billion. Compound interest is magical. It is very easy to overdraw the fund and kill the goose that lays the golden egg. We must avoid that at all costs. The only way those candidates and politicians who are promising you a $3,000 PFD can deliver it is by overdrawing the Permanent Fund. Do not let that happen. Let’s be wiser. Protect the fund and it will protect you well into the future.
Gary Stevens currently represents Senate District P in the Alaska Senate and is running for re-election.