Alaskans can expect $1,200 permanent fund dividend - if market holds

Posted: Sunday, January 05, 2003

ANCHORAGE - If Wall Street doesn't take a downturn in the next six months, eligible Alaskans will get a permanent fund dividend of roughly $1,200 this coming fall.

Last year's dividend was $1,540.76.

But the margin in the nearly $23 billion permanent fund right now is razor-thin - just $35 million, or less than less than two-tenths of 1 percent. And stock market fluctuations can change the value of the fund by $200 million in a day.

Just three months ago, the fund held less than the untouchable principal amount. That would have precluded any dividend at all.

The fund balance dropped under $22 billion then, well below the estimated $22.21 billion that is needed for principal on the coming June 30, when the dividend is calculated.

But as of Thursday, the latest available information, the fund had recovered to a value of $23.21 billion.

That's enough to subtract the $715 million projected dividend amount and still not dip into principal, which is barred by the state constitution.

It's not enough for inflation-proofing. But that's done after the dividend payment is made. And there are still six months of income to add to the fund.

"About $500 million will flow in as cash income from bond interest, stock dividends, and cash from real estate investments," said Robert Bartholomew, chief operating officer for the Alaska Permanent Fund Corp.

On top of that, the fund is now receiving about $30 million a month in oil revenue, the flow that started the fund in the first place. That will add roughly another $200 million to the fund by June 30.

Still, stock market volatility can be more than a match for that hefty income stream. A 10 percent decline in the value of the fund's $11.1 billion in domestic and international stocks would lop $1.1 billion off the fund balance, enough to counterbalance that $700 million in income and cut the dividend by more than half.

"You can't predict the market," Bartholomew said. "There's uncertainty out there. What if we go to war?"

Another wrinkle in the law on the permanent fund says only half of the earnings reserve can be used for dividends. So that fund needs to hold $1.43 billion by June 30 for a dividend comparable to those in the recent past. At this point, Bartholomew says, fund managers expect the reserve will hold the needed amount plus about a cushion of nearly $300 million on June 30.

But that's another projection, and it's subject to market swings, as well as investment moves by managers of the fund's billions.

As for the dividend itself, it's likely to continue dropping in future years, after reaching a high of $1,963.86 in 2000.

The fund pays out an average of the income over the last five years, and the big years, when the fund had gains in the neighborhood of $2.5 billion, are dropping out of the equation, replaced by years when the market has been in decline. In stark contrast, the fund cleared $250 million in the fiscal year that ended last June 30. Fund managers are projecting income of $590 million for the current fiscal year, according to Bartholomew.

While Alaskans still face uncertainty about the 2003 dividend, Bartholomew noted, "the thing that would make it all simpler is a big market rally."

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