POMV plan wins informal thumbs-up

Delegates to vote on endowment plan at end of Fairbanks conference Thursday

Posted: Wednesday, February 11, 2004

FAIRBANKS - A new method of managing the Alaska Permanent Fund would prevent the possibility of a zero dividend, a scenario that Alaskans faced last year, according to the fund's trustees.

Permanent Fund Executive Director Bob Storer told delegates to the Conference of Alaskans on Tuesday that adopting an endowment method of managing the fund rather than the current trust method would ensure regular, predictable dividends.

The conference was called last month by Gov. Frank Murkowski, who charged 55 delegates with answering four questions about the permanent fund and the state fiscal gap. On Tuesday at the University of Alaska Fairbanks, the conference addressed whether to adopt the trustees' percent of market value approach, or POMV, to manage the fund.

Delegates took an informal poll after a few hours of debate, with 76 percent approving the proposal. Conferees will take a formal vote on Thursday to approve or reject the trustees' plan.

The permanent fund now is split between two accounts: the earnings reserve, which constitutes the money made from the fund's investments, and the principle, which constitutes most of the $27 billion account.

Under the POMV plan, the two accounts would merge and spending would be capped at 5 percent of the total value of the fund. This would allow inflation-proofing of the entire fund. Now, only the principle is protected against inflation.

The POMV proposal would not decide how the 5 percent is used. Some lawmakers recommend splitting the money between dividends and government, an issue the conference will take up today.

"The board is proposing memorializing inflation-proofing in the constitution," Storer said, noting that it would provide a cushion in the good years, allowing the fund to pay dividends in the bad years.

He noted that about 85 percent of fund managers use the POMV method.

Storer said when the Permanent Fund was created in 1976, it was invested completely in bonds, which provided a stable rate of return. But as the fund grew, its investments diversified into stocks and real estate, making dividends more subject to market fluctuations.

Although Storer said POMV is simply a new management tool for the fund, some said they would not support it if it means using dividends for government services.

"I'm not going to say that I'm willing to vote for POMV without knowing where the money is going to be spent," argued conferee Mark Neuman of Big Lake.

Others said the POMV plan is fiscally prudent and would ensure dividends for every eligible Alaskan.

"I voted yes because I do subscribe to the school that views this as a management tool," said Byron Mallott, former executive director of the permanent fund. "If markets are strong, you take five percent of a strong asset. If markets are very bad, you take 5 percent of a smaller base. If markets are really, really bad and under water, at that point using up to 5 percent you can do something in extraordinary times in order to deal with that."

In 2002, a drop in the stock market almost resulted in a zero dividend for Alaskans.

"If the stock market hadn't rallied six months later than it did, there wouldn't have been enough money in the reserve account to pay for dividends last year," noted conference delegate Thomas Williams, a former commissioner for the state Department of Revenue and one of the original trustees of the fund.

The POMV plan would require a two-thirds majority vote in the Legislature and approval of Alaskan voters in the November election.

• Timothy Inklebarger can be reached at timothyi@juneauempire.com.

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