POMV makes permanent fund temporary

Letter to the editor

Posted: Thursday, March 04, 2004

The Permanent Fund Corporation proposes to spend over a million dollars to "educate" us about their proposed POMV (Percent of Market Value) approach. The proposal would allow "up to" 5 percent of the book value of the Permanent Fund on one predetermined day, calculated as a five-year average, to be spent for some combination of dividends and other expenditures, such as state government.

The amount that could be taken each year would not be based on earnings. The 5 percent could be taken even when, over one year or five years, the fund earned nothing, or even lost value.

Anyone who has tried to save for retirement knows that you are doing quite well if your investments earn 3 percent over inflation. If the permanent fund earns, on average, less than inflation plus a modest return, slowly the fund's capital will diminish. In the long term, as the pot gets smaller, the 5 percent will be smaller - and so will dividends and the amount that can be used for other purposes.

Under current fund law, only earnings can be spent. If earnings go down, so do expenditures. Current management gives first call to dividends and then to inflation-proofing the principal, before declaring the remaining earnings to be available for other expenditures.

It's easy to see that the proposal could free up more money to be spent, since spending only earnings would be replaced by a new combination of earnings plus principal. Legislators and other Alaskans who set up the current management did not want us to dip in to principal. They saw maintaining the principal as a public trust. Now, the principal of the permanent fund is inviolate and the "permanent" part of the fund. Under POMV, we might as well start calling it the non-permanent fund.

While it is easier for some politicians in the short run to take money from the permanent fund, in the long term, we are better off with sensible taxes - an income tax and increased taxes on oil production, for example.

Margo Waring

Juneau



CONTACT US

  • Switchboard: 907-586-3740
  • Circulation and Delivery: 907-586-3740
  • Newsroom Fax: 907-586-3028
  • Business Fax: 907-586-9097
  • Accounts Receivable: 907-523-2230
  • View the Staff Directory
  • or Send feedback

ADVERTISING

SUBSCRIBER SERVICES

SOCIAL NETWORKING