Permanent fund dividends expected to shrink

Payouts could dwindle during the next four years to as little as $68

Posted: Sunday, March 15, 2009

ANCHORAGE - Alaska Permanent Fund dividends could dwindle over the next four years to as little as $68 in 2013, according to projections by fund managers.

Mike Burns, executive director of the $27 billion oil-wealth savings account, testified Thursday in Juneau on a Senate resolution that would change how the state pays out dividends. The measure would level out payments to compensate for lean or fat years.

Under the current system, dividends are expected to exceed $1,500 this year but likely will shrink sharply, Burns said, because of large losses on fund investments, especially stocks.

He projected dividends would fall to $845 next year, bottom out in 2013 at $68, then rise again to as much as $1,771 in 2018.

He said the projections are not guaranteed and depend on assumptions such as an 8 percent annual gain on investments and other factors such as changes in the fund's investment approach.

Burns testified as the Senate Finance Committee considered Senate Joint Resolution 9.

The resolution, if approved by voters, would revise how the state pays for dividends, creating a system that would produce a steady dividend of more than $1,200 from 2010 through 2018, according to projections Burns provided the committee.

The Senate resolution would ask voters to approve constitutional amendments allowing legislators to spend up to 5 percent of the permanent fund's market value annually on dividends - and possibly other state expenses.

Dividends now come from fund profits, with dividends rising when profits are strong.

Sen. Bert Stedman, R-Sitka, calls the revised approach a "dividend stabilization plan." It would yield bigger dividends when fund investment returns are poor but could produce smaller dividends when investment results are strong.

Stedman said the plan would benefit Alaskans by creating a sizable dividend consistently each year. The fund could continue to grow because long-term investment gains are expected to beat the 5 percent legislators could spend out of the fund each year, he said.

Alaskans depend on the dividend, and a $68 payment will not sit well, Stedman said.

"Clearly, I think there's a concern that we come up with something that stabilizes the dividend stream. Because it's a big economic stimulus every fall for the state," he said.

The idea of amending the Alaska Constitution to change how the state pays the dividend is not new.

Stedman's proposal closely resembles an effort under former Gov. Frank Murkowski to amend the constitution to allow a 5 percent annual expenditure from the fund. The proposal was known as the "percent of market values" plan.

Murkowski wanted to allocate half the withdrawal to dividends and the other half to paying for government services. Permanent fund trustees strongly supported the POMV concept but legislators killed Murkowski's plan in 2004.

Stedman said Thursday he does not expect legislators to pass SJR 9 this session. Backers want to start the discussion with an eye toward passing the resolution next session so Alaskans can vote on the constitutional amendments in the 2010 general election, he said.

The 2008 dividend was the biggest ever at $2,069. The state added an extra $1,200 as a one-time "resource rebate" or share of the state oil revenue surplus.

The dividend is based on an average of the fund's profits over the previous five years.

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