Permanent fund ends year of depletion, turmoil

This year's dividend could be about $1,400, estimate shows

Posted: Wednesday, August 05, 2009

The Alaska Permanent Fund ended the 2009 fiscal year with its biggest decline in value ever. It's the first time in the Fund's history that it has had a loss in statutory net income, the accounting measure by which dividends are calculated.

That's after more than a year of turmoil in U.S. and world financial markets, and a year in which U.S. stocks lost nearly 25 percent of their value while foreign stocks lost more than 30 percent.

"It's the first statutory net income loss in the history of the fund; it's been a pretty extraordinary 18 months," said Mike Burns, executive director of the Alaska Permanent Fund Corporation, which manages the state's oil wealth savings account.

The fiscal year ended on June 30 with the fund at $30 billion, after a withdrawal of $875 million for this year's dividend.

That's likely to result in a dividend of $1,400 this year, based on a Juneau Empire estimate of the number of dividend applications likely to be approved.

Permanent Fund Dividend Director Debbie Bitney said there are more than 657,000 applications this year, and typically 95 percent of them are found to be valid.

The division is still processing applications, with roughly 55,000 yet to be decided before dividend checks go out later this year, she said.

"We're way ahead of where we were last year," Bitney said.

Last year, the corporation calculated the payout amount at $1.3 billion, resulting in a dividend amount of $2,069. The Legislature added another $1,200 to the dividend amount from surplus state oil revenues.

Despite this year's statutory net income losses, dividend amounts are calculated on a five-year average of statutory net income, and the previous four years has been some of the best in the Permanent Fund's history.

Statutory net income is set up in state law as a way to calculate profits for paying dividends, while still protecting the fund's principal. It is made up of rental income from real estate holdings, dividends from stock, interest from bonds as well as any gains or losses when assets are sold.

Despite the dismal year, Burns said there were some bright spots. One was the fund's bond holdings, which typically fare differently than stocks or other investments. That held true this year, when U.S. and foreign bonds were both up were more than 3 percent, while stocks were down sharply.

The other positive note was that financial markets were up substantially in the last quarter of the fiscal year, somewhat minimizing the losses earlier in the year.

"The market rally that began in March allowed the fund to return 11.2 percent in the final quarter of the fiscal year," Burns said, adding that experts indicate that trend will continue.

"The economists are lining up and saying the recession is over," he said.

Financial markets often lead other indicators, with the overall economy following later, he said.

Despite the substantial losses, the permanent fund has still been a great success, Burns said.

"The losses of the last year are a little easier to understand when you consider that over its history, the fund has taken in $13.9 billion in royalties and other deposits, paid $17.5 billion in dividends, including this fall's dividend, and was still worth $30 billion at the end of the fiscal year," Burns said.

• Contact reporter Pat Forgey at 523-2250 or patrick.forgey@juneauempire.com.



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