Empire editorial: The proposal to protect permanent fund has merit

Posted: Friday, September 26, 2003

A new proposal put forth by the Alaska Permanent Fund Corporation Board of Trustees to add protections to the fund was endorsed Wednesday by Governor Murkowski. The trustees' proposal is designed to guarantee that there will be a fund for future generations of Alaskans by setting a limit on how much of the fund could be paid out annually and by adding inflation-proofing safeguards.

By establishing a percent-of-market-value (POMV) spending limit, the formula used to establish payouts would switch from one based on earnings to one based on the real value of the fund. Each year up to 5 percent of the entire market value of the permanent fund based on a five-year average would be deposited into the general fund.

The existing statutes governing the fund do not require inflation proofing or prohibit overspending of the income generated from the fund. Since inflation is the biggest enemy of any long-term investment strategy, the best way to insure that the fund continues to provide a healthy revenue stream is to adopt safeguards that keep the nest egg intact and resistant to inflation. Of course, the value of the fund is subject to cyclical market influences in the short term, but over time the fund should continue to grow and provide a reliable revenue stream on its own even if the oil stops flowing.

As articulated by outgoing APFC Trustee Clark Gruening, the enduring strategy of the board has been to achieve at least a 5 percent real rate of return on investment over time.

The Trustees' proposal is outlined in detail in joint bills, HJR26 in the House and SJR 18 in the Senate.

PFD recipients should carefully consider the merits of this proposal before passing judgment on whether it helps or hurts the prospects for payouts in the future.

The proposal would require a constitutional amendment and a vote of the people. By binding these new permanent fund rules to the constitution, the real vale of the fund will be forever protected and the amount of money available for distribution will be more stable.

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