PFD overhaul remains questionable

Letter to the editor

Posted: Thursday, October 16, 2003

Carl Brady's letter on proposed changes to the Alaska Permanent Fund Dividend program provides the same rhetoric we have heard from other proponents. I really need to look at the specifics of their proposal, but for now some off the cuff remarks:

First of all is Mr. Brady's reference to current methodology and his use of the term "realized earnings." This must have some technical/legal definitional base (or is a typo), but my impression is that past dividends have been determined using a formula which includes changes in stock/bond/real estate valuations.

Hopefully, most of us do not base our spending patterns based on unrealized gain on our asset holdings, but the spending for PFDs seems to have been. We would be wise to spend gains only after we sell an appreciated asset - that is, after gains are realized. The current formula appears to use unrealized gains and that appears to be the problem, spending money before they have actually gained it.

The second thing that scares me is the use of multi-year averages.

I know that it would probably be foolish of me to spend excessively as a result of an unusual high-income year, but it would be equally foolish to spend at an average rate during a few years of lower income. It seems to me that a better way to address the issue is to base my spending pattern on current income plus some of my accumulated savings from higher-income years. The Board of Trustees proposal seems to do this in an indirect way, but that doesn't seem safe enough for me. They still include unrealized gains by using total value of the Permanent Fund.

In general, I see what they are attempting to do, but any time that the corpus of the Permanent Fund is included in a dividend determination I get leery. Their proposal has been around for a good number of years now and I guess they are comfortable with it. They are the trustees and take their job seriously.

However, I don't understand why they haven't shown us what the dividends would have looked like if their proposed formula had been in place since the beginning (for comparison to what we did get). I am sure that they must have done such a scenario just to assure themselves that their proposal would have been successful.

Richard Renninger


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