Plan would protect permanent fund from inflation

Permanent fund dividends won't be affected by changes

Posted: Tuesday, December 12, 2000

ANCHORAGE - The Alaska Permanent Fund Corp.'s board members want a constitutional amendment approved that they believe will better protect the state's $26.6 billion oil wealth savings account from inflation.

The amendment would limit payouts from the fund to 5 percent of its five-year average market value.

That limit would allow the fund to grow at least as fast as the inflation rate, said Clark Gruening, Permanent Fund chairman.

Other savings accounts, such as university endowments, have adopted the same 5 percent limit to ensure they survive, he said.

The size of the Permanent Fund dividends would not be affected, Gruening said.

"It will have no impact on the dividend," Gruening said. "What this does is put emphasis on the word 'permanent.' "

Dividends have averaged only 3.9 percent of the fund's market value, said fund spokesman Jim Kelly.

State law already provides that the fund be replenished with enough money to guard against an erosion in its value. Inflation proofing currently is based on the consumer price index.

The Legislature for 19 years has appropriated to the fund a sum corresponding to the inflation rate from the previous year, Gruening said.

The constitutional amendment would be a powerful enhancement to inflation proofing by limiting payouts, he said.

The board's resolution, adopted Friday, asks the Legislature to amend the Constitution in this winter's session or the next. Such an amendment would require a two-thirds majority vote. Alaskans then would vote on the proposal during the next general election, in 2002, with only a simple majority needed.

"It's a very significant change," said Sen. Rick Halford, a Chugiak Republican, who will be Senate president for the next two years.

Protecting the fund from inflation should be written into the state constitution, Halford said, although he was reserving judgment about whether this proposal was the best way to do that.

State law contains a priority list for disposal of Permanent Fund investment profits: Dividends are to be paid first, then inflation proofing.

That won't change, Kelly said.

There were two years in the mid-1980s when the profits weren't sufficient to pay out both a dividend and inflation proofing, Kelly said.

Both were covered by the fund's earnings reserve account, he said.

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