Anchorage trust fund shrinks in downturn

Account that pays for city services loses a quarter of its value

Posted: Sunday, December 28, 2008

ANCHORAGE - A trust fund that contributes millions of dollars to pay for services in Anchorage has lost more than a fourth of its value over the past year.

The fund, set up a decade ago, has been badly hurt by the nation's economic crisis.

The savings account was set up with proceeds from the sale of the old city-owned Anchorage Telephone Utility.

Its size has grown and shrunk in rhythm with the general economy, from almost $130 million in 1999 to as little as $112 million in 2002.

The fund had grown to $141 million by the end of 2007, and was $131 million six months ago.

Then the economy started its free-fall and now the fund is projected to end this year at $96.9 million after paying a $6.6 million "dividend" to the city general fund.

About half the fund was invested in domestic stocks and another 15 percent in international stocks. About 35 percent was invested in bonds, U.S. treasury and agency notes, and another 5 percent in real estate.

That seemed like a sound investment strategy and in the long run it still does, said Sharon Weddleton, the chief fiscal officer for the city.

"We still believe that our strategy is fundamentally sound," she said this week. "It's that the markets are in turmoil right now, not that there was ever anything wrong with the strategy of the trust fund."

The significant drop in the fund's value, however, means the city will get far less money from it at least for the next few years. When the trust was set up, the Anchorage Assembly was allowed to decide how much of it to use each year to subsidize city services.

The city initially took a yearly dividend of $9.4 million.

Since the rules were changed in 2002, the city has been able to draw as much as 5 percent of the fund's average value over the preceding five years. That has amounted to a dividend of about $6.5 million yearly.

Mayor Mark Begich and city finance officials plan a cut to 4 percent until the trust recovers from this year's losses. That probably would mean about $1 million less for the city, starting with the 2010 budget, according to Weddleton.

The city's 2009 budget is about $433 million.

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