My Turn: Change needed to stabilize Permanent Fund, dividends

Posted: Monday, December 29, 2003

Citizens of this state owe Rep. Mike Hawker, an Anchorage Republican, a debt of gratitude for his tireless efforts this year, directing the House Special Ways and Means Committee. Taking on the task of crafting our way out of the state's financial impasse is a thankless job; few have the skill, fortitude and tolerance for presenting to a skeptical public the frank information it needs to become informed, but is often unwilling to accept. Unfortunately, options for dealing with the state's fiscal gap have narrowed appreciably, and no universally popular one exists. Everything in the public forum has a bad taste for some element of our statewide community.

Among proposals currently advanced by the committee is the conversion of the Permanent Fund to an endowment. The legislative resolution is HJR 26. An endowment is a time-honored format, proven fiscally responsible by financial experts all over the country. The annual payout feature (Percent Of Market Value) is commonly discussed these days at a 5 percent level, although that could vary. Under a POMV scenario, and in terms of the fund's current value, it is estimated that about $650 million would be available for PFD payouts and about the same for spending on core public services. The individual PFD would be about $1,000.

I believe we should convert the fund to an endowment, combining principal and earnings, and draw a steady 5 percent from it, year-in and year-out. If split evenly between payout for PFDs and funding for public services, this will ensure a more stable dividend and provide necessary funds for the education budget, municipal assistance and other agreeable core services which must be funded in good times and bad. It has been professionally estimated that there might be some impact on the individual PFD over time, but this must be weighed against the potential for wilder fluctuations and likely reductions of the PFD under the fund's current structure. A major consideration for the public as it looks at approving this proposal next November (should the Legislature pass the resolution next session), is weighing the occasional prospect of using Permanent Fund principal when the fund does not earn the full 5 percent, versus seeing declining PFDs in years under the current framework, when the financial markets do not yield enough return to pay a PFD at levels currently enjoyed.

The fund can never be managed to control all market impacts, regardless of how it is structured. Threats abound. Those PFD-loving folks among us should realize that to leave the fund as is invites a wildly fluctuating dividend, vulnerable to volatile financial markets and, in some years, the potential for a greatly reduced PFD. Witness the declining amount of our checks over the past few years; we've suffered reductions because of the dot-com bust, terrorism and, to a lesser extent, other market conditions. Such events may reoccur.

Some would like to see a package of remedies to address the state's fiscal shortfall. Certainly and ideally, we should advance a package, including the usage of the Permanent Fund, which spreads the impact among economic groups fairly and reasonably all at the same time. Indeed, two years ago during the deliberations of the legislative Fiscal Policy Caucus, masterful work by former state Rep. John Davies, a Fairbanks Democrat, generated a viable, inclusive plan. The plan never got a complete review in the legislative process and Mr. Davies was not returned to Juneau in his next election; packaged remedies, while valuable and preferable, rarely advance in the legislative process. Most changes come incrementally. The first phase-out plan for the Senior Longevity Bonus was in the early 1990s. In more recent years, alcohol and tobacco consumers, municipalities, the working poor and other groups have felt budget policies impact them while other sectors have been passed over. The conversion of the fund to an endowment and the annual draw of a POMV have been getting a good public airing for about a year and they are worthy of serious consideration now, as yet another component of the eventual long-range fiscal fix.

As a supporter of the Permanent Fund and PFD, I hope to see both protected for the long haul by conversion to an endowment, usage of a fixed annual draw for both personal and public good, and a modernized Permanent Fund program which offers us greater stability and predictability over time. Notions of stability and predictability are what families and businesses strive fore, and it shouldn't be any different with our most substantial public asset.

• Tim Benintendi is a 15-year legislative assistant living in Anchorage, currently working for state Rep. Carl E. Moses. The opinions voiced here are his, not those of the legislator.

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