Keep the Alaska Permanent Fund permanent

I strongly oppose the change to Alaska’s Constitution to allow spending from a proposed single-component Permanent Fund. 

Today, the Permanent Fund has two components, its principal account and earnings reserve account. The principal is nonspendable and, accordingly, is the “permanent” part of the Permanent Fund. The ERA is, at present, the only component that money can be spent from. 

The fund’s website says its “goal should be to maintain safety of principal.”  

Merriam-Webster defines the word permanent as “stable: continuing or enduring without fundamental or marked change.” The Permanent Fund exists because Alaska’s Constitution was designed to prohibit spending the principal. Don’t change Alaska’s Constitution. 

Political impulses within Alaska Permanent Fund Corp. want to change Alaska’s Constitution by eliminating the ERA. That proposal creates a single-component fund from which withdrawals are taken. In doing that, real risks emerge to maintaining the safety of the principal.

In 2017, Alaska created the percent-of-market-value distribution, and set the current withdrawal rate at 5% of the fund’s total market value. The 5% distribution from the ERA is now approximately $3.7 billion to $4 billion per year for roads, airports, troopers, schools, etc.  

The theory driving a possible constitutional change is a nearly 50% chance that the 5% distribution will, within a decade, fully deplete the ERA, leaving only the nonspendable principal. A fully depleted ERA immediately crushes the operation of government. But, the answer is not to make the principal spendable. 

The proposed constitutional change converts the current two-component system to a single-component system. The 5% distribution would be withdrawn from this single-component system. Because the principal becomes spendable, the Permanent Fund could be spent down to nothing. The word “permanent” is gone. Risks to maintaining the safety of the principal arise. 

Consider this question: If the 5% withdrawal rate for the current POMV is a factor in fully depleting the ERA, isn’t it obvious that, if constitutional protection of the principal is removed, a 5% withdrawal rate from a single-component Permanent Fund can — and will — deplete the principal?  The answer is, “Yes, of course.” Removing constitutional protection of the principal destroys the safety of the principal. Permanent becomes impermanent. 

It is important to understand how Alaska got here and the magnitude of money spent from savings from 2013 to now. For the fiscal years 2014-2018, the state average deficit was about $3 billion per year; deficits resulted in spending about $18 billion from Alaska’s Statutory Budget Reserve and Constitutional Budget Reserve accounts to pay the bills. After substantial depletion of those accounts, the percent-of-market-value distributionwas needed. So, the spendable ERA was accessed. The ERA was the next pot of money to deplete. About $3.5 billion-plus per year was then withdrawn from the ERA; the total spending from ERA savings is more than $20 billion. Money forever gone.   

The constitutional proposal intends to change the nonspendable principal to spendable — so it can next be spent.

The definition of insanity is doing the same thing again and again while expecting a different result. Alaska has already spent about $18 billion from Alaska’s Statutory Budget Reserve and Constitutional Budget Reserve accounts. Then the 5% withdrawal rate reduced the ERA by billions per year. The ERA may be fully depleted within the decade.  

If we change the constitution to allow the same 5% withdrawal rate upon a single-component Permanent Fund, we are insane to expect a different result other than eventual depletion of the principal. A 5% withdrawal rate eventually depletes the Permanent Fund. 

History shows the actual risk of complete depletion of the principal. This is not fantasy. Over $40 billion from previous savings is forever gone.  

And please do not talk about the Willow project and other projects in the National Petroleum Reserve in Alaska providing billions for Alaska’s budgets. NPR-A is federal land which means Alaska gets 0% royalty. Plus, under Alaska’s current production tax system, Alaska only receives about 4% of the gross value of oil’s price from federal and state land. And, due to political forces, NPR-A development expenses are deducted from Alaska-owned Prudhoe Bay and Kuparuk oil fields, costing Alaska hundreds of millions in revenue each year. 

Of course, the push to change Alaska’s Constitution — to spend the Permanent Fund principal until it too is depleted — avoids the reality that a serious look into revenue sources can no longer be ignored. 

I oppose any change to Alaska’s Constitution which allows spending the Permanent Fund principal. The word “permanent” must remain substantive and real. Remove constitutional nonspendable protection of the principal and eventually all of it will be spent.  

I oppose removing constitutional protection of the principal.