Historical perspective will shed light on permanent fund proposal

Posted: Thursday, January 22, 2004

A historical perspective for discussing permanent fund use is the dynamic between Thomas Jefferson (the people's man) and Alexander Hamilton (the brilliant banker of the north).

Jefferson greatly feared that Hamilton's fiscal brilliance would mislead the people and vest early lawmakers with more control over the public purse than he could stomach. In what corner do our trustees of the permanent fund belong? They recently printed up a rosy rendition of what the percent of market value, or POMV, plan means including the possibility of dipping into the fund principle to pay for government. The trustees say that fund earnings are sometimes far greater than 5 percent and that through a rolling average this POMV will protect the principle and keep the legislature from spending all the earnings something it is now entitled to do.

They point to similar management techniques in other large endowments and base their calculations on past performance of the fund. With this move, the trustees have taken a small but visible step from public savings fiduciary responsibility into the political realm of state spending policy.

From a stability viewpoint, it is true that prudent money managers have a significant interest in how earnings are extracted from the fund. But trying to convince us that spending some of the principal is acceptable because the normal ups and downs of the stock market will smooth it all out is a political statement. Ultimately the people's concern has less to do with threat to the fund principal than to the principle of the fund.

It's not difficult to see that the trustees are concerned about public response to the POMV plan. In the advocacy brochure now circulating, the issue of dipping into the principal was carefully avoided while legislative spending limits and protection of the fund were highlighted. This is not surprising given the recent public vote clearly showing reluctance to allow greater legislative access to the fund.

The campaign for the POMV will continue to highlight the fiscal responsibility aspect while the proposed constitutional amendment to make it possible flies in the face of that public advisory vote. Did public sentiment change in the last few years as money got tighter? Perhaps.

It should be conceded that a POMV plan could add consistency to the state revenue stream. But so could a new gas pipeline, new oil fields, a significant income tax and downsizing

the state services.

These are all on the table for argument but it's more difficult to argue against the POMV when its major supporters are the very professional and experienced trustees of the people's fund. Is the POMV about stabilizing the fund or guaranteeing legislative access to the permanent fund or both?

It is pretty clear that the trustees want both and believe dipping into the principal is likely and perhaps necessary. If not they would have simply suggested putting all earnings into a separate fund from this point forward and allow no more than 5 percent of the permanent fund value, nor more than the a five-year earnings average to be spent in any one year.

The true question for Alaskans on this issue is philosophical. Considering how deeply the state is divided about government, should we allow our representatives access to the principal of the permanent fund? Even if we accept the fiscal logic of the POMV arguments, is this the way we want to handle our rainy day account? Two hundred years ago Jefferson lost out against Hamilton and the rampant abuses of influence and money in that historical Congress are well documented.

I say no to the POMV plan. Let us spend the earnings but let the fund principal grow as our fiduciary trust and legacy to the great-grandchildren of this generation of Alaskans. Today we live off the wealth that came from the great productiveness and frugality of our parents' generation. Shall we also live off the wealth of our children?

Mike Heimbuch


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