Permanent Fund trustees propose amendment

Posted: Tuesday, April 15, 2003

ANCHORAGE (AP) -- Alaska Permanent Fund trustees are working on a proposed constitutional amendment that would cause a major change in how money is spent from the state's $23 billion oil wealth savings account.

The amendment would limit total annual spending to no more than 5 percent of total fund value. That percentage would provide enough annually to pay dividends, give the Legislature extra millions to spend on government and pad the fund against inflation, according to trustees and Permanent Fund staffers.

Meanwhile, the fund likely would continue to get bigger because the fund's investments are projected to be greater than 5 percent over the long term.

As it stands, most of the fund -- the principal -- can only be invested, not spent. But the investment profits are spent, largely to pay the annual Permanent Fund dividends and to keep the fund's value up with inflation.

Under the proposed amendment, voters would have the opportunity to remove the distinction between principal and fund investment profits.

The distinction has become critical this year.

Until now, the fund always had plenty of profits from stock, bond and real estate investments to pay dividends to Alaska residents and to add extra money to the fund to keep its value up with inflation. But this year, because of years of stock market trouble, the fund might not have enough earnings to fully fund dividends without dipping into the principal.

Attorney General Gregg Renkes, who is one of the Permanent Fund's six trustees, is expected to issue a legal opinion soon on how much money can be released for dividends if the stock market continue to sag.

The proposed constitutional amendment would not solve the dividend problem in the near future because the earliest Alaskans can vote on the issue is in the November 2004 general election.

But after that, the amendment could remove the threat of years with no dividends because nearly 5 percent of the fund would always be available for spending, trustees said.

Studies by fund staffers and advisers show that spending the 5 percent isn't enough to eat into the fund's value over the years. They say in most scenarios, the fund would continue to grow.

''Almost everybody who's studied it would logically conclude that it's a good idea,'' trustee Steve Frank told the Anchorage Daily News.

On Monday, trustees haggled on just how to word the amendment. They wanted something thorough yet simple.

''It's the tendency of people to vote no when they don't understand exactly what the proposal is,'' Frank said. ''This is a very good concept. It has merit. But you don't get to sit down with everybody who's voting on it and have a question-and-answer session.''

It's not the first time such a proposal has gone to the Legislature, which decides whether to place the measure on the ballot. A version of the so-called percent-of-market-value amendment was introduced in 2001 but languished.

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