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The Juneau Empire on inflation-proofing the Alaska Permanent Fund:

Posted: Monday, May 14, 2001

The trustees of the Alaska Permanent Fund are proposing a constitutional change for the purpose of protecting the fund against inflation.

Any time there is discussion about changes to the fund, Alaskans wonder about their dividends -- the relationship between the size of recent dividends vs. the size of future dividends. And when they hear certain words or phrases, such as limit the annual payout, they may become wary of the proposed changes. Thus, it is critically important to the future of the fund and to Alaska's current and future residents to understand the proposed changes, which the Empire supports.

The proposal is built on the premise that less can be more. That's not double-talk nor the latest example of fuzzy math. If the payout from the fund is limited to 5 percent of its average year-end market value over a five-year period;

And if the fund's investments continue, on average, to outpace inflation, as they have for the past 17 years;

And if all income from the fund's investments are constitutionally required to be deposited in the permanent fund, rather than the general fund;

And if no other appropriations beyond the 5 percent of the funds average year-end market value over a five-year period can be made;

then the principal of the fund should continue to grow and 5 percent of an ever-larger fund becomes an ever-larger amount of money. Bottom line: 5 percent of a $30 billion fund is more than 5 percent of a $20 billion fund.

Five percent is not a figure the trustees pulled out of the air. It is a figure that, when combined with five-year averaging, offers the best chance for inflation-proofing. The Legislature, not the trustees, will decide on the formula to be applied to the payouts permitted within the proposed 5 percent cap. They cannot spend more -- for dividends or for any other purpose -- than the 5 percent. And neither the trustees nor the legislators will do anything at all without the approval of a majority of Alaskans.

That is why the trustees of the fund have asked the members of the Legislature to approve a constitutional amendment for the 2002 ballot. The Empire supports the request because we believe the trustees of the permanent fund are acting in the best interest of current and future generations of Alaskans. Their proposal deserves the approval of the required two-thirds majorities of each house of the Legislature. Then it will be up to the voters of the state.

The fund is a complex financial organism. The proposed changes can be simplified only to a point. But the trustees are not saying: ''Just trust us.'' Their information and education efforts have begun. It will be in the interest of all Alaskans to pay attention.

When the information is understood widely, when questions have been asked and answered, then doubts can be dismissed and the people of our state can take this historically important step to protect our very special savings account.

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