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PFD board hitting town for meetings

Posted: Sunday, November 10, 2002

The six people most responsible for the management of the nearly $23 billion dollar Alaska Permanent Fund will be in Soldotna this week for the regular meeting of the Permanent Fund Corp.'s Board of Trustees.

The board is made up of members appointed by the governor to make final management decisions, appoint officers and review the fund's performance.

The board is not expected to make any major policy changes at this week's meetings. However, several items worth noting will be taken up by the board. Among them will be the selection of a new real estate investment trust manager, discussion of a constitutional amendment that would make it easier to pay out dividends when earnings drop and an overall fund performance review.

The performance review is particularly important, because it gives the public the chance to see how the fund has performed recently.

Permanent fund lingo

The following is a brief description of how the Alaska Permanent Fund works and definitions of some commonly used fund terms.

The fund is managed by the Alaska Permanent Fund Corp., which is overseen by a board of trustees and the Alaska Legislature.

The permanent fund has two parts: principal and income.

PRINCIPAL: The principal is the permanent part of the permanent fund. It can be invested, but it cannot be spent without a majority vote of the people of Alaska. As of Nov. 7, it totaled $22,851,900,000. The principal comes from three sources:

Dedicated mineral revenues are automatically deposited in the fund as principal in accordance with the Alaska Constitution. Since the fund's inception, dedicated mineral revenues -- mainly from oil -- have deposited $7.3 billion into fund principal.

Special appropriations by the Legislature. Over the years, the Legislature has contributed $6.9 billion to the fund principal. The source for these appropriations have been both fund income not used for dividends or inflation-proofing, and mineral revenues that were not originally dedicated through the constitution and statute for permanent fund principal.

Inflation-proofing, which is the annual transfer of a portion of fund income to principal to protect the value of the principal from inflation. There has been $7.5 billion come into the principal through inflation-proofing.

INCOME: The fund earns income from the investment of the principal and the reinvestment of the income. This income is retained in the fund, in an Earnings Reserve Account (ERA) until appropriated by the Legislature. As of June 30, the ERA totaled $1.6 billion. The Legislature decides each year how to use the fund income. To date, the Legislature has used income primarily for three purposes:

Payment of dividends. From 1982 through 2002, the fund has paid out $11.8 billion in income as dividends to qualified Alaskans. Dividends are calculated by using the average of the past five years of fund earnings. Currently, half of the five-year average goes to pay dividends, while the other half is divided between inflation-proofing and the ERA.

Inflation-proofing the principal. Over time, the fund income has subsidized $7.5 billion into principal through inflation-proofing.

Increasing the size of the principal. The Legislature has increased the value of the fund by adding to its principal through converting some fund income into principal. Of the $6.9 billion in these "special appropriations," $4.9 billion has been derived from fund income.

According to fund communications manager Jim Kelly, the permanent fund, which relies heavily on investments in the stock market, has actually performed better than most other comparable funds during the past year.

"We did better than most," Kelly said Thursday from Juneau.

The fund has seen its earnings drop over the past year, but Kelly said it's still in good shape, especially considering how poor the stock market has done recently.

"It's a good picture of the worst case scenario," he said.

Currently, 52 percent of the fund is invested in stocks, while the rest is divided between real estate, bonds and Certificates of Deposit.

The constitutional amendment discussion came to the forefront following losses to the fund's income because of a poor stock market. Because of the way the fund is set up, only the fund's earnings are dedicated to paying the annual dividends doled out to Alaska residents.

However, earnings also must be used to pay to "inflation proof" the fund. Earlier this year there was the possibility that there wouldn't be enough earnings to cover both expenses, which would leave resident's without a check. However, the stock market experienced an upswing just in time to cover both expenses.

Kelly said the board will discuss the merits of an amendment to the constitution that would allow the dividend to take precedent over inflation proofing, ensuring Alaskans get the first crack at fund earnings.

"It will be a useful discussion," he said.

The meeting will be held Wednesday from 9 a.m. until 4 p.m. and Thursday from 8:30 a.m. until 2 p.m. at the King Salmon Motel in Soldotna.

A meeting agenda is available at the fund corporation's Web site at www.apfc.org.



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