Permanent Fund a healthy $36 billion

Last year the Alaska Permanent Fund earned as much every two hours as was originally deposited into the fund, a fund executive told Soldotna business leaders this week.

“Thirty years ago, $734,000 was deposited to the permanent fund,” Executive Director Mike Burns said. Last year, the fund earned that every two hours.

The Alaska Permanent Fund Corporation’s top executive painted a healthy picture of the fund for members of the Soldotna Chamber of Commerce on Tuesday.

“The permanent fund returned 11 percent for fiscal year 2006,” Burns said. The target was 10 1/2 percent, he said.

Also, in this, the 30th anniversary year of the permanent fund’s existence, the value of the fund raced through a half dozen milestones, reaching $31 billion for the first time, then $32 billion, $33 billion, $34 billion and $35 billion.

“As of last Friday, the fund was at $36 billion,” Burns told members of the Soldotna Chamber of Commerce.

He also said the statutory net income, the amount used to calculate the Permanent Fund Dividend each Alaskan receives, “was the greatest amount ever at $2.7 billion.”

Burns said royalty deposits from minerals also were the greatest the fund ever received, at $601 million.

Once again touting the percent of market value (POMV) system of providing payouts from the permanent fund, Burns said the state Constitution currently prohibits spending anything but fund earnings. The fund’s principal cannot be touched.

Two years ago, Alaska voters rejected POMV when it was put on the state ballot.

“The board (of trustees) has worked to limit spending to 5 percent of market value,” Burns said.

Under the current system, only earnings can be spent in any given year. The Legislature determines the amount that can be spent, and from that amount come the Permanent Fund Dividends paid to each Alaskan.

PFD officials would like to see the state Constitution amended so the entire fund — earnings and principal — would be available for spending, but the spending would be capped at 5 percent.

They believe switching to POMV would inflation proof the entire fund and provide a more reliable and predictable payout each year, rather than have the payout amount fluctuate, even prohibiting a dividend payout in some years.

“Our primary purpose is to invest for the maximum return and protect the principal,” Burns said.

He said earnings on investments last year were five times the amount deposited from minerals, and said the earnings will go into the state’s general fund, unless otherwise directed by the Legislature.

“As of June 30, 2006, 9 percent (of the permanent fund) was in the earnings reserve and 13 percent was in unrealized earnings,” Burns said.

Having that much in unrealized earnings subjects more of the fund to overspending, he said.

If the earnings and principal were lumped together under POMV, with a spending cap set at 5 percent, payouts from the fund would be leveled out between periods of high and low earnings from fund investments, he said.

Burns said he is frequently asked if current high prices for crude oil mean the Permanent Fund Dividend will be higher.

“Current oil prices do not affect the dividend,” he said.

Deposits made from mineral royalties, including oil, go to the principal portion of the permanent fund to generate future earnings, he said.

Because the low-earnings year of the five years on which the dividend is based will be factored out during the current fiscal year, Burns said dividend amounts could be $200 to $300 higher, but cautioned that dividends are linked to earnings which are linked to the investment market.

“The market can change rapidly,” he said.

The amount of the 2006 dividend was $1,106, up from $845 in 2005.

Phil Hermanek can be reached at phillip.hermanek @peninsulaclarion.com.