The power to improve the expertise of the Alaska Permanent Fund Board of Trustees lies with the Legislature. It tried in 1996, passing SB 89 nearly unanimously, only to see it vetoed by Gov. Tony Knowles. Since then, some minor changes have been made, but nothing on a scale that would improve the quality of investment decisions, and little that would insulate the board from virtually complete control by the governor.
All governors after Jay Hammond, not just the current one, have had designs on diverting fund earnings to their special interests. Most wanted the fund to serve as a form of investment bank for mega-projects that are not sound enough to attract sufficient corporate interest. Hammond said the fund would not survive without “a militant ring of defenders,” namely dividend recipients, pitting “personal greed against corporate greed.” In recent years, the Legislature has undermined these defenders by separating the dividend from its former statutory formula based on earnings, into being just another legislative appropriation exercise. Two other important elements of fund protection are also being evaded. One is the requirement for the fund itself to directly transfer inflation proofing. Instead, the Legislature now appropriates funds for inflation-proofing — sometimes, but not every year. In addition, fund managers were required to calculate real earnings based on “realized” income, but that inconvenience has been ignored using a written opinion from an attorney general, overcoming constitutional and statutory prohibitions.
What can be done? The present board needs more professional expertise. This requires improving the process for selecting appointees. A governor should not be expected, or indeed trusted, to pick the whole board without even confirmation, as is currently done.
The ideas in SB 89 of 1996 are a very good start. A group of investment experts should vet board candidates, and provide a list from which the governor must choose. Confirmation by the Legislature is a standard requirement for officials in high office. No office is much higher than that of the Permanent Fund Trustees who govern the fund that now provides more than half of the state budget.
We need a bigger board, with longer terms, made up from a field of highly respected investment experts. The present board flounders with its cast of amateurs. This board should not be the source of strategy changes. It should keep hands off of making dubious tactical maneuvers of the recent kinds that are causing loss of public confidence.
What I want is simple: a board of experts so well chosen that I know they will make far better decisions than I could ever make and a process that is so mature and reliable that we can rest easy knowing the decisions come from better minds.
Then let the Legislature’s appropriation battles begin. Winners and losers will at least be fighting for a bigger share of the best income achievable.
Larry Smith is a Homer resident.