Permanent fund portfolio rebounds

UPTICK: Account still shows a loss, but dividend is assured.

May 21, 2009 

Rebounding stock markets have brought billions back to the Alaska Permanent Fund.

Executive director Mike Burns told fund trustees this week that unrealized losses for the state's oil-wealth savings account have been shrinking. Those losses totaled $5.9 billion in February but had been reduced to $1.7 billion as of Wednesday.

Unrealized losses occur when the value of stocks, bonds, real estate and other fund investments fall below the prices the fund paid for them. A profit or loss is not "realized" until the investment is sold.

The size of the fund Wednesday was up to $30.5 billion -- still far below its highs of more than $40 billion when the market peaked in October 2007. About half the fund is invested in the stock market, which is up about 20 percent since February.

The uptick, if it continues, could ensure that Alaskans receive a Permanent Fund dividend this year without controversy.

Laws controlling the fund allow dividends to be paid only from investment profits, not from oil revenue and other deposits -- called the principal.

The dive in the fund's value since last summer raised concerns about whether there would be enough profit to cover a dividend without tapping into the principal.

Controversy arose over different definitions of "principal."

Legal opinions from the Department of Law under former Gov. Frank Murkowski and this year under Gov. Sarah Palin argue that principal is not a fixed amount totalling all of the deposits. Rather it is a fluid amount that rises and falls as market ups and downs change the value of investments, the opinions say. Fund officials are interpreting these to allow funding of this year's dividend no matter the market value of the fund.

During legislative hearings this year, these Law Department opinions were questioned by lawmakers who said the courts might not agree with the opinions if someone sues.

Juneau economist Gregg Erickson has said it would be "immoral" to pay about $1 billion in dividends this year, as is planned, unless the market rebound continues and the unrealized losses evaporate.

"Like corporate officials who pay themselves bonuses while their companies are going bankrupt, we will have dipped into our capital to line our pockets. The only difference is that it will be future generations of Alaskans instead of company stockholders whose capital was stolen," he said in an op-ed column two months ago.

The key date for dividends is June 30, the last day of the Permanent Fund's budget year. That's when the amount of money available for this year's dividend will be decided.

State officials say they plan to pay the dividend no matter the market value of the fund's investments.

Last year's payment was a record $2,069 per Alaskan. With the global recession and stock market plunge, fund officials estimated in early spring that about 30 percent less money will be available for this year's dividend, which would mean a payout this fall of $1,400 to $1,500.

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