PFD could fall to $68

Wesley LoyPetroleum News

Permanent Fund dividends are expected to exceed $1,500 this year but likely will shrink sharply in subsequent years to as little as $68 in 2013, the fund's top manager told state legislators Thursday.

The reason for the decline is recent large losses on some of the fund's investments, particularly stocks.

Mike Burns, executive director of the $27 billion oil-wealth savings account, laid out a 10-year projection of the size of dividends that Alaskans can expect.

Amounts range from $1,512 this year to $845 next year, ultimately hitting bottom at $68 in 2013.

After that, dividends are projected to start rising again to as much as $1,771 in 2018.

Burns, testifying in Juneau before the Senate Finance Committee, stressed the projections are far from guaranteed, as they're dependent on assumptions such as an 8 percent annual gain on investments and other factors such as changes in the fund's investment approach.

Burns offered the forecast in a hearing on Senate Joint Resolution 9 -- what one backer, Sitka Republican Sen. Bert Stedman, calls the "dividend stabilization plan."

The plan would overhaul how the state pays for dividends and would have the effect of producing a steady dividend of more than $1,200 each year from 2010 through 2018, according to a second set of projections Burns provided the committee.

The Senate resolution would ask voters to approve constitutional amendments allowing legislators annually to spend up to 5 percent of the Permanent Fund's market value on dividends and possibly other state expenses.

As it stands now, dividends come out of fund profits, with the amount of the dividend rising when profits are strong.

The plan Stedman is touting would yield bigger dividends during times when fund investment returns are poor -- as they are now, during the global economic crisis -- but could produce somewhat smaller dividends when investment results are strong.

Stedman said he believes the plan would benefit Alaskans by creating a sizable dividend consistently each year. Meantime, the Permanent Fund could continue to grow because long-term investment gains are expected to beat the 5 percent legislators could spend out of the fund each year, he said.

Alaskans now depend on the dividend, and a $68 payment won't sit well, Stedman said.

"Clearly, I think there's a concern that we come up with something that stabilizes the dividend stream. Because it's a big economic stimulus every fall for the state," he said.

But the idea of amending the constitution to reform how the state funds the dividend is likely to be controversial in the Legislature.

Stedman's proposal closely resembles a previous effort under former Gov. Frank Murkowski to amend the Constitution to allow a 5 percent annual expenditure from the Permanent Fund. That proposal was known as POMV -- percent of market value.

Murkowski wanted to allocate half the withdrawal to dividends and the other half to paying for government services.

Legislators killed Murkowski's plan in 2004.

Permanent Fund trustees, however, strongly supported the POMV concept at the time.

Stedman said Thursday he doesn't expect legislators will pass SJR 9 this session. The aim is to start a discussion now with an eye toward passing the resolution next session so Alaskans can vote on the constitutional amendments in the 2010 general election, he said.

A $1,512 dividend this year would be among the largest Alaskans have received in the 27 years the state has made the payments.

Last year's dividend was the biggest ever at $2,069. The state padded the check with an extra $1,200 paid as a one-time "resource rebate," or share of the state's oil revenue surplus.

The dividend is based on an average of the fund's profits over the past five years.

The reason dividends are projected to be much lower in the next few years is because poor years will replace relatively good years in the equation, Burns said.

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