JUNEAU -- Shortsighted budget decisions may limit the Alaska Permanent Fund's growth, the fund's board of trustees was warned Thursday.
Earnings from the fund provide revenue for annual dividends to Alaskans while inflation-proofing the fund to ensure it is actually permanent. But the Alaska Legislature, for the second year in a row, did not provide additional staff to manage the $51 billion fund.
In the state's fiscal year 2015 budget, the corporation sought four additional staffers, a request that was rejected. The same thing happened in the 2014 budget.
"Unfortunately, the denials of those positions are going to put limits on what our staff is able to do to grow the portfolio," said Laura Achee, the corporation's director of communications and administration.
The Juneau-based corporation has about 40 employees, Achee said.
Two investment officers sought
New positions sought this year would have included two investment officers, one focused on real estate and the other on private equity.
The Permanent Fund currently has about $5.5 billion in real estate holdings to oversee, including such premier properties as Tyson's Corner Center in the Washington, D.C., area. Looking for more investment opportunities and more diversification, Alaska has recently been looking at property in Europe as well.
But that's a time-consuming process, with Rosemarie Duran, the director of real estate investments, having to travel to Europe to view properties and meet local representatives.
"Especially for real estate, with the fact that they're already at capacity and expanding into overseas investing, it's going to be difficult," Achee said.
Another investment officer position would have worked with private equity, investments in companies not publicly traded that are typically done through hedge funds. The Permanent Fund currently has $2.5 billion invested in private markets, but such deals take time to review, trustees were told.
"If they'd had more support they could have expanded the number of deals they could review," Achee said. "They're ... at capacity."
Increasingly tight budgets
Additional accounting and risk management positions would have supported the work done by the real estate and private equity investment managers, she said.
Other budget requests rejected included an appropriation for travel, for new computer systems, and new workstations.
A single budget increase was approved, for outside management fees, investment consultants and legal services. What's needed, Achee said, is staff to oversee those outside consultants.
Department of Revenue Commissioner Angela Rodell, who also serves as a trustee, said she understood the difficulty of winning needed budget increases and deals with that issue with her own department.
State officials are predicting years of budget deficits, and Rodell warned the trustees it was going to be increasingly difficult to gain approval for new staff.
Other departments had to actually reduce budgets, Rodell said.
"I can tell you that my own sense of where the state is going, and the governor's 10-year plan holding the line on the operating budget and stuff is going to directly affect head count," Rodell said.
Fund Executive Director Mike Burns warned that the problem isn't necessarily with the Legislature. Budget requests first must get through Gov. Sean Parnell's Office of Management and Budget.
Legislators, he said, are unlikely to add money to an agency request that wasn't supported by the governor.
Permanent Fund operations: $11.9 million
"The Permanent Fund Corporation did get three new positions in FY2013 and I fully expect we will continue to have the discussion with them about the balance between contracted management and in-house staff," she said.
Achee said the corporation already contracts for much work, but there's a limit on how much of that can be done.
The trustees Thursday adopted a budget that included 6 percent pay raises for staff, including a 1 percent cost of living increase for most state employees and a 5 percent increase that comes from adopting the state salary system's geographic differential.
The trustees also met in executive session to evaluate Burns, and gave him the equivalent 6 percent increase.
Achee said the geographic differential that the corporation voted to adopt will give Permanent Fund employees the equivalent to what other state employees who work in Juneau received last year.
The budget for Permanent Fund operations is about $11.9 million next year, with personnel making up more than half of that.
Contact Pat Forgey at pat(at)alaskadispatch.com.