Legislators, the governor, members of the public — and most certainly candidates in this year’s state elections — should be paying attention to stocks, bonds, real estate and other investments.
Energy prices are fueling high inflation; stock markets are tumbling steeply downhill; Russia’s war on Ukraine is disrupting most everything in the world of finance and commerce; and a growing number of economists are talking “recession.”
Specifically, elected officials and candidates need to pay close attention to the falling value of investments held by the Alaska Permanent Fund.
The fund, on which the state depends to cover the biggest share of public services and annual dividends paid to Alaskans, has lost $5.2 billion in value from its monthly statement high of $82.4 billion on Dec. 31, 2021 — net of liabilities — to $77.2 billion as of June 17.
No reason to panic. The fund has lost money before, same as other endowments and anyone who has looked at the market value of their investment accounts during bad times. One example came during the 2000-2002 dot-com bust, when the Permanent Fund fell 11% in value, or $3 billion, over two years.
And in fiscal year 2009, the fund’s market value crashed 18%, falling on the coattails of the collapsed housing bubble and global financial meltdown, recording a $6.6 billion loss from the year before.
The Permanent Fund investment staff has a solid track record over the years, but no one is immune from the turmoil and market mess of this year. As long as the fund maintains enough in reserves to continue its essential role of helping to pay for schools, roads, troopers and dividends — and everything else our communities need — Alaska will make it through this painful downcycle and emerge in good shape when the fund returns to making healthy profits.
The lesson is that no matter how much Alaskans love the Permanent Fund, no matter how much several elected officials and their cheering squads see it as an inexhaustible supply of cash for dividends, no matter how much it has grown over the years, it can lose money. A lot of money in a bad year. Political calls to plug in the state ATM card and withdraw a few billion dollars to pay out extra-big dividends are irresponsible and jeopardize the future of the fund.
The Permanent Fund has come close before during miserable investment years to not having enough available in its earnings reserve account to pay a dividend to Alaskans. Since then, with some great investment years, the reserve is back up over $10 billion in available funds, but Alaskans depend on that account for more than $3 billion per year to cover the largest portion of the budget for public services and the dividend.
Taking out more money to satisfy a reelection craving or a post-election dessert could mean lean years at the dinner table in the future if the earnings run low.
Though painful to see on paper, the fund’s loss in market value is not surprising this year, nor is it a cause for worry. It’s normal, just as there are good years and bad years for salmon returns. But just as overfishing in the good years can destroy salmon runs, so too could overspending the Permanent Fund earnings reserve leave the state fishing for a way to pay the bills in the future.
Be careful when candidates promise more than the fund can afford.
Larry Persily is a longtime Alaska journalist, with breaks for federal, state and municipal service in oil and gas, taxes and fiscal policy work. He is currently owner and editor of the weekly Wrangell Sentinel newspaper.
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