Alaska Permanent Fund has good chance of failing to fund services and PFD in next decade, forecasts show

Yahoo

05-03-2025

Mar. 5—JUNEAU — The Alaska Permanent Fund has a serious risk of failing to fund state services and the Permanent Fund dividend in the next decade, according to projections by the nonpartisan Legislative Finance Division.
The Permanent Fund's board has long urged lawmakers to convert the fund's two-account structure into an endowment model to ensure its long-term sustainability. Legislators have started discussing amendments to the Alaska Constitution to follow the board's recommendations.
Annual withdrawals would be capped at 5% of the Permanent Fund's overall value. But that figure could be subject to debate.
The Legislature in 2018 approved Senate Bill 26, which established the current 5% draw limit in state statute. The measure allowed Permanent Fund earnings to start contributing to the state budget.
Since then, the Permanent Fund has provided the bulk of state revenue for services and the PFD. But the fund has been stressed.
According to modeling by the Legislative Finance Division, the Permanent Fund has an almost 50% chance in the next decade of failing to provide the annual draw for services and the dividend.
"That's scary," said Jason Brune, chair of the Permanent Fund's board.
Permanent Fund managers started the fiscal year in July with a roughly $600 million shortfall. Investment earnings have since helped bridge that gap, but Deven Mitchell, CEO of the Alaska Permanent Fund Corp., said that exposed a worrying trend.
"That was the first time that had happened. So, it's the canary in the coal mine," he said Tuesday to the joint Legislative and Budget Audit Committee.
Most of the $81 billion Permanent Fund is constitutionally protected. However, the fund's investment earnings are deposited into the $9.4 billion Earnings Reserve Account, which can be spent by a simple majority of legislators.
For over 20 years, the Permanent Fund's board of trustees has called on lawmakers to establish a single-account structure and a 5% draw limit in the constitution. The board issued a 49-page resolution last year urging lawmakers to enact those reforms.
Trustees warned that depleting the spendable portion of the Permanent Fund would "immediately result in a fiscal crisis" that would jeopardize the budget and the PFD.
"We want to ensure that there's an ability to provide a payment to the state of Alaska each and every year. We don't want to have a 46% probability of failure," Mitchell said.
Prior to the enactment of SB 26, Alexei Painter, director of the Legislative Finance Division, said the state had been running a $3 billion deficit each year for several years.
This year, legislators are facing a $536 million deficit over two fiscal years based on status quo spending. Senators recently unveiled revenue measures, including oil tax hikes, as ways to potentially bridge that fiscal gap.
"Oil is not paying the bills anymore," Anchorage Republican Sen. Cathy Giessel said Tuesday.
Advocates say a single-account structure would act as a spending cap for lawmakers and ensure the long-term stability of the Permanent Fund. Additionally, it would avoid the need for an annual inflation-proofing appropriation — $1 billion this year — to preserve its real value.
Anchorage independent Rep. Calvin Schrage introduced a constitutional amendment last month that followed the board's recommendations. He said the Permanent Fund provides a reliable source of revenue, and that it should be protected in the constitution.
"There's a real risk that the Legislature could overdraw the fund. We've seen attempts to do that multiple times," he said.
Lawmakers say there is a broad recognition that Permanent Fund reforms are needed.
Anchorage Sen. James Kaufman, a member of the Senate's GOP minority, said the potential for a cash flow crunch is one of the state's "most ignored financial issues."
Kaufman introduced his own constitutional amendment proposal for a single-account structure. The draw rate would be capped at 5.25%, but Kaufman said Monday that it could be amended.
Sitka Republican Sen. Bert Stedman argued Tuesday that the 5% limit was already too high. He said that pushed the fund's managers into "more aggressive asset classes" to meet its statutory requirements.
But the Legislative Finance Division cautioned that lowering the draw rate to 4.5% would see the deficit balloon by an additional $380 million.
Members of the Senate majority are set to introduce their own Permanent Fund constitutional amendment proposal in the coming days, Giessel said Tuesday.
A constitutional amendment requires support from two-thirds of lawmakers in the House and the Senate. Unlike regular bills, the governor cannot veto a constitutional amendment. Instead, it would then go for an up-or-down vote at the next statewide election.
The Alaska Constitution was last amended in 2004.