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6/20/2019
Preserving long-term value of the PF

EDITOR, Daily News:

The Alaska State Legislature adjourned last week, but before adjourning, the most significant accomplishment was the agreement to transfer $10.5 billion from the Earnings Reserve Account to the corpus of the Alaska Permanent Fund. For the majority of legislators, including Senator Stedman and myself, it is a top priority to protect and enhance opportunities for the permanent fund to grow so that there will continue to be PFDs for Alaskans well into the future.  

The permanent fund is comprised of the corpus (also known as the principal) and the ERA. The Corpus is the non-spendable principal portion of the Permanent Fund; it can only be used for income-producing investments. The ERA is spendable, meaning it is available for appropriations as determined by the Legislature.   

As of April 30, the total value the permanent fund was 65.3 billion, with $19 billion in the ERA and $46.3 billion in the corpus. The transfer of $10.5 billion from the ERA to the “permanent” portion of the fund will make it more likely that the fund’s total value may reach $100 billion within the next 15 years. There will be a 5.25% draw on the total value of the permanent fund itself (based on statute SB26) to pay for the distribution of the PFD and pay for a portion of state services, which will bring the ERA value to approximately $16 billion, not including the agreed upon transfer.

In order to preserve the long-term value of the permanent fund, the non-partisan Legislative Finance Division and the Permanent Fund Corporation both recommend that the ERA draw is not larger than the 5.25% called for in statute. Larger unplanned draws would force the Permanent Fund Corporation to change the investment strategies for a significant portion of the fund away from long-term high yield investments to short-term, cash flow-based investments. That would mean less growth potential for the fund itself.  

The governor, the Republican minority in the House, and 10 of the 20 current Senate body want to draw an additional $1.2 billion from the ERA in order to pay for a full PFD. A draw on the Permanent Fund of this magnitude would mean the fund would lose the potential of earning $80 million dollars in one year of investment returns alone. A drop in the value of potential PFD’s for future generations would be just one of the opportunity costs of receiving a full PFD this year.

The desire to have an adequately funded budget and to preserve the long-term value of the permanent fund itself versus the immediate gratification of receiving a full PFD this year is the only issue that is currently dividing the Legislature and is the reason for the second Special Session called for by the governor. It will begin on July 8. I would love to hear your viewpoints on this issue prior to the start of the session. Please email me at Rep.Dan.Ortiz@AKLeg.gov.

Respectfully,

Rep. Dan Ortiz

State House

Ketchikan