Dividend board suggests amendment

The Alaska Permanent Fund Corporation Board of Trustees is proposing a constitutional amendment that would change the way the permanent fund is handled in order to better protect the fund, said chief operating executive Robert Bartholomew.

"We believe a stable and predictable payout is the way to do a fiscal plan," Bartholomew said.

The fund is now separated into two separate accounts, the reserve account, which has around $24.2 million, and the realized earnings account, a pool of income made from the fund that is used to pay out dividends to residents each year. The reserve account is protected by the constitution, but can still be affected by the market. The earnings account, in years that the market does well, pays out a dividend, but that may not always be the case, Bartholomew said.

"If the reserve bucket goes to zero, there would be no [dividend] payment until the fund goes up," he said.

The board proposes a constitutional amendment to limit annual fund spending to 5 percent of the fund's total market value (POMV). This would guarantee a dividend each year, but would no longer protect the reserve account under the constitution.

"There would no longer be a reserve bucket and an earnings bucket," Bartholomew said. "It would allow only 5 percent to be spent. In the good years we are going to save, in the bad years we may spend some of the principal."

Bartholomew said that while some of the principal may be spent during bad market years, the POMV method would prevent overspending in the good years. Currently, a good year in the market means a relatively large dividend since the dividend amount is based on a five-year average of the earnings account, money which could have been saved to keep the fund more stable during bad market years.

"This formula allows everyone to know ahead of time what the dividend will be," Bartholomew said.

One risk in removing the word principal from the constitution is that it no longer protects that account from the Alaska Legislature. This is a risk that Bartholomew said Alaskans have to weigh.

"It's a balanced benefit of having a payout every year versus the risk of removing the principal account," he said.