PFDs, state funding at risk if Alaska Permanent Fund earnings reserve falls to zero, board hears

Alaska Permanent Fund Corporation sign, March 14, 2016.
Alaska Permanent Fund Corp. sign at its Juneau headquarters. The corporation board of trustees heard on Wednesday about risks to the fund’s ability to pay money to the state. (Photo by Skip Gray/360 North)

At some point in the next decade, the Alaska Permanent Fund may not have enough cash to pay out permanent fund dividends and to pay for state government.

The Alaska Permanent Fund Corp. Board of Trustees met in Fairbanks on Tuesday and Wednesday, where it heard the bad news from Greg Allen, the CEO of Callan, a company that advises the board.

The problem could happen if there are poor results from fund investments, like stocks.

“This is really what stresses the system: multiple bad years in a row,” Allen said.

Allen estimated the earnings reserve has a 15% chance of running out of money in at least one year over the next decade.

That’s a problem, because the earnings reserve is the only part of the permanent fund that money can be paid out of. If that account runs out of money, the ability to support the state budget would be in jeopardy. Permanent fund dividends also would be in trouble.

Earnings from the fund will provide an estimated 47% of state revenue this year.

It’s not just bad years that could cause problems. Allen also said the odds of running out of money would go up if the state draws too much out from the fund. The state passed a law last year that limits draws to 5% of the fund’s value.

Board Chair Craig Richards said the board should recommend steps to head off the risk to the earnings reserve account, or ERA.

“We’re in a dynamic where we need to be challenging the status quo,” Richards said. “And we need to be thinking about, are there better ways to do things that reduce this probability of an ERA collapse?”

The board plans to make recommendations that could affect the earnings reserve at its next meeting in the middle of February.

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