Alaska budget uncertainty affecting Permanent Fund Corp investment

“We just want to know how much… how much to write the check for to send over to the state treasury, and we are trying to balance that out," she said. "And having a difference of $1.6 billion is a big difference. And we’re hopeful they can get that reconciled sooner rather than later.”

Uncertainty over how the Alaska Legislature will close the state’s budget gap is affecting the Alaska Permanent Fund Corporation. The corporation is investing more conservatively, so it has cash on hand in case the Legislature uses fund earnings to close the gap.

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The Alaska Permanent Fund Corp.’s exterior sign. (Photo by Skip Gray, 360 North)

The amount of money the Permanent Fund Corporation keeps on hand is usually pretty straightforward. For 35 years, money from fund earnings have gone to two places: one is the Permanent Fund dividend, the money from which resident’s annual dividend check are drawn, and the other is the main body of the fund, where earnings are reinvested.

This year, both legislative chambers have passed a bill that would use the earnings for a new purpose: to pay for state government.

Angela Rodell and other Permanent Fund managers are preparing to pay more out of the earnings than they ever have. But they still don’t know how much that will be, so they have to keep more money in investments that are quickly accessed.

“We are focused on the liquidity requirement, that we will have to send over a significant amount of cash,” Rodell said.

The House has proposed drawing out $4.1 billion in the next year, which is $1.6 billion dollars more than the Senate.

“As income comes in, rather than investing it into the long-term asset allocation, we’re holding more cash than we probably otherwise would at this point in anticipation that the draw amount might be bigger than the Senate version,” Rodell said.

Rodell uses cash as a figure of speech: There aren’t neatly stacked bills in a bank vault. The fund invests the money it may withdraw, but it does so in conservative assets like Treasury bills. That means the fund will likely earn slightly less money than it would if it invested all of the money to maximize earnings.

The state would benefit, Rodell said, if any draw from the fund is based on a predictable plan, similar to what was included in both the Senate and House versions of the Permanent Fund bill.

“Part of my concern will be, if that doesn’t pass, sort of the unknown quantity of how much money they’re going to use, because under the current construct, they’re allowed to take and to appropriate as much as they need out of the earnings reserve account,” Rodell said.

Lawmakers have reached a stalemate over which version of the Permanent Fund bill, Senate Bill 26, will become law. Rodell is hopeful they’ll be able to resolve their differences.

“We just want to know how much… how much to write the check for to send over to the state treasury, and we are trying to balance that out,” she said. “And having a difference of $1.6 billion is a big difference. And we’re hopeful they can get that reconciled sooner rather than later.”

Rodell notes the corporation went through something similar last year when the Senate passed a bill to draw money from the fund, only to have it die in the House. Gov. Bill Walker then vetoed half the Permanent Fund dividend money, the first time that has ever happened.

“We’ve been having this uncertainty of both bigger than anticipated draws and maybe smaller than anticipated draws now for the two years. That’s why I am hopeful that we are able to back to a more rules-based strategy like we’ve had in the past going forward.”

The Legislature has until the end of the month to pass a budget to avoid a government shutdown. The special session is scheduled to end on June 16.