The Alaska Permanent Fund has a nearly 50 percent chance of losing value in the next decade, if it’s used to pay for state government as lawmakers have proposed.
That’s according to a study presented to the House Finance Committee Monday by Angela Rodell. She’s the chief executive officer of the Alaska Permanent Fund Corp.
“The probability of achieving 6.3 percent, making all of our distributions, including inflation (is) if you’re a glass half-full, 52 percent,” Rodell said. “If you’re a glass half-empty, you have a 48 percent chance of falling short.”
The 6.3 percent that Rodell mentioned is the annual gains the fund would need to cover the state’s costs if the Legislature adopts Senate Bill 26. A conference committee is considering the bill.
Rodell was talking about a study by Connecticut-based investment company Bridgewater. She said the state could lower the risk of losing money if it spent less from the fund. For example, Senate Bill 26 would draw slightly less than 5 percent of the fund’s value from fund earnings every year. But Rodell said drawing less than 4 and a half percent would be safer.
“I think this would be intuitive, because you’re taking less, so you need to earn less to keep those minimum balances going forward,” Rodell said.
Rodell also said it’s important to the fund’s board of trustees that the state government transfer money to the $40 billion principal of the fund that is protected by the state constitution. Without this, the protected value will shrink due to inflation.
“To make sure that those future generations of Alaskans get the same benefit that current generations get from that $40 billion, we need to put back some of that gain,” Rodell said.
There have been no transfers of fund earnings to the fund’s principal to cover inflation in the last three years. Gov. Bill Walker has proposed transferring nearly $1 billion as part of the next budget.
The overall size of the fund is $64 billion. Of that, $15 billion is in the fund’s earnings reserve account. An additional $9 billion in unrealized earnings are considered part of the principal, but don’t have constitutional protections.