Politics, economy fuel Permanent Fund debate

The Permanent Fund, that $35 billion piggy bank that pays Alaskans an annual dividend, could undergo two historical firsts this year.

For the first time ever the balance of the fund's earnings account might not cover this year's full dividend, currently estimated by the fund corporation's projections at $950. That could change with an upswing in financial markets over the next five months, but the prospect still has fund managers concerned. And second, 2010 will mark the first time in the fund's 34-year history that it won't require inflation-proofing.

The recent shakiness of financial markets, coupled with the chance that the earnings reserve may fall short of fully covering the 2010 dividend, might rejuvenate discussion in Juneau about shifting to a percent-of-market-value plan for limiting the fund's annual payouts. At the same time, the merits of the Permanent Fund dividend -- a controversial concept for some Alaskans to accept -- are playing out in an election year.

Voters created the Alaska Permanent Fund in 1976 to preserve a chunk of the state's new wealth from development of the North Slope's oil fields. A portion of the state's take on oil and gas leases and royalties goes into the principal, and the fund is invested in stocks, bonds and real estate worldwide. In October 2007, the fund hit a record value of $40 billion, with every eligible Alaskan receiving a dividend of $1,654 in 2007 and $2,069 in 2008. The downturn in the markets in 2008-09 sent the fund plummeting to $26 billion, which corrected during 2009, leveling out today at about $35.1 billion.

After those rough hits, the Permanent Fund's value is rebounding and investment markets are experiencing upward momentum. A saving grace for the dividend is that 2009's drop in the national cost of living will keep lawmakers this year from having to shift money from the earnings reserve to the main account to protect the fund from inflation. And that could help rescue the 2010 dividend.

The dividend - seen by some as a trade-off for hacking out a living in the 49th state, by others as their due share of the oil wealth, and by low-income Alaskans as essential to making ends meet -- isn't guaranteed by anything other than tradition and the certain knowledge that to suggest an alternative use for the money is considered political death. If denying Alaskans the dividend could end a political career, then protecting the dividend could be seen as political savvy.

Enter Anchorage Democrats Sen. Hollis French and Rep. Harry Crawford. They recently proposed resolutions that would let Alaskans vote on whether to secure the dividend payout in the state's constitution, protecting that money from lawmakers tapping it for other uses, such as to plug future budget gaps. A constitutional amendment, as proposed by French and Crawford, would need the approval of two-thirds of each legislative body. Alaskans would then vote on it in the 2010 election. Crawford is running for Alaska's U.S. House seat this year and French is hoping to oust Gov. Sean Parnell.

Dividend payouts are currently calculated by a formula set in state statue. The dividend is based on a five-year average of fund earnings to even out severe ups and downs. (This actually ensured a dividend in 2009 when the fund suffered a major loss.) Second, the state can't pay out more than half the money in the earnings reserve account in any year, said Michael Burns, chief executive of the Permanent Fund Corp., who was talking with lawmakers in Juneau earlier this week.

That brings us back to why Alaskans could see their dividend come up short this year. "If the dividend was calculated today, the 50 percent limit would play into the amount," Burns said. "Whether it would by June (the end of the fiscal year) is a very open-ended issue."