The Alaska Legislature should advance a constitutional amendment on the Permanent Fund, but carefully. I'm unnerved that the House seems to be improvising.
No legislative decision is bigger. The fund dwarfs all other public and private financial assets in Alaska. Always will. And these decisions last. The constitutional amendment that created the fund in 1976 has never changed.
Yet after setting a constitutional amendment as its top priority last week, the House majority this week brought forward a fake version that doesn't protect the fund or guarantee a dividend. Even the fund's leaders don't support it.
[House proposal to put PFD in Alaska Constitution won't guarantee payments]
Maybe legislators working among themselves realized that to get something passed they would have to keep their options open. If so, the proposed amendment tips their hand. It would let the legislature use up the permanent fund's Earnings Reserve Account.
With everything in flux, the Permanent Fund has never needed protection more.
Alaskans can change the constitution two ways, in a convention or by amendment.
Every 10 years, voters also are asked automatically if they want a constitutional convention (the legislature can call one, too). We've always voted no, and for good reason. A convention opens the whole document to change, including basic rights, selection of judges, subsistence, abortion — you name it.
The next vote is in 2022. If voters call a convention, we would then elect delegates and, after their work, vote on whether to ratify a new constitution.
A convention could decide to dissolve the Permanent Fund and give $100,000 to everyone who happens to be in Alaska at the time. How do you think a public vote on that would turn out?
With the legislature deadlocked on the fiscal gap, we've never been at more risk of voters rolling the dice with the constitution. Frustration is high.
The other way to change the constitution is by amendment. A two-thirds majority of each house of the legislature can put an amendment on the ballot at any general election, held every two years.
But changes by amendment must be limited, unlike revisions made in a convention. A 1999 Alaska Supreme Court ruling defines how much change an amendment can make.
I've already written about the need to change how the fund pays out earnings. Currently, money dumps into an Earnings Reserve Account that is vulnerable to overspending.
To protect it, we should deposit the reserve into the main part of the fund and amend the constitution to allow the legislature to take only a sustainable percentage of the fund's total market value annually.
If the rate of withdrawal — the POMV percentage — is set low enough, that alone would address concerns about inflation. The fund would continue to grow while spinning off predictable revenue to the state, which would have to cut the budget or raise taxes to cover the rest of the fiscal gap.
The amendment released Monday by Rep. Paul Seaton, R-Homer, chair of the House Finance Committee, appears to adopt a 4.75 percent POMV, but keeps the Earnings Reserve intact. The legislature could spend as much of it as it chooses by a three-quarters vote.
The Constitutional Budget Reserve had the same protection. That reserve is almost gone. Experience shows that a three-quarter vote just requires more deal-making in the legislature, which results in more spending, not less.
Seaton's amendment also includes a dividend pegged at a third of the POMV pay-out. But that, too, would be optional. Seaton told ADN's Nat Herz that putting a guaranteed dividend in the constitution was too big a change for an amendment and would require a constitutional convention.
That conclusion is highly debatable. Ultimately only the Supreme Court could decide. I'd love to hear from constitutional scholars on the question.
But, of course, there's no time for that. We're doing all this on the fly.
It almost goes without saying that a suggested dividend has no more force than an optional POMV.
If legislative leaders are unwilling to protect the fund's Earnings Reserve (which contains about a fourth of the fund) or guarantee a dividend, we need to be thinking about the principal of the fund. It may not be safe, either.
When the Permanent Fund was born, many advocates assumed it would invest in Alaska projects such as home mortgages, a Knik Arm bridge or low-cost daycare centers. All that would have been legal under the constitution, and still would be today by vote of the legislature.
But leaders at the time studied the sad fate of other investment funds that invested politically. They realized that to be truly permanent, our fund should only invest separate and insulated from Alaska's economy and politics.
Fund fathers including Elmer Rasmuson and Clark Gruening brought its management under the prudent investor rule. The rule can be stated in different ways, but at heart it says the fund must invest as would any other fund — without regard to politics or other influences.
The prudent investor rule is the main reason the fund has grown to its current size. Without it, we might have a Susitna Dam but no Permanent Fund.
The rule should be in the constitution. Until it is, every legislature will have the power to invest the fund in almost anything, including a gas line.
Fund trustees currently interpret the rule to mean they can invest in Alaska if an outside partner joins them. If another big public fund invested in the gas line, then our fund could, too.
But that's just a policy. Gov. Bill Walker appointed a majority of the trustees who make the policies.
When I've brought up putting the prudent investor rule in the constitution with legislators and members of the administration, they act like it's a novel idea. They haven't done their homework.
Back when the fund was created and shaped, Alaska's leaders believed in public policy analysis. They studied the management structure of the fund for six years, with expert studies, public meetings, long debate and extensive media coverage.
That process produced the prudent investor rule, inflation proofing and dividend. The process we're using now doesn't seem likely to produce such positive results.
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