Alaska’s Permanent Fund Corp. has tried to stay out of the fight over the PFD, but that may be changing

JUNEAU — Last week’s meeting of the Alaska Permanent Fund Corp.’s governing board showed the $83 billion state corporation trying to hold itself at arm’s length from debates over the Permanent Fund dividend and a state government that now relies on the corporation’s earnings for more than two-thirds of its budget.

“It feels like we’re in the middle of this tug of war at times,” corporation CEO Angela Rodell said at the corporation’s annual meeting last week.

The Permanent Fund earned record returns last year, and staff have asked for additional positions to manage the fund, which now stands at $83 billion. The corporation is also proposing to increase the size of its bonus program for investment officials as it seeks to stay competitive with private companies and other states’ investment funds.

During last week’s meeting, Alaska Revenue Commissioner Lucinda Mahoney cited the size of this year’s dividend as she sought to reduce the proposed staff increase and shrink a proposed increase to the bonus program.

State lawmakers approved a $1,114 dividend earlier this year, while Gov. Mike Dunleavy has pushed for a larger amount.

Although the amount of the dividend is set by legislators and the governor, not corporation officials, Mahoney said it would look bad to increase maximum bonuses.

“The optics of this is that we’re willing to reward the Permanent Fund organization such that some of the folks would receive salaries in excess of $500,000 or even more. However, the citizens of Alaska will be receiving a significant reduction from the statutory (dividend) amount,” Mahoney said.

[Alaska Legislature begins fourth special session with little hope for a PFD fix]

Neither of Mahoney’s ideas were approved by the corporation’s board, and the corporation’s budget now goes to Dunleavy for consideration. The governor’s recommendations will be considered by the Legislature after Dec. 15.

Speaking during last week’s meeting, trustee Ethan Schutt said the discussion was “treading toward a dangerous line.”

“I like to have a firewall as much as possible between what we do here and the dividend,” he said.

Bruce Tangeman, who served as revenue commissioner before Mahoney and also served as a trustee, said Mahoney’s decision to connect bonuses and dividends during last week’s meeting “seems odd to me.”

“This is the entity that’s responsible for growing the Permanent Fund to the level that allows the governor to pursue full dividends. So it’s an interesting connection, for sure.”

Through a spokeswoman, Mahoney declined an interview request and answered questions by email.

Asked whether the Dunleavy administration believes it is inappropriate to raise investment officials’ compensation while dividends are at present levels, she said the discussion “had nothing to do with dividend amounts and compensation.”

“The discussion centered on the incentive compensation paid to investment managers over and above base salary, based upon the performance of their respective investments,” she said. “There has never been a discussion or link between the dividend amount and compensation at APFC. APFC doesn’t control the dividend amount. That is a legislative function.”

Asked whether a firewall exists between trustees’ actions and the dividend amount, she said one “naturally exists because the APFC doesn’t control how the dividend amount is set.”

The email also said Mahoney has a “fiduciary duty to APFC,” meaning that she must act in the best interest of the corporation.

Craig Richards, a former attorney general who now serves as chairman of the board of trustees, said he didn’t leave the discussion last week thinking that it was that big of a deal.

“I think that there is politics inherent in any state system, but I think the Permanent Fund (Corp.) probably has those to the lowest degree of any agency I’ve ever dealt with,” he said. “And that hasn’t changed.”

The corporation’s principal vision is to grow the Permanent Fund “for the benefit of all current and future generations of Alaskans.”

What Alaskans do with that money has traditionally been beyond the fund’s purview, and the fund’s various CEOs and board members have usually tried to resist attempts at steering the fund, for political reasons or otherwise.

When former Gov. Wally Hickel sought to use the fund for infrastructure projects, he was rebuffed. When former Gov. Bill Walker asked the fund to buy oil and gas tax credits owed by the state to drillers, he was unsuccessful. Climate activists have repeatedly asked the corporation to sell fossil-fuel-related assets. They’ve been turned down.

In 2003, the corporation’s board approved a resolution calling on the Legislature and governor to put a sustainable limit on spending from the fund. Similar resolutions followed in subsequent years, and in 2018 the limit was signed into law.

[As budget struggles continue, Alaska’s special legislative sessions aren’t so special anymore]

The state treasury now receives a regular transfer from the Permanent Fund: 5% of the fund’s average annual value in five of the past six years. This year’s transfer is $3.1 billion; all other state revenue combined is $1.7 billion.

The 2018 law only provides a soft limit, however. Rulings from the Alaska Supreme Court have implied that it could be broken by legislators and the governor. At least one attorney has threatened a lawsuit if they do so, and that suit could determine otherwise.

The corporation’s trustees have repeatedly asked lawmakers to stick to decisions “grounded in rules,” regardless of what the rules are. Predictability allows for better investments, they wrote in a 2020 paper.

State legislators and Dunleavy have taken that message to heart. They have proposed seven constitutional amendments that would permanently limit spending from the fund without a statewide vote. Some also constitutionally guarantee the Permanent Fund dividend.

Rodell told trustees that she’s been invited to testify and offer opinions on all of the amendments.

“How do we reconcile all the many tugs and pulls on this stuff, and how do we want to think about this going forward?” she asked trustees.

Rodell’s question came after Mahoney’s comments about the dividend and the corporation’s budget.

“It’s not clear to me any more that we are all on the same page,” she told trustees.

Through a spokeswoman, Rodell declined an interview request.

Dunleavy’s proposal calls for transferring several billion dollars from the Permanent Fund — enough to pay for years of larger dividends — before any hard limits come into place.

That transfer would seem to put the governor at odds with trustees’ current recommendations, but Richards said that may not be the case.

“Is that in overdraw? It is. But is it terrible? I don’t know. That’s a question. And I think in November, the board is going to have a work session where we’re going to talk about that. I think that’s going to be one of the items on the agenda,” he said.