The People of Alaska vs. The Legislature
Part I: Inflation-Proofing: Where’s the Problem?
By JON FAULKNER
Author’s Note: This is the first of a series that frames Alaska’s “Great Debate” regarding Alaska’s Permanent Fund. The series will invite debate but promote a protective view of both the management of the corpus, and the original dividend plan. We start this series with inflation-proofing, a topic which has broad consensus and clear legal direction.
Alaskans feel the effects of inflation.
We all know the effects of inflation, how it robs each of us of purchasing power, especially the poor. Fund managers, legislators, Alaska citizens—we all agree that inflation-proofing the Permanent Fund is wise.
Alaskans understand what it takes to inflation-proof.
To inflation proof means to follow a strategy designed to protect the purchasing power of the Permanent Fund against the eroding effects of inflation. One such strategy is to invest in assets that are more likely to increase in value at a rate equal to or exceeding inflation, such as real estate or Treasury Inflation-Protected Securities.
But once an investment strategy is implemented, there are only two ways to inflation-proof. Option one is to deposit hard cash to the main corpus of the Fund annually to offset the impact of inflation. Option two is not to deposit hard cash, but instead to calculate the value of the Fund portfolio annually, and assuming the value has increased at a rate at least equal to inflation, declare such increase as de-facto inflation-proofing.
There is a distinction between these two options that matters to Alaskans. Option one is conservative, meaning ‘safe”. Option two, while logical, does not impose fiscal discipline—which politicians hate. Yes, we might achieve positive returns, but any so-called “unrealized gain” is equity, not cash, and until such gains are monetized and added back to the corpus of the Fund, inflation proofing has not actually occurred. Years of low returns combined with high inflation, such as we have experienced, confirm the risk. Only option one unequivocally secures the public trust—and did for many years until our modern legislature changed course.
Inflation-proofing should be non-negotiable.
Inflation proofing should be consistent, in cash, “off the top”, and the Legislature’s first priority. Deposits should NOT be linked to annual budget prioritization.
When the legislature or Fund board talks about how investment returns that exceed inflation are “automatically inflation proofing”—they are misleading you. Alaskans know better; we want the cash “in the bank” and off-limits, not an I.O.U.
Inflation proofing is the law.
That’s right, the law! The legislature pretends to be victims of “contradictory” statutes, as though they aren’t accountable for both creating the problem—and not fixing it! Who among our legislators admits to flouting the law, or will stand firm to follow it?
The simple truth is the Legislature is required by statute annually to inflation proof the Permanent Fund. Their mandate in AS 37.13.145(c) is clear. The formula they are to use is crystal clear: transfer enough money from the Earnings Reserve Account (ERA) to the Fund’s corpus every year to cover inflation. Simply put, this rule implements option one; it transfers cash from realized gains to the corpus of the Fund, where the legislature can’t touch it. This rule, enacted in 1982, and has withstood the test of time.
The legislature flouts the law.
The legislature’s history of inflation-proofing is published here, which shows that in the ten years from 2016-25, they failed to deposit any money at all in half the years. (Some records show a deposit of $250m in 2018–half needed to meet the law) In 5 out of the last 10 years, deposits were statutorily sufficient, but the net effect has been to erode Alaska’s wealth fund. Since 2016, the legislature has failed to deposit approximately $2.4 billion needed to meet the law.
High returns are great, but never a substitute for protecting the public trust.
The legislature is pursuing option two, but the law, 30-year historic precedent, and the public interest all confirm option one as the ONLY course. Between 2010 and 2025, the CPI changed from ~218 to ~338, indicating inflation of 55%. Thankfully, the Fund’s 2010 Corpus of $32 billion has grown to $72 billion today, outpacing inflation. So where is the problem? The problem is not the outcome, it’s the broken process—and promise. The truth is the legislature has abandoned fiscal discipline, just like our federal government. During the 16- year span above, based on APFC’s website, inflation deposits amounted to $14.85 billion— short of the $17.6 billion required by law. Where would the Fund be today if prior legislatures, since 1983, had not consistently followed option one and the law?
Stay informed. Follow MRAK’s series on this topic.
How does the legislature get away with this, as they did last session when the Democrat-led majorities axed the transfer of $1 billion for inflation proofing and passed a paltry $1,000 PFD, the lowest inflation-adjusted in history? One answer is that we, the voters, let them; another is that Juneau is controlled by politicians who place their own interests ahead of Alaskans.
Governor Jay Hammond, the father of the Permanent Fund, said: “As the dividend goes, so goes the Permanent Fund”. He predicted the greed of power-seeking politicians would jeopardize the Fund and hoped to secure the people’s vigilance with the dividend program, a concept honoring the sovereignty of every resident that is unique in the world. Imagine a world where this model can spread! With inflation proofing seemingly optional to the legislature, and dividends going down a predictable path, the Fund itself—perhaps even the concept of citizen sovereignty itself–appears in jeopardy.
Anchorage AMAC Action Presents-Protecting Alaska’s Permanent Fund Dividend (7pm Thu Oct 16) 1611 Sentry Dr, 99507, lower level. Several legislators will be in attendance to discuss and answer questions from the public.
AI generated photo of “Alaskans” ? 😂
“One answer is that we, the voters, let them; another is that Juneau is controlled by politicians who place their own interests ahead of Alaskans.”
Please tell me how we, the voters, can stop them. They’re breaking the law every year.
Jon, you contradict yourself. You require “inflation Proofing” beyond Investment returns AND a maximun Dividend? That does not pencil out unless you think we can slash other spending by billions of dollars. OR are you in favor of new broad-based taxes? Its laudable but impractical and unachievable for a number of legal and political reasons. You are making the same mistake that Dunleavy made.
Show me a fiscal plan with actual numbers.
I actually love the idea of inflation proofing every year because that would further limit the Legislature’s spending. No doubt the Dividend would be the first thing to go.
Your best bet is to endorse a Constitutional PMOV Amendment for the Permanent Fund. I prefer a maximum 4% annual draw (instead of current 5%). This would further restrict annual Legislative spending and allow the Fund to grow faster.
POMV at 4% after inflation probably works if the investment criteria is required to follow prudent investor standards and trustees of PF are required to be confirmed by legislature.
It’s critical to off load political hacks put into place on the PF Board like Craig Richards.
As our legislators say, “If you can’t convince them, confuse them”.
The democrat/rino legislature doesn’t care about what the Alaskan’s think, they know that the Alaskan are all talk and no action. Anchorage voter turn out in the local elections was 17%. The voter turn out in Palmer was a disgusting 10%. Your silence is helping the liberal leftist legislators destroy our state.
Really helpful insights here
“……..The simple truth is the Legislature is required by statute annually to inflation proof the Permanent Fund………”
If the statutory PFD calculation amount was unconstitutional per Wielchowski v Alaska, so is the inflation proofing statute.
Bring peace and community prosperity by eliminating the PFD.
I have long believed that the majority of the members of the legislature, in breaking the law to deprive Alaska residents of their statutorial PFD, are simply thieves and liars. Considering how much some of our poorer residents rely on the PFD to make ends meet, the legislators are today’s equivalent of horse thieves, and the courts ought to treat them as such.
25,000 state employees with twice the pay of the private sector for same job, full state pension plans (your state employees do not participate in federal social security) after just 30 years, $1,500 health insurance premium until the day they die, $1,000 dividend check every month while working into social retirement nest egg …. yeah, it sure adds up. Now you understand why you can’t get your miserable once a year peanut dividend?
That photo is AI! The substance of this article, and many others, are examples of how the quality of MustReadAlaska has decreased significantly since Suzanne left. I used to visit the page three or more times a day, now it’s only once a week.
The big question is how do you know its AI? Or “A One” if you are the U.S. Secretary of Education is Linda McMahon.
Well Manny, a few points.
The lack of detail on the documents that the “people” are holding closest to the “camera”. The details of the trees across the mountains are clearly digital scribbles that represent foliage. There is a low quality water mark on the lower right corner. The lighting on the faces and around the heads is unnatural. The scene appears to be in the middle of winter but the individuals are quite under dressed for the weather, especially the individual in the blue jeans on the right side.
There are more details in this image to tell you it is fake than there are that would tell you it is genuine.
Tell me Manny, can you point out any other details. Do you have what it takes to see truth?
I for one would like to see MRAK address the diversion of the off in lieu of taxes asinus of thr greatest regressive tax scams performed on the people.0ne of the reasons state legislatures avoid state sales taxes is their regressive nature and they are not seen as equitable because a lower income family spends a higher percentage of their income on sales taxes is than a high income family yet when the legislature takes away from the pff they disproportionately take it away from low income families
The only rules regarding the Permanent Fund are to be found in the Constitutional provisions establishing the Fund. The rest of the stuff are simply things to argue about. Since the Legislature can enact laws, they can also ignore some of the finely-tuned requirements. And the dividend is a matter of annual appropriation by you-know-who.
Jay Hammond is NOT the father of the Permanent Fund. The first Governor to propose permanently setting aside a portion of oil wealth was Keith H. Miller. Governor Hammond probably spawned the dividend and had a lot of other opinions, but opinions are abundant.
Folks are welcome to burn up time and energy discussing the Permanent Fund. More important in the long run are tax policy, approaches to economic development and grappling with the role, scope and reach of State government.