By ALEX GIMARC
One of the personally unpleasant tasks I undertake is to watch the political left, listen to what they say, try to understand what they want, and most importantly attempt to listen, however poorly, to how they intend to steal our money.
This week’s entry on that list is one putative Republican State Sen. Cathy Giessel. She started out as a reliable conservative but following a knockdown, drag-out slobber-knocker to defend her Senate seat from then-AFL/CIO Boss Vince Beltrami, she has swung hard left over the last half decade.
One of the things Sen. Giessel does is send out a weekly update on her thinking. While you might not like it, it behooves us all to read it and pay attention, for she is the Majority Leader of the Senate “bipartisan majority.”
Her latest missive is in defense of inflation proofing the Permanent Fund. Inflation proofing is based on the notion that whatever the Permanent Fund Corporation is doing investing the corpus of the fund is not sufficient to keep up with inflation, something which is a real indictment on the investing expertise of the rocket scientists in charge of the Permanent Fund Corporation.
Sen. Giessel would have us believe that unless we bury substantial amounts of money into the corpus of the Permanent Fund yearly, it will wither away and die on the vine not unlike a late-season tomato.
I find this to be laughable for a couple reasons. First, is that the average inflation rate over the last decade is 2.65%, not an awful number. On The Other Hand, the Standard & Poors Index over the last decade has been over 10%, more than twice as much. This would tell us that going full numbnuts and simply investing in an index fund would more than triple whatever damage inflation is doing to the Permanent Fund.
In short, Giessel is either economically illiterate or lying to us.
Given that she has spent a decade or so in the Alaska Legislature, I would assume that she is not an economic illiterate. If that isn’t true, why would she be lying to us?
There may be several reasons. First and most importantly, is given her hard left slide over the years, she is no longer a Permanent Fund dividend fan, as she has better plans for that money than disbursing it to us mere mortals.
Indeed, she has been leading the “minimize the PFD” crowd over the last decade.
Second, she has plans for money allocated to the PFD. This would be increases to the education foundation formula and moving state pensions from defined contribution to costly defined benefit.
Given a finite dollar availability, the more money you spend on union benefits, the less you have for the PFD. Inflation proofing the corpus of the Permanent Fund when a simple investing strategy would triple the returns becomes a way to further shrink that pool of money.
Gissel is trying to minimize the available dollars for the PFD while rewarding her new union supporters while flashing the shiny in our eyes of inflation proofing the corpus of the Permanent Fund. Try not to chase the shiny.
Two thoughts come to mind:
First, if the Smart Guys at the Permanent Fund Corporation can’t figure out how to invest in stuff that beats inflation and index funds, they need to resign and be replaced by machines that will simply invest in Index Funds.
Second is that Cathy Giessel is lying to us, something we need to be careful of as she reportedly has plans on being our next governor.
Try not to elect a liar.
Alex Gimarc lives in Anchorage since retiring from the military in 1997. His interests include science and technology, environment, energy, economics, military affairs, fishing and disabilities policies. His weekly column “Interesting Items” is a summary of news stories with substantive Alaska-themed topics. He was a small business owner and Information Technology professional.
Why the song and dance? The PFD is a reserve account for the failing union pension and benefit funds. And Alaska state government is under the control of the unions these pensions and programs are created for. And the workaday Alaskan without a pension or benefits is on the hook when these funds fail. And they will fail. Please, keep it simple.
A favorite gimmick employed by the current anti-PFD crowd in the legislature (Republicans and Democrats alike) is to move billions of dollars at a time from the Permanent Fund Earnings Reserve Account (ERA) to the Permanent Fund proper (Corpus) to pre-pay for future “inflation”.
In just my time in the legislature, I have watched them vote to take tens of billions out of the ERA in this manner, to cover inflation both real and imagined, leaving that much less available for the Permanent Fund Dividend. Governor Dunleavy could have vetoed those transfers. For reasons I still don’t understand, he didn’t.
First, they cut the Dividend. Next, they take that money and spend it or move it out of the account that pays the Dividend.
The Permanent Fund Corporation invests in real estate and other assets that are designed to appreciate with inflation. That’s the part they don’t want to tell you when it comes time to vote to take more money out of the Permanent Fund ERA and spend it (either immediately or further down the road) on things other than the PFD.
If inflation is not a problem who has been lying?
If she wasnt a “Liar” she wouldnt be the unions representative.
The rocket scientists should mirror the top investors in Congress like Pelosi or even Dan Sullivan who did 47% last year.
“First, if the Smart Guys at the Permanent Fund Corporation can’t figure out how to invest in stuff that beats inflation and index funds, they need to resign and be replaced by machines that will simply invest in Index Funds.” Agreed. And why can’t they simply do this with their pension funds as well?
The Permanent Fund Corporation and board comprises about 270 people, mostly ensconced in one of the better buildings in Juneau where they consistently halve the market averages in performance. Why are we paying exorbitant amounts for lackluster to very poor performance?
I think the main reason is political as the board is appointed by the Governor who rewards contributors, supporters and people who he thinks will reward him for the position.
What a way to invest 80 billion dollars. The people of Alaska should protest as many ways as possible until this situation is fixed.
We should have 5 very talented people managing that account for us not 270.
You can just see evil in her eyes and face. A scouring, contemptible woman. It’s imprinted in her entire being.
Setting aside the various oddball political commentary in this article and in many of the comments, the issue here is how to inflation proof the corpus of the Permanent Fund. Inflation proofing the Permanent Fund is absolutely necessary if Alaskans want their sovereign trust fund to remain viable in perpetuity.
As Elmer Rasmussen observed decades ago regarding the Permanent Fund and the the need to protect the fund: “Inflation is like a thief in the night.”
Rasmussen was right. Inflation proofing the corpus of the fund is an essential. How to do this is an open question and one worth carefully considering.
In an environment where we sav d too little and spent too much of our non-renewable oil revenue the earnings generated from the PF and the Earnings Teserve Account are not nearly enough to cover inflation and the seemingly insatiable demand for more spending and to pay the full PFD.
The first obligation of our elected and appointed representatives should be to protect the PF corpus from devaluation by inflation. Failure to do so is a breach of fiduciary and trust responsibilities.
After protecting the PF the fight can take place about how to divvy up the funds in the Earnings Reserve Account but it is crystal clear the remaining funds available for appropriation are insufficient to pay the full statutory PFD and all the costs for operating state government.
The choice come down to cutting government expenditures, chopping the PFD, shorting inflation proofing or raising taxes.
There is insufficient appetite to raise taxes in contemporary Alaska. Many politicians, including the current governor,say the want to provide a full statutory PFD but then do little to really make good on their promise.
A lot of politicians talk about cuts while campaigning but somehow magically fail to deliver when it come to enact ion a budget. It turns out appropriating money is way more fun than cutting the budget, one that many observers acknowledge is bloated.
But of course bloat, like beauty is seemingly in the eye of the beholder. When it comes to reducing the size and scope of government few politicians really push for reductions. Not Democrats, not most Republicans and certainly not the current Republican governor who left Alaska with a huge entourage of state employees for a junket to Dubai to discuss green energy issues. Fave it Alaskans, our elected officials are hooked like junkies on spending. Many will spend every dime available for a PFD because a lot of them believe they are better at spending public funds than individuals and families. In a pinch our elected representatives will skimp in inflation proofing and protecting the PF so the can spend now, an act that shirts the future.
Elmer Rasmussen and prudent politicians like Hugh Malone, Oral Freeman, Jay Hammond, Clem Tillion and other sensible leaders who fought to save a fraction of Alaska’s non-renewable public wealth underestimated the lack of discipline that perpetuates the fantastic unsustainable spending that has become the hallmark of state spending in what is rapidly becoming The List Frontier.
Alaska is roughly 3 to 4 years from being functionally bankrupt. Absent an unanticipated event that jams oil up to something like $120/bbl for an extended run, the statutory budget reserve account, the Constitutional Budget Reserve Account and a big chunk of the Earnings Reserve Account manag d by the Permanent Fund Corporation will be mostly drained 2028. Even if the legislature starts reallocating pots of money squirreled away in accounts like the Power Cost Equalization or Alaska Industrial Development & Export Authority slush funds, the money available to perpetuate the unsustainable spending will be gone, at which point massive cuts or massive taxation or some unlovely combo of both will be inevitable.
The real choice is whether to finally and realistically address the financial house of cards Alaska has built now in an adult manner or wait for the catastrophic crash.
Based on the available evidence, a savvy observer should bet on the crash.
The only truthful politician I’ve met never held office…anywhere. Stay 10 feet back from Cathy just in case the 1 in a million-lightning bolt strikes her when and if she tells the truth.