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.
Here here great comment
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.
Mirror Sullivan.
He’s as bad as Pelosi.
He’s 100% insider trading.
What an absolute RINO, NeoCon, P.O.S.
Yet he was deeply offended at Trump’s pu$$y leaked audio in 2016.
Right now Jay Hammond is rolling over in his grave. Such a good idea that is now just another political scam. I can’t believe they need 270 people to manage the fund. They need to put control of the investing back to “We the People”. Alaskans should have to approve where the money is being invested. Big Government Sucks. Heck just put it in a guaranteed interest account or a money market account. At least it wouldn’t lose money.
You can just see evil in her eyes and face. A scouring, contemptible woman. It’s imprinted in her entire being.
Giessel has lost her looks since becoming a Democrat. She looks like she’s aged 20 years.
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.
Think I agree with most or all of what you wrote but it’s much too long to read. And please try paragraph breaks.
Governor Hammond could see that one day the government built with oil would be unsupportable. He said the PFD would allow Alaskans to buy only as many services as each of us needs. We now take too much from the Permanent Fund, and the IRS is the largest single recipient of the PFD! That is stupid.
Throughout the past 2 years we had many jobs going unfilled but we also had the federal government harassing us for not keeping up with new food stamps applications. That is also stupid.
We need to drastically cut the operating and capital budgets; $2 billion GF or more. We need every village and town to pay for a large part of their own local government services: Tok, Gustavus, Hoonah, Tenakee, Bethel, etc. Failing schools should be converted to webinars only. State enterprise funds need to break even or close. We do not need a brick and mortar university system. State employees need to work a 40 hour week. We DO NOT need more state departments.
The buying power of the Permanent Fund is falling every day. Any judge would take $8 billion from the corpus to pay the PERS & TRS short funding, so even the declining corpus value is an overstatement. The first PFD would be $7,800 in 2025 dollars, and all we have for the shortfall is too much government; too much Medicaid, too much SNAP, too much WIC, too much Section 8, too much laziness. We actually take from every PFD in order to “hold harmless” people who choose SNAP over work! Tell me where I am wrong.
665 words, Joe. And not a single one of them mentions index funds. Methinks you are living in the past, half a century ago before index funds were created. We don’t need inflation proofing anymore. Time to live in the present and start thinking about the future. Cheers –
Agimarc: Putting the entire amount in both the Earnings Reserve Account and the corpus of the PFD would earn a decent return on investment and substantially eliminate the costs the PF Corporation pays some staff and outside investment advisors to provide advice on how to invest. Last time I checked, the PF Corporation pays a bit north of $340M/yr. for investment management advice, a fairly hefty load but not completely untethered from money management fees other large fund owners pay.
but even eliminating a big slug of the management load and placing all or most of Alaska’s sovereign fund doesn’t solve our fiscal problems.
You being a monetary maven and all-around fiscal genius fully conversant with all the issues like inflation, over-overspending, the seemingly insatiably demand to spend, spend, spend, and of course how to pay for a full statutory PFD while either avoiding cutting or coming up with cuts that will actually pass legislative and gubernatorial scrutiny, we await with marvel your pronouncements on just how to accomplish what a bunch of folks have been chipping their teeth about for over two decades without success.
Bring your shot bucko or get off the ice.
This exchange has made me start to wonder if inflation proofing was always a scam. It certainly is today, and perhaps for the last decade or two. I don’t mind plussing up the corpus, but at what cost? Republican legislatures used to dump $$$ into the corpus just to keep the dems from spending it, a great reason. These days, it is the other way around, with the various “bipartisan majorities” dreaming up all manner of excuses to not issue a PFD. Cathy’s inflation proofing is simply the latest.
Final note: You forgot the (/sarc ) tag on your personal attack. Cheers –
Bla,bla,bla. You sound like a true politician. Fact is the PF is not meeting any investment standards that make any sense. It is way overburdened with management that has no direction. Bottom line is, without interference, the PF could be both paying for state government and a full PFD to its current citizens.
Terrible legal writing. A judge would give this rambling essay a solid D.
One thing you got right Joe – it is the people’s Permanent Fund, and the statutory PFD belongs to the people. But… Having confronted Senator Stedman, the finance committee chair, about his budget bill and the numbers he proposed, it was easily shown that the State budget could be balanced with $60/barrel oil and double our current production 1/2 million barrels per day; or in 2022 when I spoke with him, $80/b and 600,000 b/day. This does not include any funds for defined benefit PERS, only defined contribution.
And… I have called out Sen. Geissel – in Convention when she introduced her POMV plan for spending the Permanent Fund – I called her a thief, which she vehemently denied. My reply? Very simply, what do you call someone who takes something without permission from the owner? – A THIEF. Cathy and Bert, I stand on my accusation – you are thieves. Promote oil production, not slicing and dicing the people’s money and the PFD.
I quit reading Geldhof after the first sentence.
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.
There has ceased to exist a politician in Juneau that has the State of Alaska and its citizens at the fore front of their decisions when it comes to the ridiculous amount of money that flows into the state coffers every year. The amount of largesse being appropriated, from the BS never going to happen LNG crap to the idiocy of investing millions in a defunct Peter Pan Seafoods the Japanese dumped on the market, should be stated loud and often so that MAYBE some of the voters will actually go to the polls to eliminate these fraudsters and racketeers from our government.
Guissel is a down right liar and thief.
Get to the root cause of inflation.
Way past due, but time to incessantly call or write Sullivan, and Begich lll to introduce bills to audit and then abolish the Fed. But with caution, IF they pass it might cost you your life though. I predict that they would either be too afraid or they belong to some society.
No revolution though please! “We do not want a revolution…”.
But other players have risen too. 🇷🇺 and 🇨🇳. Hmm.
Since inception, according to the Alaska Permanent Fund Corporation, there has been $19,751,200,000.00 in Dedicated Mineral Revenue deposited into the corpus of the Permanent Fund. Another $23,575,800,000.00 in Inflation Proofing Deposits, which used to be made based upon the statuatory language in how the PFD was paid. And there has also been $15,038,800,000.00 in “Other Appropriations”, whatever those might have been. That means $58,365,800,000.00 in deposits were made into the corpus over the years as of November 30, 2024 we currently have $80,822,600,000.00.
Once again, acording to APFC the average rate of return since 1978 has been about 9.5%. S&P 500 has returned 12.25% during that same time frame. According to the Federal Reserve inflation since 1978 has been an average of 3.8%, if the Permanent Fund corpus is returning an average of 2.5 times inflation for almost 50 years why would we need to inflation proof it?
Making better investments that return more sounds good to me, especially if done so in proven markets. Anyone can buy an S&P 500 Index Fund, the fees associated with managing $80,000,000,000.00 might prove to cost as much or more than we are currently paying the APFC staff. Maybe we should have different leadership that seeks a higher return on investment over the security currently offered?
Let’s check Cathy’s personal net worth since her beginning at the Legislature and see what the results are. Is she a beggar? NO. Is she having major medical problems in her family? What major purchases of real estate has she made that need to be paid off? It looks like her extra benefits are piling up and that she is taking advantage of the system.
I am interested in what the overhead costs are for managing a fund that will not even keep up with inflation. When they can even keep up with inflation, it is a reasonable assumption that it is either incompetency or corruption. They should all be fired and the method of handling the fund revamped.
For over 40 years I’ve had my own Roth IRA mostly in an S&P Index Fund. The results have been notably excellent. Take note, Juneau decision makers.
I check the balance today and two years ago as reported on Must Read Alaska. The annual rate of return is 1%. You don’t need any staff to get that kind of return.
Inflation proofing the Permanent Fund is essential. In 2021 the corpus of the fund had $81 billion. Today the corpus is $80.4 billion. Biden, the worst president in US history, unleashed inflation that devalued the US dollar (our dollars) by about 20%.
So, the value of the money we have in the fund is now worth 20 percent less than before Biden took over. That is, the purchasing power of the corpus is now about $16 billion less than it was.
We have not inflaiton proofed the fund porperly. That’s what the math shows us.
The author is correct, however, about the danger of returning to a defined benefit retirement. We are still $6-7 billion in the hole for the old defined benefit system. How does Giessel propose we fix that?
Crickets.