By ANGELA RODELL
As Alaska continues to grapple with fiscal uncertainty, the Alaska Permanent Fund remains at the heart of the conversation. Its performance and structure profoundly affect our state’s budget, the future of the Permanent Fund Dividend (PFD), and the long-term economic health of Alaska. Yet its structure – specifically the division between the Earnings Reserve Account (ERA) and the principal – is no longer serving us well.
In fact, it’s creating a slow bleed of our spendable savings. Proposals to merge the two accounts into a single constitutionally protected fund are not just about simplifying accounting. They are about correcting a dangerous flaw in how we draw money from the Fund and effectively creating a spending limit on the Fund.
To understand why, we need to briefly unpack how the Fund works today.
The Fund is divided into two accounts: the principal, which is constitutionally protected and cannot be spent without a vote of the people, and the Earnings Reserve Account (ERA), which holds realized investment earnings and is fully spendable with a simple majority vote of the Legislature.
Since 2018, Alaska has followed a Percent of Market Value (POMV) draw system to sustainably use Fund earnings. The formula allows for a 5% annual draw based the average total market value of the entire fund – both the principal and the ERA. However, there’s a fundamental problem: while the POMV is calculated using the full value of the Fund, themoney can only be taken from the ERA. The Legislature is legally prohibited from touching the principal, which means the full value of the Fund is theoretical when it comes to actual cash available.
This creates an imbalance that threatens the very sustainability the POMV system was designed to protect. Here’s why: realized gains from investments (like selling a stock at profit) flow into the ERA, where they become available to spend. But unrealized gains – paper increases in asset values – primarily remain in the principal. The problem is that most of the Fund’s growth has been in unrealized gains, which are locked away. Meanwhile, the Legislature continues to draw 5% of the average total fund value every year – but only from the ERA.
This means the ERA is being drawn down faster than in can be replenished. In years of market volatility or lower realized returns, this pressure becomes even more acute. And because the ERA is fully spendable with a simple majority vote, it’s vulnerable to political pressure. The temptation to overdraw is always there.
Merging the ERA with the principal into a single, constitutionally protected fund fixes this flaw. It doesn’t just simplify fund management; it changes how the Fund can be accessed. All earnings – realized and unrealized – would remain in the unified fund. The only way money could be withdrawn would be through a constitutional POMV draw.
This is not a minor shift. It would be the most significant fiscal reform in Alaska in a generation. It creates a hard cap on spending from the Fund, one tied directly to its performance and sustainability. No more treating realized gains as a checking account. Instead, the entire fund is protected, and spending from it is limited to what is sustainable over the long term.
In the end, this reform is about protecting the Fund, the PFD, and Alaska’s fiscal future. The Fund was created to turn a temporary resource boom into a permanent financial legacy. But that legacy only survives if we guard it against political pressure and short-term thinking.
This is more than a fiscal policy debate. It’s about protecting the Fund for future generations, ensuring the PFD survives, and building a system that supports long-term stability. Merging the accounts creates the discipline Alaska needs – and the legacy Alaskans deserve.
Angela Rodell of Juneau is a former executive director of the Alaska Permanent Fund.
