By JIM CRAWFORD
Who is forgotten in the management of Alaska’s Permanent Fund? The People of Alaska.
Let’s look at the current crisis of the fund, as reported by Chairman Ethan Schutt. He wants all Alaskans to read the Alaska Permanent Fund Corporation’s annual report. I agree. We need to review its earnings and expenses.
In 2022, earnings were 1.45%. The simple reason why the dividend has been supported is that earnings were shared fairly, and expenses were capped. But now our earnings are low, and our expenses are quadruple the S&P Index.
Count me among those who think the Permanent Fund dividend is woefully short of what earnings could be by the Fund.
The dividend, as envisioned by the architect of the fund, Revenue Commissioner at the time, Sterling Gallagher, was created to build a bond to the people, a reason for the recipients to fight for the fund.
Now, government big spenders in and out of Alaska tell us not to worry about low earnings or lower distributions from the Permanent Fund. Outsiders have different priorities than the people of Alaska. It’s time to return to the advice of the PFD defenders on how we’re doing. I did, and came up with broad dissatisfaction with the rate of return.
I like to read the State of Alaska’s financial statements for fun. I read the financials of the Permanent Fund for the retirement of my family.
The age of Alaskans is extending. So the earnings of the Permanent Fund Corporation should be part of the retirement planning for all Alaskans. Ever since Gov. Bill Walker in 2016 declared a divorce between the earnings of the fund and disowned the dividend formulae, it’s been a crapshoot to determine the dividend. What is the latest excuse to spend the earnings of the fund on government instead of the dividend?
It’s critical for the people to understand this plan to spend the earnings on more government. Examine the Percent of Market Value: The Legislature set up the Percentage of Market Value approach to fence off 95% of the Fund’s earnings and spend the principal. The POMV draw is based on a percentage of the average market value of the Fund for the first five of the preceding six fiscal years. The draw is subject to appropriation and is set in statute at 5.25% for fiscal years 2019-2021 and 5% from fiscal year 2022 forward. This is unnecessarily complex and hard to follow.
Its effect is to force competition between the people’s dividends and all the lobbyists, nonprofits and big government spenders. Keep in mind that those same Legislators are protecting unconstitutional dedicated funds held by state agencies of $6.7 billion and more. Legislators want to make sure that the 5% includes the dividend faceoff with government spending setting up the battle.
The POMV is set up as direct competition with your dividend. And that is slow death for the dividend. Some Legislators don’t want you to have any dividend at all.
Let me show you a different approach that puts more money in your pocket that could be implemented next Session.
Let’s ignore the current debate over the amount of the dividend. Let’s change the approach and instead of a dividend, pay out an “energy rebate.” An energy rebate is not taxable according to actions of the IRS last year when an energy rebate was paid and was not taxed.
Currently, the percentage of tax going to the IRS is around 24%. If you switch to a non-taxable approach, you gross up the pay out by 24%. That means you can pay out 24% more that you have been paying out under a taxable dividend. Due to the IRS guidance on the 2022 dividend, the dividend ($3,284) was broken up in a taxable amount, ($2,622) and ($662) which was nontaxable.
If you agree that your kids’ dividend has been shorted, read the financial statements to find the hidden money. Remember that Jay Hammond’s approach to your dividend was 50% for Alaska government and 50% for the people’s dividend. Then call your Legislator.
Tracking the earnings and expenses of the Alaska Permanent Fund Corporation is not that difficult. Start with an index like the Standard and Poor 500 to compare income and expense. The S&P 500 compares the top 500 public companies in the United States. Since we invest internationally, the numbers are conservative for the PFC comparison. The index shows you what the rest of the market is doing.
Top companies to compare are segregated in the Index by sector. The sectors we’ll use are Technology, Communications services and Energy. Returns are judged by stock price, dividend and expense.
Stock price: Technology +32% Dividend: 1.53% Expense .1%
Stock price: Communications +36% Dividend: .83% Expense .1%
Stock price: Energy +34% Dividend: 1.53% Expense .1%
The entire index, all the sectors combined, earned a yield of 17% in one year and had an expense of .09%. Safe alternatives to existing investments such as covered calls or investments with returns on the index are available to reduce costs.
In FY 2022, our earnings through the Alaska Permanent Fund were $420.7 million. Our dividends were $82 million. Expenses are way out of line with earnings. The solution for investors like us is to cut expenses to the market average or increase earnings.
The Board should change the dividend formulae. Get it back to a percent of earnings, not the POMV. And let’s remember that it’s our fund and should be run so that the people of Alaska receive the maximum benefit.
Jim Crawford is a third-generation Alaskan entrepreneur who resides in Anchorage with his bride over 40 years, Terri. His current venture is Capital Alaska LLC, a statewide commercial lender which analyzes and may sponsor projects of sustained economic growth for the Alaska economy. Crawford, known as the Permanent Fund Defender, was a member of the Investment Advisory Committee, appointed by Gov. Jay Hammond to plan and execute the Alaska Permanent Fund Corporation.