Alaska Fund Reminds Lawmakers It’s Not a Piggy Bank

The body overseeing Alaska’s $64.7 billion sovereign wealth fund has warned the state’s lawmakers that using the fund to boost budget shortfalls will put its long-term sustainability at risk.

The board of trustees of the Alaska Permanent Fund Corporation has issued a resolution calling on the state’s lawmakers to adhere to a rules-based system for overseeing transfers into and out of the fund.

In 1976, Alaska’s constitution was amended to establish the permanent fund, and stipulates that at least 25% of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments, and bonuses received by the state must be deposited into the permanent fund. Every qualifying Alaska resident receives a dividend each year from the fund.

“The board of trustees acknowledges the fiscal challenges facing the state have resulted in multiple stakeholders proposing and analyzing new rules-based frameworks to change how fund transfers occur,” said the board in its resolution. “There should be clear and publicly disclosed policies, rules, procedures, or arrangements in relation to the fund’s general approach to funding, withdrawal, and spending operations on behalf of the government.”

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The trustees said that a rules-based system improves the likelihood that the fund will be sustainable over time, and that having a framework rationalized by policymakers regarding the rules for savings, withdrawals, and growing the funds value provides a consistent approach to transfers over the long term.

“This is a core element to ensuring sustainability,” said the trustees. “Conversely, the reliance on ad-hoc draws to support government spending would substantially increase the chance of a non-sustainable withdrawal in any one year, and the risk of nonformulaic draws compounding in an unsustainable manner over multiple years.”

However, the resolution, which was distributed to members of the state’s Senate and House of Representatives, hasn’t yet convinced lawmakers to leave the fund alone. Earlier this week, Alaska’s House of Representatives voted to raise the dividend payout to $2,700 next year as part of its annual state operating budget proposal. The dividend paid out varies from year to year, ranging from a low of $331.29 in 1984 to a high of $2,072.00 in 2015. Last year and in 2018, the payout was $1,100 per resident.

The House’s budget vote would pay dividends in line with the current formula, but would reportedly add $900 million to the amount of cash that the House would withdraw from the Permanent Fund to balance its budget this year.

Tags: Alaska, dividends, payouts, Sovereign Wealth Fund

The federally appointed oversight board for bankrupt, storm-damaged Puerto Rico, at loggerheads with the island’s governor over a new fiscal plan, has hit a new low point.

This week, Gov. Ricardo Rossello withdrew his proposal after the board called for cutting public pensions by 10% and implementing other austerity measures. Many in Puerto Rico believe the panel infringes on the territory’s sovereignty. It has the authority to impose its own plan if it doesn’t like what the governor proposes.

“The Oversight Board pretends to dictate the [government’s] public policy. This is not only illegal but is unacceptable,” Rossello said in a statement declaring his reasons for rescinding the labor proposal. He called the board’s actions an “unfair and abusive measure.”

Rossello’s plan featured several employer-friendly provisions, such as eliminating required Christmas bonuses for private-sector employees, as well as cutting mandatory back vacation and sick days, and allowing businesses to fire workers as they saw fit. On the other hand, he also advocated raising the minimum wage.

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The board has given the governor until April 5 to come up with his own plan, which includes the labor law changes—and how to deal with the commonwealth’s underfunded pension system.

The dispute stems from Puerto Rico’s tremendous debt crisis, a $120 billion bond and pension debt coupled with the aftermath of September’s Hurricane Maria, which caused widespread devastation. Today, some 16% of the population still lacks power.

At present, Puerto Rico’s general budget makes the payments to its $50 billion underfunded public pension system, which now has no assets. Reuters reports that this is one of few occasions where a large-scale US plan has been left to a “pay-as-you-go” basis.

The island’s huge debt has led to the biggest bankruptcy in US history. If Rossello continues to be at odds with the congressionally appointed oversight board, he risks the panel imposing a fiscal turnaround plan unilaterally if it wishes.

Tags: Pension, Puerto Rico, Ricardo Rossello