Legislative committee hears trustees’ plan to combine Permanent Fund accounts and adopt POMV payout

Legislative fiscal staff and leaders of the Alaska Permanent Fund Corporation (APFC) told the Legislative Budget & Audit Committee on March 4 that the fund’s current two-account structure and earnings accounting increase the risk that the state could be unable to receive the full statutory percent-of-market-value (POMV) transfer in coming years.

Alexi Painter, the committee’s legislative fiscal analyst, told members that the fund’s earnings-reserve account (ERA) faces declining realized-income balances relative to the POMV draw. “The permanent fund corporation’s statutory net income projection going forward is 6.25%. And that is if you add inflation of 2.5% and then our 5% POMV draw, you can see that math is not gonna work,” Painter said, summarizing modeling that shows the ERA balance could be insufficient beginning around fiscal year 2030–31 and that probabilistic analysis gives about a 46% chance the ERA would be unable to make the full POMV draw under current rules.

Why it matters: the POMV transfer (currently modeled at 5%) is now the state’s single largest predictable revenue source. Painter said adopting POMV in 2019 reduced Alaska’s pre-transfer average deficit from about $3 billion annually (FY2014–2018) to roughly $250 million a year since FY2019, but the ERA’s projected trajectory still creates a structural risk to that predictability.

APFC trustees’ proposal and rationale

Jason Bruney, chair of the APFC board, and Devin Mitchell, APFC executive director and CEO, told the committee the trustees are recommending a shift from the current two-account framework (principal + ERA) to a single endowment account with a constitutionally-limited annual POMV payout. Bruney said the trustees have discussed the change for decades and framed it as a means of “bringing predictability for the funding source for the state,” adding that “this is not about dividends, about how things are spent. This is about bringing predictability to the funding source.”

Mitchell traced the fund’s history to the 1976 constitutional amendment that created the Permanent Fund and described the current statutory mismatch between total return (what the portfolio earns on paper) and realized or statutory net income (what is spendable in the ERA). He summarized the trustees’ view that a single-account, constitutionally-guaranteed POMV draw would:

- eliminate the statutory spendability mismatch between unrealized gains and realized income; - provide a simpler, predictable annual transfer that aligns investment strategy with spend policy; and - reduce the probability that the ERA will be insufficient to meet the next fiscal year’s POMV transfer.

Numbers and choices presented to lawmakers

Key figures given to the committee included:

- Current modeled POMV draw: 5% (statutory draw since 2019). - APFC projection of statutory net income: 6.25% (used in examples Painter cited). - Probabilistic estimate of ERA insufficiency to make the full POMV draw under current rules: about 46%. - Historical pre-POMV average deficit (FY2014–2018): about $3,000,000,000 per year; post-POMV (FY2019–2025) average pre-transfer deficit: about $250,000,000 per year. - Effect of lowering the draw to 4% (example shown): would increase the budget deficit by about $760,000,000 in the model presented.

Painter outlined policy levers the legislature could use to reduce risk: lower the POMV draw rate (e.g., 4%–5.5% scenarios were shown), adopt partial or no inflation proofing of principal, or constitutionalize the POMV draw (which APFC modeling showed would reduce the ERA shortfall risk toward zero). He said a partial inflation-proofing rule that suspends inflation proofing when the ERA is insufficient can materially improve outcomes in negative scenarios.

Lawmakers’ questions and APFC responses

Committee members asked about recent returns, fees, private-equity performance, and whether unrealized gains could be appropriated. APFC representatives said:

- Recent short-term public-market performance (for example the S&P 500) has outperformed some APFC exposures, but the APFC portfolio is constructed for long-term, diversified total-return objectives rather than short-term shifts into a single asset class. - Private-market allocations have higher fee structures (including partnerships with annual management fees and carried interest), and those fees are reflected in reported net-of-fee returns; APFC described private equity as a strong-performing asset class over the last decade, though speakers acknowledged recent relative underperformance versus public equities in the very short term. - Realizing unrealized gains (selling public and private holdings to convert unrealized gains to realized income) is legally and practically possible for many public securities but more difficult for private-asset holdings; APFC noted this would “kick the can” and is not a durable structural fix. - A 2017 court decision affecting legislative appropriation powers was raised by a committee member in the context of legal authority to appropriate unrealized gains; APFC said that would be a litigable legal question and not a settled path to access unrealized gains.

No formal vote or committee action was recorded at the hearing; presenters urged additional study and legislative policy discussion. APFC representatives said trustee paper number 10, which outlines the single-account and constitutional amendment approach, has been circulated to legislators and staff and can be provided to members who do not have it.

Context and next steps

APFC and legislative staff recommended the committee consider the trade-offs among draw rate, inflation proofing, and legal durability (statutory change vs. constitutional amendment). APFC said a constitutional amendment setting a capped POMV payout would be the most durable mechanism but requires a supermajority in the legislature and voter approval, while statutory changes are quicker but less permanent.

The committee reserved time for further questions and requested additional modeling and analysis on alternative draw rates, the fiscal impact of different inflation-proofing rules, and the legal options for addressing unrealized gains.