Begich misses mark on Permanent Fund protected principal by $6.5 billion

Former Sen. Mark Begich needs to brush up on his understanding of the Alaska Permanent Fund and its financial statements.

On Facebook Saturday, the Democratic candidate for governor responded to a comment regarding the fund by saying that the protected portion of the permanent fund, which cannot be spent, is about $47 billion. The real number is closer to $40.2 billion.

The principal is the portion of the fund that must be placed in "income producing investments," under terms of the 1976 constitutional amendment, and can never be spent.

The Legislature can spend or invest the rest of the $65.4 billion account.

The misunderstanding about the real size of the principal—which is hardly unique to Begich—stems from the confusing way in which the fund assets are described by the Alaska Permanent Fund Corporation. 

It is correct that as of May 31, the "total nonspendable" portion of the permanent fund was $46.7 billion. 

But of that amount, $6.5 billion is "nonspendable" only because it consists of unrealized gains on assets owned by the fund. All it takes to make that $6.5 billion spendable is to have the corporation sell the assets and turn the unrealized gains in stocks, bonds, real estate, etc. into cash.

The Permanent Fund Corporation told legislators in a presentation this year that "unrealized gains earned by principal are part of principal, only until realized at which time they are transferred to the ERA," the earnings reserve account. 

The $6.5 billion has the potential to be spent, so it should not be counted among the assets that can never be spent. The corporation can separate the two, clarifying its terminology to better communicate with the subset of Alaskans who are not accountants.  A year ago, the corporation had $7.1 billion in unrealized gains.

The real protected principal consists of the constitutionally required deposits and extra legislative appropriations made to the principal since 1977. The protected principal has grown slowly in recent years because of declines in oil production, lower oil prices, low inflation and a couple of years in which inflation proofing did not take place.

This fiscal year more than $942 million will be added to the principal to offset inflation, double or triple the amount to be added from oil royalties. 

In the life of the fund about $16.5 billion has come from proceeds of constitutionally dedicated oil resources, while legislators have added more than $23 billion through inflation proofing and extra appropriations.

More than $16 billion of that $23 billion has been added regularly to offset inflation, thanks to a crucial decision made long ago for which legislators and governors don't get enough credit.

Begich, along with former state Sen. Mike Dunleavy, a Republican, wants to put the dividend in the Alaska Constitution. I think that is a problem because neither candidate has presented a financial plan for the state. 

It makes no sense to propose a constitutional amendment that deals with the dividend and ignores the full range of state needs. Every candidate for governor needs to offer a detailed plan that includes taxes and specifics about government services to be cut or added.

Gov. Bill Walker, with his actions and proposed legislation of the last four years, has offered a plan that would spread the cost across the special interests that make up Alaska. He came up with tax plans and budget cuts that made everyone unhappy.

Challengers Begich, Dunleavy and former Lt. Gov. Mead Treadwell have offered lots of feel-good campaign promises—the same ones we've heard for decades—without including the unpleasant details that tend to make everyone unhappy.