THE LINK: JANUARY 2024 36 Commissioner of Revenue touts areas to improve Alaska’s financials are looking good, state revenue commissioner Adam Crum says. The state budget is balanced, and a $450 million surplus is estimated for the current fiscal year, FY 2024. But there are problems, including workforce outmigration. Young people are still leaving Alaska. The state’s economy needs to grow to keep them here, Commissioner Crum said in briefings to business groups last fall. Gov. Mike Dunleavy’s goal is to reverse outmigration so that by the end of his second term as governor the state’s population, and workforce, will be growing again. Another problem is in the unusual structure of the Alaska Permanent Fund, Commissioner Crum said. While oil prices are always a wild card for the state, those now support a smaller part of the state budget, about 35 percent in the current budget year, compared with 75 percent or more in years when oil production was higher. Alaska Permanent Fund income now pays for most of budget. In the current FY 2024 $3.53 billion was paid by the Fund to support the budget, and next year it will be $3.65 billion. The amount will keep growing because the Fund itself is growing. The good news about this is that the amount paid by the Fund for this year and next are known with certainty because what the Fund contributes to the budget is paid based on a Percent of Market Value, or POMV, formula of 5 percent of the Fund’s total value on a five-year average. Because the amount paid on the previous five-year average knowing the POMV payment adds financial certainty for the state. In past years, the instability of oil markets and prices left the governor and Legislature only guessing on how much they could spend for public services. Other revenue, from non-oil sources, pays a much smaller part of the budget. The state revenue structure is now more diversified and stable, but it doesn’t mean there aren’t problems, Commissioner Crum said. That includes the POMV. A difficulty is created by the unusual structure of the Permanent Fund, which is unlike a traditional endowment that supports public purposes. When legislators, and voters approved the amendment to the state Constitution in 1976 creating the Fund, lawmakers wanted the Fund invested in safe assets, which at the time meant fixed income, mostly bonds. Stocks were then considered too risky. Spending of certain Fund earnings was allowed, but from the fixed income. To deal with this, the Legislature in 1976 split the Fund, with a principle, or corpus, constitutionally protected and which can’t be spent, and an Earnings Reserve Account, or ERA, to hold the realized gains, or cash earnings. The cash earnings came from interest on bonds and later income from real estate and sales of stock when the Legislature allowed those kinds of investments. However, only the realized, or cash, earnings going to the earnings account can be appropriated, or spent, by the Legislature. Over the years money for the annual Permanent Fund Dividend was appropriated from the earnings reserve. More recently the large POMV payment, which now funds the PFD and state services, has had to come from the reserve account. To make this work, there has to be enough coming into the earnings reserve to make these payments. However, a concern is now that uncertainty in financial markets has reduced cash earnings to the point that at some point there might not be enough in the account to pay the annual POMV. The solution, Commissioner Crum said, is to end the two-account structure and combine it into a single fund that is protected, but with an annual POMV allowed coming from the combined account. In this way the Fund would be like an endowment like those of large universities like Harvard. This change, however, will require a rewrite of the 1976 constitutional amendment that created the Fund. The Fund’s trustees, which include Commissioner Crum, will likely propose this to the Legislature, but its approval will need not only legislators’ approval but that of voters in the next general election. It’s complicated, so explaining it, first to legislators and then to the public, will require the Fund’s trustees to be persuasive. — Tim Bradner Crum: State’s in good shape
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