Constitutional Amendment Proposed to Prevent Legislature from Overspending the Permanent Fund
March 06, 2023
Currently, the Permanent Fund is structured as two accounts: the Principal and the Earnings Reserve Account. The Alaska Constitution prohibits the spending of the Principal without a vote of the people. The Earnings Reserve Account, on the other hand, is entirely available for the Legislature to spend. The Legislature adopted statutes in 2018 that allow the sustainable spending of the Permanent Fund’s earnings. Still, those statutes do not stop the Legislature from passing budgets that spend Permanent Fund earnings more than those sustainable limits.
“Right now, only part of the Permanent Fund is protected,” said Representative Cliff Groh (D-Anchorage). “Current law allows the Legislature to spend the entire Permanent Fund Earnings Reserve Account by a simple majority vote. We need this constitutional amendment to prevent the Legislature from blowing a critical part of the Permanent Fund in a spree.”
Introduced as House Joint Resolution 9, the proposed constitutional amendment would combine the Permanent Fund Principal and the Permanent Fund Earnings Reserve Account into a single constitutionally protected account. Under this proposed amendment, the Legislature would be allowed to appropriate each year a maximum of five percent (5%) of the market value of that new constitutionally safeguarded account as calculated over the first five of the preceding six fiscal years. Experts have told the Legislature that these limits make that spending rate sustainable under this Percent of Market Value (“POMV”) system.
The Permanent Fund’s Trustees have recommended this change since 2003. This constitutional amendment was also urged by the Fiscal Policy Working Group, a bipartisan and bicameral group of lawmakers who proposed a comprehensive solution for the State of Alaska’s structural deficit in 2021.
If the resolution proposing the constitutional amendment passes the Legislature and is approved by voters, the change will align the Permanent Fund with best practices in the financial industry. The constitutionally limited POMV draw will serve as a cap on revenues and an effective spending cap, limiting the amount of money that the Legislature can appropriate to no more than five percent of the Permanent Fund’s total market value. The new structure that this constitutional amendment would create would also automatically build in inflation-proofing of the Permanent Fund without requiring an annual appropriation by the Legislature.
The Permanent Fund is a critical source of revenue to pay for roads and schools as well as Permanent Fund Dividends. Putting the POMV rules in the Alaska Constitution will provide a stable and reliable funding source for future generations. This approach provides the Alaska Permanent Fund Corporation certainty in managing assets, allowing a greater return on the Permanent Fund’s investments.
"As a lifelong Alaskan who helped create the Permanent Fund Dividend, I am proud to introduce this resolution to help provide a secure financial future for Alaska," Representative Groh said. “While I personally support enshrining the Permanent Fund Dividend in the Constitution, this proposed resolution sets aside the PFD question and focuses solely on constitutionally protecting the Permanent Fund itself.”
"We can’t leave a critical part of the Permanent Fund out there looking like a tempting piggy bank for the Legislature," said Rep. Jesse Sumner (R-Wasilla)."Constitutionalizing the POMV draw will ensure the stability of the Permanent Fund for future generations."
“I like to call this the ‘Protect Our Permanent Fund Forever’ proposal," said Rep. Alyse Galvin (I-Anchorage). "It will hold the Legislature accountable to the people of Alaska.”
In addition to Reps. Groh, Sumner, and Galvin, Reps. Calvin Schrage (NP-Anchorage), Stanley Wright (R-Anchorage), Ashley Carrick (D-Fairbanks), Andy Josephson (D-Anchorage), and Jennie Armstrong (D-Anchorage) are also co-sponsoring the resolution.
If the resolution is approved by two-thirds of the House and the Senate, this constitutional amendment will be placed on the ballot without being subject to a veto by the Governor. If approved by a majority of voters, the amendment becomes part of the Alaska Constitution.