Alaskanomics

Alaska's Permanent Fund during a pandemic

By Tim Bradner

The times are uncertain, for sure. COVID-19 and its effect has dealt a blow to almost all parts of our economy, from tourism to trade, to oil and gas and potentially fisheries. State revenues are under new pressure as oil prices implode.

There is one thing to be thankful for: Alaska’s Permanent Fund.

Even before COVID-19 the Fund had become an important stabilizer for the state budget because state oil revenues had not recovered from the 2015 oil price collapse before the new one hit.

The Fund now provides about $3 billion a year to support a state general fund budget of about $4.5 billion. Oil revenues were to have provided about $2.2 billion, and non-oil revenues (state insurance, motor fuel, fisheries and minerals taxes) bring in about $500 million. Oil revenues will now be less, so we’ll still have a deficit.

The point, however, is that for the foreseeable future Permanent Fund earnings will likely contribute twice as much as oil to the state general fund. For this we should thank our state’s leaders in adopting Senate Bill 26 two years ago, which established a percent-of-market-value formula in state law to set a maximum draw from earnings of about 5 percent a year.

A “POMV” mechanism for annual payments is common with endowments such as those of big Ivy League universities and large charitable foundations.

When the Fund’s total value is over $60 billion this works out to about $3 billion annually. What’s important is that the actual payment is based on an average Fund value for the five previous years, which keeps the payment steady even if financial markets take a big tumble, which they have. That means we can count on this for at least this year and next.

If financial markets don’t eventually recover the averaging will eventually catch us because if one bad year in five preceding years becomes two years, or three, the 5 percent annual draw will go down.

How far down? State financial analysts are modeling different scenarios, but it could mean a drop of several hundred million dollars in the POMV payment in five or eight years. But that can be planned for, at least.

In the near term we have urgent economic issues in our state that need immediate attention. The federal and state economic aid packages will help, but more will be needed.

Meanwhile, there are some aspects of the current crisis that should concern us in our new dependence on Permanent Fund earnings. We shouldn’t get too comfortable.

For example, under the state Constitution we can only draw on earnings of Fund, not the principal. The earnings are held in a separate Earnings Reserve Account.

As of Feb. 29 the earnings reserve held about $17.8 billion but a $4 billion transfer from the earnings to the principal of the Fund, an additional $700 million for inflation-proofing, both approved by the Legislature last year, and $3.1 billion for the Fiscal Year 2021 POMV are committed to be paid from this. The $4 billion and $700 million transfers to the principal happen on June 30, the end of the fiscal year, unless the Legislature acts before then to reverse these.

But with those accounted for the adjusted value of the earnings reserve would be approximately $10 billion. That’s still a lot, but not as much as $17.9 billion.

But is $10 billion is enough for a little over three years of $3 billion annual POMV draws? Maybe of maybe not, because there’s an additional complication.

State statutes allows only realized, or cash, earnings to be withdrawn. Part of the value of the earnings reserve is in unrealized, or market, gains. If these assets are sold the proceeds are realized gains and can be included in the POMV transfer. But if they are not sold, they cannot be transferred.

In normal times this wasn’t a problem because the only draws on the earnings were transfers from the earnings account to the principal to offset inflation in the principal and to the state General Fund to pay for the annual Permanent Fund dividends, or PFDs. Dividend payments required over a billion dollars annually to be withdrawn from the earnings, depending on the amount of the PFD that year. Last year’s $1,600 PFD required $1.14 billion to be transferred to the state general fund, for example.

Nowadays the $3 billion POMV payment to the general fund must be considered. Currently the PFD payment is included in the $3 billion, so with $1.14 billion taken out for dividends about $1.86 billion is left for the budget this fiscal year.

What’s important about this is that Permanent Fund trustees and its staff must now ensure that there are enough realized (cash) earnings in the till when the cash-call comes for the POMV payment.

As of March 16, there was about $7.9 billion in realized earnings, which seems comfortably enough for two years of $3 billion annual draws and maybe more because there will be more realized earnings coming in. A big portion of the Fund is invested in bonds which make steady interest payments and real estate that brings in rent income, all of which are realized (cash) income. These are not as affected by market volatility as stocks.

A two-year margin and maybe a little more are not enough to be comfortable, and the margin could narrow if the annual 5 percent draw is exceeded, for example to pay larger PFDs as a stimulus to the state’s economy. Some Alaska political leaders are calling for that.

Meanwhile, there are consequences to working with narrower margins. One is that the Fund’s managers now have to be more sensitive to the larger cash draws and will have to manage the asset portfolio with those in mind. It could lead to a more short-term focus for investment strategy, which we have not had to do before.

The Fund has always prided itself on managing for the long term and not worrying about near-term market fluctuations or needs for cash withdrawals. That may be changing now.

Tim Bradner is copublisher of the Alaska Economic Report and Alaska Legislative Digest

Post-Election PFD Discussion

By Tim Bradner

What’s significant about the state 2018 state elections wasn’t who got elected – Alaskans have seen Republican governors and Republican-led Legislatures before – but rather how much of the campaign centered on how big the Permanent Fund Dividend will be.

Instead of talking about challenges facing our state government – how to improve schools, slow the growth of health care costs, or how to pay for the $2 billion backlog of maintenance on state facilities – the candidates focused how much cash the state could give away. And this is in a time when Alaska’s finances are still precarious.

In 2015 the state’s revenues were took a nosedive after oil prices collapsed. Alaska’s oil revenues dropped from about $5 billion to $1 billion that year. It was a scary time. To preserve cash Gov. Bill Walker vetoed part of a $1.4 billion appropriation for the PFD, trimming it to $700 million.  That cut the dividend amount, of course, and voters noticed. As governor, Walker took responsibility for his veto. Legislators did same thing the following year, reducing the PFD by about the same amount through an appropriation action in the budget.

As 2018 approached candidates in the elections were quick to take advantage of this with promises to “fully fund” the PFD. Commitments were made not only to fully fund future PFDs but to go back and refund amounts that would have been paid over the last three years. These promises were made without fully reckoning the costs, but voters now expect them to be fulfilled. The amount of money involved is substantial.

According to estimates from the state Office of Budget Management, if the state were to send out a supplemental PFD payment for the current year and the previous two years, the check would amount to $3,701 per recipient at a cost of $2.4 billion.

The money would be taken from the Permanent Fund’s Earnings Reserve, the same account we now depend on to partly support our state budget.

Some background: “Fully funding” the PFD refers to a state law that guides how the PFD amount is to be calculated. That’s if there is a PFD, and the money is available.

This is important. The statute doesn’t guarantee a dividend, it only says how the payment is to be calculated. Essentially, it’s about half of the Permanent Fund’s cash income averaged over the previous five years.

Most Alaskans are confused about this and the campaign talk this year didn’t help. Under our state Constitution only the Legislature can appropriate funds (not the governor) and legislators can vary the amount. They can follow the statute (“fully” funding), appropriate less or even more. It’s totally up to them. The PFD is only a line item in the state budget, no more important than funding for education, state troopers or fish and game management. The Legislature has to decide among these budget items.

What’s important is that we only have a finite amount of income. If we spend more on dividend, following the formula in the statute, there’s less available for traditional public services, schools, troopers and so forth.

Of course, we can always raise taxes. We could enact a personal income tax or raise oil and gas taxes to get new revenue to offset the higher PFD. But if we don’t want to do that the choice is a higher PFD or cuts to public services.

The money involved is considerable, too. That’s why elected officials may come to regret easy promises made during the campaigns.

What’s needed is a discussion of what the PFD really is. Do we want it to be an entitlement, like Social Security? Many now look on it as an entitlement. Or should it be something that mainly helps lower income and middle-lower income Alaskans?

Many Alaskans use their PFDs for basic necessities and many save it for college tuitions, and those are worthy uses. There’s a darker side, too, however. Alcohol-related violence and domestic abuse tend to spike at PFD time, when checks are distributed in the fall.

More affluent Alaskans, upper middle income and upper income, often say they don’t need the PFD. A lot of these dividends are spent on vacations, or simply saved. That is money that doesn’t enter the economy.

Maybe we should have a means test, which is commonly used for many public safety-net programs, so that people in certain income categories get the PFD. This would leave more money available to support public services.

This conversation needs to happen because if we do “fully fund” the PFD in the future the funds lost to the state budget will get large, about $1.2 billion a year by 2023 according to the OMB. That’s as much as we spend to support K-12 education.

The dividend will grow, of course. By 2023 it would be $3,760 per recipient and growing. For a family of five, that $18,800 per year. A dividend that large could really start to attract people to move to Alaska just to get the dividend. Under the state’s residency rules, which have been upheld by the courts, we can’t deny their eligibility.

Interesting, and challenging, questions. Our politicians may regret having made some of these promises.

Tim Bradner is co-publisher of the Alaska Legislative Digest and Alaska Economic Report

Alaska Legislature Passes FY18 Budget

It took 157 days and two special sessions called by the governor, but the Alaska House and Senate have passed an operating budget for fiscal year 2018. The budget is a compromise of the two bodies that will allow the state to avoid a government shutdown on July 1. While we are disappointed that there was no systemic change in this year’s fiscal planning model, we are looking for the silver-lining in the situation.

The limit to the Permanent Fund Dividends formalizes the amount for the check ($1,100 or about half of historical practice) and reduces spending for that line item. The budget does not provide inflation proofing for the Permanent Fund, which reduces such appropriation and allows more flexibility in the earning reserve or spendable portion of the Fund. The budget was balanced by taking approximately $2.4 billion from the Constitutional Budget Reserve, which does not have much left in it, but the good thing is that it allows for more earning power in the Permanent Fund by not taking money from the earnings reserve. This is an interim positive step until a POMV type systematic changes are made that builds a more sustainable budget with new revenue sources.

The new budget is not good and not the way that government or business should be run. That being said, it is not debilitating for the State of Alaska and the fact that there is intent to work towards systemic changes is heartening. We will continue to work to educate legislators and the public about the importance of a structurally balanced budget that not only reduces spending but also utilizes the earnings reserve of the Permanent Fund and raises new revenues. This fight is not over, but we have an operating budget for the fiscal year that starts in one week.

Risk and Reward: The Permanent Fund as a Source of Income for the State of Alaska

By Tim Bradner

It seems inevitable that state of Alaska finances will soon be closely linked to performance of the state’s Permanent Fund. That has caused many Alaskans to look closely at how this change could affect the Fund’s management, and at the institutional protections for the Fund built into state law. Some consider those protections weak.

Gov. Bill Walker has proposed legislation that would make earnings of the Fund available to help support the state budget, and also put limits, indirectly, on the popular Permanent Fund Dividend.

The governor’s plan, in Senate Bill 128, passed the state Senate but not the state House, mainly over concerns about limiting the dividend in an election year. The governor is still pushing for passage of the bill either in a possible special session later this year or the regular 2017 session that begins in January, and with the 2016 elections over it’s quite likely the bill will pass.

Basically, Walker’s idea, which was modified in the state Senate, provides for an annual payment of the Fund’s earnings equal to 5.25 percent of the market value of the Fund, a “percent of market value”, or POMV, that is used by many large endowments in one form or another.

Based on this, the Fund could contribute between $2 billion to $2.5 billion yearly in support of the state general fund budget and still leave enough income retained in the Fund to offset inflation, and to allow the Fund to continue growing.

Of course, this would still leave a large deficit in state finances which would have to be filled with other revenues, most likely taxes in some form.

Here’s the math: If the state general fund budget is $4.5 billion, approximately its current level, and oil revenues contribute $1.2 billion, again about the current amount (and assuming, conservatively, that oil prices will remain in current range for an extended period), and that non-oil taxes contribute $300 million, this leaves a deficit of about $3 billion.

This is close to the state’s actual deficits for the past two fiscal years, which are being paid for by drawdowns from the Constitutional Budget Reserve, another state savings account (this fund will be exhausted in two years).

If the Permanent Fund can provide $2 billion to $2.5 billion each year, that still leaves a gap of $500 million to $1 billion to fill. The governor’s solution to this is a mixture of tax increases on various industries like fisheries and mining as well as a hike in the state’s motor fuel tax, which is the lowest in the nation, and a broad-based tax like a personal income tax.

However, given that some kind of change to the Permanent Fund’s relation to the state budget is coming, what questions does this raise?

First off, there are many who are concerned that a 5.25 percent annual draw is too high, that it could erode the Fund over time. Given the long-term uncertainties for financial markets, which are driven by expectations of long-term lower growth in the world economy, many pension funds and endowments are lowering their percentages of annual draws to four percent or 4.5 percent.

If the state of Alaska decides to be more prudent, that would lower the amount the Fund would make available to help the budget, requiring an increase in revenue from other sources or additional spending cuts.

The Permanent Fund’s managers say there are ways a larger draw can be accomplished, however, because the Fund is actively managed and that changes in asset allocations can result in more income. However, more aggressive management of the Fund will also assume more risk, an important consideration.

There are other issues affecting management, for example how the requirement to meet a required large annual cash payout would affect the Fund managers’ decisions over a mix of short-term, more liquid (and less income-producing) investments compared with that are long-term and less liquid (and more income-producing). These are issues but they are similar to those faced by other large endowments and can be dealt with. To some extent the Fund faces this problem now on a smaller scale, in ensuring that $1.5 billion or so is available in the fall to finance the annual PFD payout and an annual “inflation-proofing” payment of earnings back into the Fund to further offset inflation, although this has been low in recent years.

If the state does begin to use Permanent Fund earnings to help support the state budget, the governor and the Legislature will have to balance different goals. One, most important, is preserving and growing the Fund over the long term. A second, if the Legislature approves the governor’s plan, will be to have the Fund become a reliable source of revenue.

A concern many Alaskans have is that these two goals could conflict with each other.

Governor Walker Exercises Veto Power for FY17 Budget

The new fiscal year starts on Friday and Governor Walker used his veto powers today to begin to fill the $4 billion hole in the State’s budget. The Governor announced a total of $1.3 billion in vetoes and savings. The single largest amount was the $665 million in the reduction of the Permanent Fund Dividend. In a news conference, Walker said, “high dividends are not sustainable, and reduction in the payout is needed to keep the fund alive”. Without changes to the program, the dividend will go away in a few short years.

He also deferred payment for oil and gas tax credits that totaled $430 million. Road and bridge projects were deferred to save $250 million this year, while two mega-projects, the Knik Arm Bridge and Susitna-Watana Dam, were halted. Government, K-12 education and the University saw vetoes of $190 million.

As many have noted over the past year, tough decisions needed to be made to help balance the state’s budget. The Legislature passed a budget this year that did little to fill the gap with anything other than savings, so the Governor used his veto power to move towards a sustainable budget. Governor Walker warned that strong discipline is necessary and he exercised that discipline today. Cuts made to programs are difficult, but Walker has noted that cuts are necessary to fill the budget gaps. The change to the PFD shows discipline and ensures that Alaskans receive a dividend in the future, rather than lose it completely, which would happen if action was not taken.

The Constitutional Budget Reserve is running out quickly and should not be used to fund such a significant part of the state budget, as it has in the recent past. There is still work to be done to help balance the budget but the action taken by Governor Walker is a step forward and shows Alaskans that he is trying. Hopefully this will motivate the Legislature to act further when they start the latest special session on July 11.

For details on the Governor’s vetoes, visit Alaska.gov

The Legislature Must Act on Fiscal Change this Session

By Joe Beedle

Most everyone agrees that now is the time for action by the Legislature to help bridge the fiscal crisis that our state government faces. What started as a politically difficult conversation is quickly becoming an outright battle to ensure fiscal certainty for basic public services while retaining an investment climate for core business in Alaska.

There are voices coming from many sides of the debate; “don’t institute or increase my taxes”, “don’t touch my dividend”, “don’t take away services” and “cut spending to fix the gap”. In the past, the Legislature followed these conflicting voices, expecting that they may not be re-elected if they did not follow the unconstrained wishes of their constituents. Such lack of discipline has resulted in no corrective strategy implementation.  While it may be important for our elected officials to patiently listen to the self-serving wishes of their constituents, it is now critical to realize that the job of leaders is to do what is systemically best for the State and re-set to a more disciplined and logical fiscal plan now to achieve a brighter future for Alaskans for the long term.

The voices arguing against use of the Permanent Fund earnings and increased revenue sources do not understand that if these items are not part of the equation to balance the budget that in a few short years, there will be no savings or future investment to help us out of the hole. There will be no money to pay dividends or provide for essential government services such as roads, education, and public safety.

Unpopular decisions must be made by the Legislature to ensure that state government can operate without continuing a $4B+ deficit annually until we are broke. We urge the Legislature to move forward to enact a sustainable budget and believe that this includes all of the following options:

• Use of the Permanent Fund earnings
• Thoughtful decreases to the cost of State government and implementation of efficiency measures
• Additional revenue sources that include taxes on individual Alaskans

Emotions run high when discussions involve the Dividend and/or taxes, but Alaskans need to have a stake in the state’s budget and the days of oil paying for the majority of state expenses are over. Alaskans carry the smallest tax burden of any state in the nation and receive dividends, while Alaska has the highest per capita cost of state government. We are currently the only state without a state sales tax and state income tax. All other states have one or both.

Our reserves are running low, as is our patience with the State Government. The time to enact or begin enacting a sustainable budget is now and we have the tools to make it happen, but only if all of the tools are utilized to fix the fiscal crisis, including use of Permanent Fund earnings to provide for substantial and immediate relief.

Alaska Fiscal and Economic Articles of Note

Alaska has the tools and assets to ‘reset’ our government revenue and expenditure allocations by exerting more discipline in the fiscal process. This will be done through legislative and administrative actions in the upcoming legislative session and future sessions. As a state, we have more going for us with financial assets such as the Permanent Fund than any other resource development state and most countries. We simply need to marshal and align our leadership and our resources in a manner that balance the sources and uses of funds while being attractive for investment and sustained (albeit reduced) living standards.

Attached are two articles that are great summaries of the challenges and opportunities for Alaska. One is from the most recent Alaska Business Monthly and the other from a recent article in the Alaska Dispatch News. The Institute of Social and Economic Research (ISER) and the Rasmuson Foundation are both good resources for information on the state’s challenges. Consider joining the Rasmuson Foundation’s mailing list at http://plan4alaska.com/ for updated information throughout the legislative session and beyond.

We will continue to post articles of note on Alaskanomics and encourage everyone to stay informed and engaged.

Alaska Business Monthly- Alaska's Economy: Historical Trends and Future Outlook

Alaska Dispatch News Commentary- Alaskans Must Get Involved, Show Support for Solutions to Close Fiscal Gap

Governor Walker's Fiscal Year 2017 Budget Plan

The Governor is required to present his budget to legislators by December 15 each year. This year had plenty of build-up to the release of the Governor’s plan. Groups of lawmakers, businessmen, and concerned citizens have been meeting for months in anticipation of how we will begin to solve the fiscal crisis occurring in Alaska. In a press release dated December 9, 2015, the Governor introduced “The New Sustainable Alaska Plan” as a way to power the state economy through a mix of spending cuts, wealth management, new revenue, and investments. The state is currently spending over $9 million a day in savings, or $4,900 per Alaskan this year. This is not a problem that will be solved with one measure.

From the Governor’s press release:

The New Sustainable Alaska Plan also calls for continued cuts and ongoing spending restraint. The Walker-Mallott administration worked with the Legislature to cut about $1 billion from state spending since taking office on Dec. 1, 2014, and eliminated 600 state jobs. Governor Walker’s fiscal year 2017 budget calls for $100 million in additional cuts from the operating budget and $425 million in cuts from oil exploration credits.

The plan will change the oil and gas tax credit system into a low-interest loan program, wherein the rates will be determined by the number of Alaskans the companies hire. To honor existing commitments for credits, the FY17 budget allocates $1.2 billion for a transition fund and loan program. The minimum tax on the oil industry will increase by $100 million. The mining, fishing and tourism industries will also be taxed for projected revenue of about $47 million. The plan also calls for an income tax of 6 percent of federal tax liability, which is about 1.5 percent of income for the average Alaskan family, for projected revenue of about $200 million. Taxes will also be levied on alcohol, tobacco and motor fuel for projected revenue of $112 million.

The Governor’s plan is a multi-year approach that helps ease the sting of the cuts to state budget and introduction of new revenue. It is vital that we continue to move forward on this issue because Alaska cannot afford to wait any longer. Inaction will result in the depletion of the state’s savings by fiscal year 2018 if we continue to spend the way we are today. Once the savings is gone, the legislature will have to begin spending the earnings reserve of the Permanent Fund, which will be depleted in fiscal year 2022. A reduction in spending, broad based taxes and priority investments are the way that we will rise out of the ashes and return to a long term balanced and sustainable budget.

Alaskans must work with lawmakers so that the correct balance is found to have an Alaska that is spending within its means as well as serving the people.

For more information about the Governor’s plan, visit https://www.omb.alaska.gov/html/budget-report/fy2017-budget/proposed.html

Walker Administration's Fiscal Plan

By Tim Bradner

Gov. Bill Walker will roll out his Fiscal Year 2017 budget proposal fairly soon. The statutory deadline is Dec. 15 but the governor is working to get parts of it out earlier. What will really grab peoples’ attention; however, are revenue measures Walker says he will propose, including some form of broad-based tax.

The governor is also working on a new way of structuring state finances. It would fund government partly from Permanent Fund earnings, which would bring more stability to state finances. The state budget is now mainly financed by oil revenues that can be unpredictable and volatile, as recent experience has shown.

The fiscal plan has been under development for several months and was rolled out as a concept by state Attorney General Craig Richards in a briefing to legislators on Oct. 28. Lawmakers were in Juneau for a special session on natural gas issues.

The fiscal plan is a work in progress, Richards admitted, but it essentially involves bulking up the Permanent Fund by diverting certain oil revenues that now go to the state General Fund and funding the state budget from a portion of earnings of the Permanent Fund.

The governor’s team is still studying several ideas for a payout mechanism from the Permanent Fund, but some of the ideas are based on variations of a percent-of-market-value formula, similar to that used by many large endowments.

Under this approach, a percentage, say 4 percent or 5 percent, of the total market value of the fund would be tapped for the budget. This should allow enough earnings to be retained in the Fund to account for inflation. Another payout mechanism is a fixed sum paid to the general fund, with this amount inflation proofed. There are variations of this, too.

Technically the payout would actually come from the Earnings Reserve of the Permanent Fund, an account in which income from the Fund is deposited. The Legislature cannot appropriate funds from the principle of the Fund but money in the earnings reserve can be used.

These ideas aren’t really new–similar notions have been discussed for years and there are other plans out there, like one proposed by University of Alaska economist Scott Goldsmith–but the matter is urgent now given the state’s financial situation.

The governor is being given credit for stepping forward with a concrete idea, and it is certain to spark serious discussion in Juneau.

What’s also in Walker’s proposal, however, is a change in the way Permanent Fund dividends are financed and this would have the effect, in the near term at least, of reducing the annual dividend and making more money available for the state budget.

The plan described by the Attorney General Oct. 28 would have the dividends funded by a portion of state oil royalties (the remaining royalties would go to the Permanent Fund, as some now do). Currently the dividends are financed from the Fund’s earnings, with the money actually taken from the earnings reserve.

This would be a fundamental change, severing the connection between the dividend and its amount from the financial performance of the Permanent Fund. Instead, citizens would have a very direct connection with state oil revenues. Some are viewing this as good–giving Alaskans a direct stake in the performance of the oil and gas industry–while others view it more critically. Separating the dividend from Permanent Fund performance could lessen citizens’ interest in the Fund. Currently, the direct connection with the Fund performance acts as a brake against any unwise investments the trustees might make or any indirect raid on the fund by the Legislature (while the Fund cannot be spent directly it can be used as collateral in state financing, such as for a gas pipeline, which may or may not be wise). However, under current oil market conditions the amount of the dividend under the governor’s plan, if it were adopted immediately, would be roughly cut in half from the 2015 dividend amount. 

There is certain to be a lot of discussion on all aspects of this and other proposals for solving the state fiscal gap. Legislators are being very cautious in their reactions and that no one has yet voiced sharp criticism is encouraging.

The state’s credit rating agencies gave praise to Walker for at least offering up something, although they noted that his plan, as now designed, wouldn’t completely close the $3 billion deficit. New revenue sources will still be needed.

So this is a start, and possibly a good one. There’s a lot more to come. But solve the problem we must, and soon.

 

Tim Bradner is a natural resources writer for the Alaska Journal of Commerce

Walker Administration's Proposed Change to Permanent Fund

Governor Walker’s administration unveiled the first part of their plan to bridge the budget gap on Wednesday. The plan would convert the Permanent Fund into an endowment-like fund that would take in oil income and generate annual revenue for the state. The changes would protect the state from the highs and lows of oil prices. The part of the change that is likely to cause the most debate is that the Permanent Fund Dividend would be reduced to approximately $1,000. The average over the past 10 years has been $1,400. Eligible Alaskans would still receive a check, but it would not be at the same levels seen in the past few years.

Attorney General Craig Richards introduced the plan at a morning briefing and explained that it would be only part of the plan and would require approval from the Legislature. The plan would help stabilize money coming into the general budget. The rest of the plan is yet to be announced, but will likely include other options for increased revenue and cuts to the budget.

The endowment model is not a new concept for the Permanent Fund and there are legislators who have suggested similar plans as a way to help bridge the funding gap for the state. One thing that legislators seem to agree on is that it will take time to go through the Governor’s plan and understand the details. The Alaska Dispatch News notes that legislators believe the plan has merit but any change to the Permanent Fund Dividend will be a hard sell to constituents. The coming weeks/months will require education for both lawmakers and the public so that there is understanding of what the plan means for the state and Alaskans.

Related to the budget woes, Anchorage’s bond rating  with Standard & Poor’s (S&P) is holding at the top-level AAA but the outlook was dropped to “negative” from its last outlook of “stable”. Three months ago, S&P downgraded the state of Alaska to a “negative” outlook. The revision in the outlook means that there is a chance that Anchorage’s bond rating will be revised in the next two years. If that happens, it will change the interest rate that Anchorage pays for bonds. Anchorage is still in good shape, but things could change if the state pulls support for local pension liabilities and school bond debt payments. This is another issue that we will continue to monitor in the coming months.