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Providing coverage of Alaska and northern Canada's oil and gas industry
May 2018

Vol. 23, No.19 Week of May 13, 2018

Legislature passes Permanent Fund bill

Bill authorizes state appropriation based on percent of fundís market value; permanent fund dividend calculation remains unaltered

Alan Bailey

Petroleum News

In a move aimed at helping to close Alaskaís fiscal gap, on May 8 the state Legislature passed Senate Bill 26, a bill limiting state appropriations from the Permanent Fund to a percentage of the fundís market value, or POMV. The concept is that, by capping the annual appropriation at an amount that represents the expected long-term average annual growth of the fund, adjusted for inflation, the value of the fund will be preserved for future use. The bill does not impact the manner in which annual permanent fund dividends paid to state residents are calculated.

POMV calculation

Specifically, the legislation says that the amount of money available for appropriation equals 5.25 percent of the average market value of the fund for the first five of the preceding six fiscal years, including the fiscal year just ended. Presumably this method of calculation will dampen out annual swings in the fundís value. On July 21, 2021, the percentage available for appropriation will drop to 5 percent. The Permanent Fund statute will continue to require topping up of the fundís principle, if necessary, to account for inflation.

ďThis landmark legislation is a major step toward ensuring that the fund - and the dividend program - will remain permanent. By stabilizing revenues, we secure Permanent Fund dividends for our children and grandchildren, and ensure services provided by the Alaska State Troopers, road maintenance crews, and teachers will continue for generations,Ē said Gov. Bill Walker in response to the passage of the bill. ďSB 26 lays the foundation for our economy to grow and prosper. It provides for efficient investment of the Permanent Fund, improves the stateís position in financial markets, and perhaps most importantly, allows Alaskans to be fully confident in the future of their households and their communities.Ē

Under the state constitution only realized earnings, earnings that result from the sale of assets or the earning of interest, can be withdrawn from the fund. The fundís principle cannot be used for withdrawals or appropriations. Each year the realized earnings are added to the fundís earnings reserve account. The new legislation says that the appropriations based on the fundís market value will be drawn from the earnings reserve - Petroleum News understands that there are more than enough funds currently in the earnings reserve account to support percentage of market value appropriations for the foreseeable future.

simplification

Although there has been some broad consensus among lawmakers on the need to use earnings from Alaskaís Permanent Fund to help fill the continuing shortfall in the stateís funding requirements, there has been lengthy debate over the last couple of years regarding the specifics of how this might be done. At the end of the 2017 legislative session the House and the Senate each had its own bill, each with different provisions relating to parameters such as the level of the permanent fund dividend, and provisions that would mandate a reduction in the maximum Permanent Fund appropriation when state oil and gas revenues are high.

The bill that has now passed represents a considerable simplification, merely setting a maximum annual appropriation based on market value, while retaining the existing permanent fund dividend calculation and the arrangements for fund inflation protection.






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