Alaska's Permanent Fund had a banner year, but the money is spoken for

Alaska's Permanent Fund had a banner year — and the state has already spoken for the money.

The fund earned a 12.42 percent return in the year that ended June 30, the Alaska Permanent Fund Corporation reported in its audited results this month, finishing at about $91.9 billion and throwing off roughly $8.2 billion in spendable earnings. But the state has claimed $4 billion of that for this year's budget and dividend, another $4.1 billion for next year, and about $1.7 billion to shield the fund's core from inflation. A strong year eased an immediate cash-flow worry. It did not settle the longer argument over whether Alaska can keep making all three of those commitments at once.

The fund is split into two legal buckets, and only one can be touched. Its constitutionally protected core, the Principal, can't be spent on the ordinary budget. The Earnings Reserve Account — where realized investment income lands — can be, and that's where the state's annual draw comes from. So even when the fund's total value is high, the state's roughly $4 billion draw is a claim on the smaller spendable account, not the whole $91.9 billion.

Under the current rule, Alaska pulls 5 percent of the fund's market value a year, and that transfer now supplies about 59 percent of the state's unrestricted general fund revenue in the coming year — the single largest source, ahead of oil. (The corporation has described the draw as more than two-thirds of that revenue; the state's own budget forecast puts it lower.)

In January, Legislative Finance Director Alexei Painter presented modeling that put roughly a one-in-three chance that the Earnings Reserve would fall short of the full draw at least once over the following decade, if the state also kept fully protecting the Principal against inflation. Suspending that inflation protection whenever the reserve ran low cut the modeled risk to about one in four. Those figures came before the strong year just reported, which likely improves the picture — but no updated model reflecting the final results has been published, and the underlying tension is structural, not a one-year problem.

Nobody is warning the fund will run out. The dispute is narrower and more technical: how much of each year's earnings to lock away versus keep spendable. Inflation-proofing moves realized earnings from the reserve into the protected Principal, where they can't be appropriated — which preserves the savings' buying power for future generations, but also shrinks the spendable cushion the annual draw depends on. That's why skipping it isn't simply spending the money now: leaving earnings in the reserve keeps them invested and available, which the state's own modeling shows can lower the risk of a future shortfall.

But the case for inflation-proofing is just as concrete. The statutory formula exists to keep the Principal from quietly losing value to inflation, and money left in the reserve is exposed to being spent — on services, or on the dividend. The corporation's board favors consistent, rules-based inflation-proofing, and it has formally objected to a legislative move to recast an earlier $4 billion transfer as forward inflation protection.

By the board's accounting, Alaska has under-funded inflation-proofing by about $4.6 billion over the past decade, transferring $11.3 billion of a formula-calculated $15.9 billion. But the Legislature directed the corporation to treat a separate $4 billion transfer from 2022 as forward inflation-proofing — and if it's counted that way, the cumulative gap shrinks to about $573 million. The board rejects that reclassification. The state skipped rules-based inflation-proofing entirely in each of the last two years before resuming it this year.

Underneath all of it sits the dividend, the most politically charged claim on the money. This year's budget funds a $1,000 Permanent Fund dividend — about $674 million — while the draw itself is roughly $4 billion; the governor's original proposal would have steered more than $2.3 billion to dividends. The Alaska Supreme Court has held that fund income is subject to yearly appropriation and the governor's veto, so the old dividend formula no longer commands an automatic payout. Every dollar to the dividend, to inflation-proofing, and to government is drawn from the same reserve.

Lawmakers have started to grapple with the math. A bill this year would have phased the annual draw down from 5 percent to 4.5 percent, trading smaller transfers now for a larger fund later; the Senate Finance Committee advanced it unanimously, 7-0, but it stalled and never passed. Broader proposals to merge the fund's two accounts into a single endowment — which the corporation favors — have gone nowhere with voters so far.

The strong year gave the state more room to maneuver, but the underlying choice is unchanged. Alaska is paying for government, protecting its savings for the next generation, and sending residents a check out of the same investment earnings, with no settled agreement on which of the three gives way when returns are thinner.