Endowments have been around for a long time. Many universities have maintained them for decades, and they serve as major revenue generators. Have you ever heard of a university threatening to overdraw its endowment fund? Probably not—because endowments are designed specifically to prevent that from happening.
Unfortunately, Alaska’s current Permanent Fund structure has a gaping hole that allows for all sorts of overdraw shenanigans. Some prefer to keep the topic as murky as possible, but it’s actually quite simple. It comes down to this: Would you rather leave a portion of our largest savings account exposed to risky political whims, or would you rather lock up the entire fund and only allow a known amount to be drawn each year?
There are different ideas about how to fix this, but if we’re going to amend the constitution, there is only one responsible solution: move the entire fund under constitutional protection.
uncertainty hurts the fund
Let’s start with how the Alaska Permanent Fund Corporation (APFC) views these unwise legislative attempts to overdraw the fund. The APFC’s top concern is having enough cash on hand in case one of these reckless ideas passes. Legislative uncertainty impairs the APFC’s ability to invest fully, which has a profoundly negative effect on overall returns.
We’ve seen this play out in real time. A few years ago, when the House was deadlocked over the budget, a member introduced an amendment to fund the entire budget — including federal contributions — by drawing roughly $12 billion from the Earnings Reserve Account (ERA). Fortunately, it failed.
But another time, a proposal to draw over $5 billion to back-pay PFDs actually passed because a member was absent. The APFC had to scramble to prepare for that withdrawal, despite its poor financial rationale.
In both cases, it didn’t matter what the funds were intended for. The point is that the APFC had to hold large amounts of cash just in case, instead of investing it for higher returns.
A constitutionally protected endowment matters
Let’s revisit how the Permanent Fund is currently structured. As of the end of February, the fund totals around $80 billion. Of that, about $60 billion is the constitutionally protected corpus, which cannot be spent without a constitutional amendment. The remaining $20 billion — 25% of the total — is in the ERA. This portion is only protected by statute, which, as we’ve seen with the PFD statute, offers little real protection.
These attempts to raid the fund show exactly why a true endowment model is needed: to shield the entire fund and ensure it continues benefiting future generations. As long as legislators can propose massive withdrawals from the ERA with a simple majority vote, the fund will remain vulnerable. And that temptation will only grow as oil prices decline.
If the entire fund were moved into a constitutionally protected endowment, the APFC would know in advance that only a fixed percentage — say, the current 5% — could be withdrawn annually, beginning each fiscal year on July 1. This draw, without even factoring in levelizing formulas, would amount to about $4 billion.
Some argue that this target is too aggressive based on historical returns. But that’s a flawed argument. The APFC is currently forced to hold too much cash in reserve in case of legislative raids. If that risk were eliminated, the APFC could invest more aggressively. Even a 1-2% increase in annualized returns would significantly accelerate the path to a $100 billion fund.
Over the past few months, self-described experts have tried to convince people that the endowment model would open the fund’s corpus to spending. Some even claim it would drain the fund. That’s completely wrong.
As a former APFC trustee, I can say with certainty: The endowment model is designed to protect the fund for future generations. The idea is simple — move the unprotected ERA into the constitutionally protected corpus and allow only a predictable, limited draw. This would eliminate the possibility of legislative overreach.
Anything short of full constitutional protection invites continued abuse. The ERA has become a backup plan for lawmakers who want to avoid making tough decisions. That has to end.
The Legislature is once again tangled in budget fights — debating how to fund an ever-expanding government with too many variables at their disposal: the ERA, oil prices, and of course, the PFD. As long as the PFD remains the go-to lever, the cycle of dysfunction will continue.
Many of us wish the PFD had been resolved when the Percent of Market Value (POMV) draw was implemented. But it wasn’t, and here we are. Today’s fight is about how much of the draw should go to the PFD and how much to education.
A constitutionally protected endowment, producing a fixed, known amount at the beginning of each legislative session, would help stabilize the process. Combined with fairly predictable — though shrinking — oil revenues, it would take the PFD debate off the table. That alone would bring clarity to the budget process.
To be clear, I’m not proposing any changes to the PFD itself. This is about stabilizing Alaska’s revenue streams. Conversations about new taxes or expanding government belong in another column.
But we can’t have a serious, informed discussion about the future of this state until we fix this. As long as the fund can be overdrawn with a simple vote, we are undermining one of the last reliable sources of stability Alaska has left.
Bruce Tangeman served as Gov. Mike Dunleavy’s first commissioner of revenue.
