Alaska Permanent Fund

A presentation of the Public Television Network of the Alaska. Permanent Fund 10th anniversary special is made possible in part through a grant from the permanent foreign corporation and Katie all over TV. Good evening and welcome to a special honoring the tenth anniversary of the Alaska Permanent Fund corporation. I'm your host Jeanine Pirro in the next hour we'll look at the history of the multibillion dollar savings account that belongs to all Alaskans and is now celebrating its 10th birthday. Well I could have a permanent fan those managed today to make money and how it has performed over the years. And after our historical overview our guests here in the studio will take questions from viewers and listeners around the state on any and all aspects of the Permanent Fund. There are more than qualified to do that because with us our president and former members of the permanent fun board of trustees with us tonight we have the first chairman of the board who also served as a trustee from 1980 to 1982. Alma

Rasmussen of Anchorage next to him is Dr. George Rogers also a chair in 1983 and a trustee between 1980 and 1983. And I asked him if asked before taking on a new job requiring a move from Fairbanks to Juneau. Late last year Governor Steve Cooper was a permanent fund trustee from 1982 through 85 and also served as a chair. And a cult member and chairman of the Permanent Fund board. With us is Byron Malotte head of the Alaska incorporated here and as you know what mean beginning the question and answer part of our program after a short video presentation. We have a brief walking tour through the history of the Permanent Fund. Our tour guide is Dave Rose executive director of the Alaska Permanent Fund corporation. You know Alaska's Permanent Fund is a whole lot more than just an annual dividend check. In

fact the fund is been around for 10 years now. In fact. The Permanent Fund was in existence for five years before there even was a dividend program. The birds started to roll in 1969 when the state received nine hundred million dollars from the fruit of a bonus sale. What to do with that $900 million dollars was the subject of a considerable amount of discussion. The money was allocated for health and education needs basics such as roads schools and airports. Legislators and citizens realize that Alaska we're beginning to see an increasing flow of revenue from oil exploration and development. The talk turned to saving some of that wealth for future needs. The top turned into legislation. In 1975 the legislature presented Governor Jay Hammond with a bill to establish in Alaska a release from his Permanent Fund. Hammond supported the idea of a permanent fund but vetoed the legislation because such a fund would be considered dedicated revenue something that allowed under the state

constitution. Many quickly turned around and introduced his own legislation asking Alaskans to approve a constitutional amendment creating a permanent fund. And in November of 1976 voters approved the fund by a healthy margin that put the legislature to work the following year. Figuring out how to manage the fund. House and Senate special committees held public forums around the state to listen to ideas of how the no permanent fund should be invested managed and parceled out and deposits were made into the fund then managed by the Department of Revenue. 1980 was a significant year in the history of the permanent funding legislation was passed creating an Alaskan Permanent Fund corporation. The legislation also provided that 50 percent of all royalties from lease sales after 1979 would be deposited into the fund. In prior years that amount had only been 25 percent. The money from

the corporation was also directed to invest prudently and we will talk about what that means later on. And establish the point that safety of the funds principle was most important. The national legislature also kicked in special additional deposits to the fund beginning in 1980 above the amount required by law. In 1980 that amount was nine hundred million dollars and in 1980 won 1.8 billion dollars in a fund dividend program arrived in 1982 using earnings average through a formula to determine the check the amount. And since 1982 the Permanent Fund corporation has had responsibility for managing investments. The permanent fundus a trust it's organized in a corporation separate from state government which is managed by six trustees appointed by the governor. Their responsibility is to set management operational and investment policy.

They in turn hire an executive director who hires the staff. The small 12 person staff at the fund is responsible for all of the investment the accounting the safekeeping activity as well as research and liaison with the public. For example our chief investment officer Bill means is usually in the office by about 6:00 a.m. finding out what national and world events are affecting prices of stocks bonds and real estate. We're talking to securities dealers in New York San Francisco. Seattle sometimes even London to see what is going on and to see how they see the market. What. Other investors are doing in the market. What are large insurance companies for example are they would be fine. Currently they happen to have a great deal of cash. And are putting it to work and that's been one of the forces that has been driving the prices of bonds up and stocks up recently is large pools of cash that they have at this time of the year.

The managers of the Permanent Fund take a conservative approach to investing the state's money and that approach is required by law. The friendliness is the prudent investor rule which is a set of standards used by institutional and trust investors. It's a very conservative rule. The fund is very much like we really killer an old time baseball player who played at the turn of the century his 19 year career Wee Willie Keeler when we hit about 40 home runs really struck out about 40 times. He hit about 20 500 singles. The fund is very much like Keylor in the sense that we don't try to hit triples and home runs. We're content with consistency. A lot of singles maybe an occasional double and in fact the Permanent Fund has done better than his projected 3 percent rate of return in the last five years. Topping our last year at a nearly 11 percent return on investment the state of Alaska has saved nearly a quarter of its oil wealth since the Permanent Fund was

created in 1977. Money that makes up the permanent fund comes from several sources. There is a dedicated revenue. The oil money which is 36 percent of the fund legislated with special appropriations make up over half of the fund 53 percent. And inflation proofing accounts for 11 percent of the total. We try to invest the fund the same as your personal savings account. We try to protect the principle. We try to invest wisely and we try to protect ourselves against inflation. Let me give you an example. Let's assume that this picture represents the body or the principle of the fund and this picture represents earnings in a given year. Now we're spending a year trying to earn money. Inflation is very silently working to erode the purchasing power of the principle of the fund. For example if the principle of the fund is worth a dollar and we have 3 percent inflation over the period of a year at the end of

the year the purchasing power of the principal is only 97 cents. So what we do with the fund is first of earnings add money back into the principal of the fund to make up for that loss due to inflation. We also at the same time put some money aside for dividends which we turn over to the state to make it available for the people. If there's anything leftover after we meet these two first obligations then that can be spent by the legislature any way they see fit. Since 1977 the fund has earned 3.2 billion dollars not including any special legislative appropriations. Eight hundred and thirty four million of that total was added to the funds principle for inflation proofing. Nine hundred fourteen million dollars has been paid out to Alaskans in the form of dividend checks. $1.2 billion was appropriated to the principal and 228 million dollars was transferred to the general fund. The

investments that comprise the fund are a mix of corporate and federal bonds common stock and real estate investment officer Bill Means says a mix of investment options gives any corporate fund worth flexibility. One of the. Key. Premises of any investment policy is diversification of assets. So we are we on not only that. We own common stock which is the ownership of companies. The future of the Permanent Fund in the near term is one of continued growth. One of the paradoxes of Alaska is oil wealth account he said is the state's income from oil fields has leveled off and declined permanent fund earnings have headed in the opposite direction. Some say that's a good argument against any proposal to invest all of the funds in Alaska. In fact we've had rather countercyclical. Formants. As the economy of the state has slowed down. We have. Experienced tremendous increase in profits and the permits one because we have invested outside of the state.

What about the future of the Permanent Fund. Well certainly the principal is going to continue to grow as fast as it has in the past but it will continue to grow and hopefully the fund will be well managed in the future. But what about earnings. Earnings can be used in several ways. They can be used to inflation proof it can be used to pay dividends. They can be used to supplement state revenues. Ultimately the decision is up to you the people of Alaska your fund. As executive director of the Permanent Fund Dave Rose gave his managerial point of view as to the future of the fund I'd like to ask our guests from both your personal and historical perspective as trustees where you see the fun going in the years ahead. Mr. Rasmussen this as first chair I'll let you go first. Well I'd like to say a few words about the start of the fund. Those of us that were in the first trustee

body. Have the challenge of setting some of the guidelines for what was going to be the philosophy for the future. When you say challenge with that is that an understatement. Well I think we were breaking new ground. And we had to proceed cautiously. I think we quickly saw that there were two things mainly that we should consider. One was to get independence for the fund. Part of that time it was under the Department of Revenue. Secondly we needed to enlarge the investment capabilities of the fund so as to permit it to invest in equities and stocks. And more than just restricted government parlance the ability to diversify well was not only to diversify but also to get the benefit of the growth of securities which is inherent in equities and common

stocks. And we had an agreement with legislative leaders that we would take the first year to thoroughly study the problem work together. The second year we would introduce some legislation. Legislation was introduced and. Basically it resulted in what we know. There is today in the. Fund. And I think that the moves that we've made has given independence is giving confidence in the management of the fund. And also it has made it very lucrative in its growth in earnings. I know there was a little bit of public concern initially that a permanent fund might be too independent. I read somewhere that it was referring to someone who was concerned that could become a fourth branch of government. Is that something you had to take into consideration when putting it all together. I think that we handled it this way and I believe that it's the same position that the subsequent trustees follow namely that our

duty as trustees was in the investment. And that investment included inflation profi but the use of that money belonged to the decision of the executive and the legislature because it was the people's money. And by sticking to our last. In. Other words not getting out of what was our. Real investment duties I think we avoided getting into a position where we were trying to dictate and where do you see it now. After several years where is the permanent fund going. Well I think that it has done an amazing job and I'm very complementary to all of the trustees and very privileged to have sat in on various of the meetings. I think that they're doing the right thing and tending to diversification. There are improvements in investment that are discussed regularly and I think that the fund is very adaptable to that

and I think to say the proof of the pudding that was left in the plate and I think they've done a good job. Pretty big plate as of right now. Dr. Roger Moore former trustee and also an economist and maybe with a combination of those fears what do you see ahead for the program. Well as I said the first two years were in a sense we were learning trying to get things together. You mentioned the fear that we would be too independent. Actually our function was very rich be prescribed by the legislature and then from that point on we followed two principles. As for the future I think you want to talk about the future don't you have the past. The party is now in the position that it's at this point it's very important to look at the future of the state economy in relation to the fund. When we started we were on an upswing. The Bay could be moving up on top that was the inflated OPEC's price which was something we should not have factored into our state spending but we did nonetheless. And the Putu the bell curve the basic curve is still following its normal process.

It's it's it hasn't quite peak yet it's still production is coming through the pipe. It's just that the revenues are less they're closer to what they should have been during that period. Looking to the future we are getting back to normal in the sense of the functioning of that part of the economy and there lots of other sectors of the economy we tend to forget about. So what we are in now is an adjustment of the people's expectations and the adjustment of the economy back to what we would consider a more balanced economy. One that is not dependent upon oil revenue and government. What does that portend then for the predicate for the permanent fund that means that the permanent fund should be kept as it was intended as as a savings account the permanent fund was intended to be a resource a financial resource for the future primarily when the oil physically ran out. We would have a life after death for that. That the earnings from that capital would supply most of the state's revenue needs or at least they seem to be. I think because stick to that we are in a period of

of for some feelings of panic. I think we should set that aside. It's very important that we not do anything that would disrupt the function of the fund at this point. We'll come back to this. I won't do one but somebody else. All right Governor Cooper talking about disrupting the function of the fund. Where do you see things going this year next year beyond in a fund and you've got a couple of different perspectives as well in terms of the investment policy of the fund. I think that clearly the the the first actions of the trustees when Elmer Rassmussen was chairman of the board was very important in that respect and set a precedent that I believe will hold for a long time. And. We may well change. For instance the mix of investments that are allowed to the permanent fund the fact of the matter is that permanent fund investment policy changes very very slowly. It's a very conservative institution in that sense not in a political sense but

in the sense that changes are made very carefully. Nobody ever rushes out and changes the investment policy of you know the fund without a lot of consideration a lot of advice a lot of debate. And that's the way it should be. It's a very smart way to run a fund which has as its basic basic purpose conservation of the principle. And that's what it's all about. So unlike a lot of people I don't see a lot of change in terms of the way in which this fund is managed. I think that we had long had a few skirmishes in that respect. When I was chairman of the board and I went around with. Another well-known political figure and had some debates all over the state about the way in which trustees were investing the fund and I think while each of us made some points today I think that most people believe that. The conservative. Careful philosophy was much preferable to what

was being suggested by the other team so to speak. Mr. Rwandese conservative investment for the fund working and will continue to work in the future. What do you see down the road. Well I think it's important to emphasize that. After seven years of active management of the fund we have just now got. The asset allocation within the fund about to the point where we think it needs to be in order to sustain a 3 percent overall return over time. And I think that needs to be maintained and the kinds of changes to the investment patterns of the fund aren't made in the light of current revenue circumstances. I think they need to be made in the light of the long term goals of the fund which is to preserve the principle. And to grow this fund so that. It is able to make a substantive impact on the revenue needs of the state.

When that is determined to be good public policy that's something that was mentioned when talking about the conservative nature of how the funds to invest in get a little bit of growth you know a little bit of income from your investments as time goes on. And that was something that was discussed that trustees came up that comes up every once in a while and the president could maybe make more money if it took a little bit more risk we could get in better profits and I ask you this and then maybe ask some people where trust is a little bit earlier as to how that argument is dealt with. I mean why make more money. It's clear in the statute that our principal responsibility is to maintain the corpus that is to to to maintain the the the major principle of the fund and so our investment priorities are are fairly well established and of course we are a public trust fund and I know of no public trust fund that is

managed by chasing the stock market or looking at short term. Returns. And while it is conservatively managed it is required by statute and good prudent management practices obviously dictate that. Arthur Rogers from an economic point of view is it this this is a premium for it because we're looking at the long long run long term we're looking into the next century. And as as Byron has said we're looking at a fairly what sounds like a very modest rate of return. But that's of course something that we are hoping to maintain. If you go yes we could make more money but we could lose more money and we've got to constantly balance that. Byron alluded to the right mix that's a mix of equities and and bond with the debt business and so on that the government knows all about that. But we've learned about it in the last few years. That's very important that mix changes with the performance of these various

sources of investment and we've got to keep on top of that. But this is a case. The prudent investment rule which is part of this is as Barbara said the corpus is important. Maximizing income is important but you have to do it with adequate protection. Is it something States drop from oil revenue is it something to maybe look at. I'm just tossing this out as a possibility to look at maybe taking more risks to get a little bit. Well I think that's what we're going to do because that's what I warned about in my opening thing. But this is really a time for panic it seems to be because there is a drop we drop off a cliff here but we're climbing up a rise that we should have expected there was going to be a drop off. So it's something we should have anticipated and we shouldn't act. So this is the end and we should not act. In desperation tried to artificially recreate that high we had before because that was not sustainable on sound economic basis. And so that no this is not a time to

take additional risks. All right. I want to take some calls from our viewers have called in with their questions or comments about the permanent fund from around the state. Go ahead. I believe we have a caller on the line now. Go ahead please. My name is the. My stepmom was born and raised in London today for tax purposes OK. My question is is that going to continue to come from somewhere else or persist with the state of Alaska. I know that a lot of questions that have just been raised in the public and the possibility with the drop in oil revenues to get rid of the permanent fund dividend is that something that trustees discuss at all. And. In terms of it will start with

someone who is currently also in office as well as someone who was a tri state governor. COOPER. Well I think that as I understood the question it related to whether or not the permanent fund itself won't survive this long this economic downturn that we've had in the government. And of course it will. It has to by law. Even if we didn't want it to which we do I think almost everybody in this state is committed to the. Two allowing the permanent fund not only to exist but also to prosper. It's got to be something that is a balanced political acts politically acceptable as you can get in terms of what the income. Is what you do with it. All right. The outstanding feature of the permanent fund in my opinion is its flexibility. You can do all sorts of things with the Permanent Fund. I think that it's wrong to sit back and say well we know today for now and over time what the appropriate

use of the permanent funds income is. I wouldn't dare do that. I would tell the people who are coming along 30 years from now what they are supposed to do with the income from the Permanent Fund. I wouldn't do that. They asked for this year to use some of the income income of the fund not the body of the fund which would require right constitutional and use some of that income to help pay for state government. That's correct. And the amount of money that was that we requested at least for the way the projections go on that in the coming fiscal year would not cut into either the dividends or into the inflation proofing. You don't know about inflation you never can exactly hit it on the head. But I think that that money should should be available on occasion when an economic downturn causes instability in the government. Mr. Rasmussen back when we were getting that point at fund corporation set up

and moving into motion Did you see a time did you see that in 1987 a governor would have to perhaps ask to use some of the earnings of the fund to help pay for government. Well I think that we were very flexible and held ourselves completely open as to how that money would be used to charge. I think we all felt that our duty was to maximize the earnings at the same time keep that fund with a great deal of care so that we preserve that. That capital. And as I mentioned earlier. I think we recognize that that meant not only to have a good investment but also to maintain its buying power. Now the rest of the utilization of money is not left up to the trustees and that property is left to the executive and the legislative bodies because it belongs to the people and have to make that decision through their

governor and through their. Legislators. And I think thats the way it ought to be. So when you say back to Rogers and the permanent fund the body of the fund is permanent. But did you when you were a trustee look at the earnings is something that went perhaps someday down the road will have to be used for earnings as Steve pointed out when he said use the permanent funny. He did quickly say that crimini funding. And we learned a great deal from the experience with the Heritage Foundation which mixed these functions. You had a board of trustees that also determined social programs and other things and it was set up pretty wisely by the legislature that we only had one function that's of the fund. They'll determine what to do with revenues which is just appropriate if you mix those functions. You don't do a good job of either one. My argument. All right we'd like to take another caller. Go ahead please. Go ahead you're on the line. Okay we'll try and get another caller in a couple of minutes. We have the

permanent fund dividend check now and I know that when the checks first came out especially in rural areas they were said the first $4000 center really really is the income of people in rural areas people who lived in the city with low income. Is that a good thing to have a sudden influx of money like that. Is that a good thing for the economy. I'll ask you that first Mr. realignment and then go on down the line. Recognizing that I'm not speaking as an investor of the fund and in response to the specific question I assumed that it would be a good thing. For the state to have that kind of income out there and of course the thousand dollar check if I recall correctly was the result of several years of retained earnings of the fund being distributed with an unusually high at one time. Yeah.

Well that's something that's been in flux. The governor that is was that a good thing in terms of economy. That sudden demand is that many new things go right back and into the economy. Well if you were the one getting the check it was a good thing. I thought that was an appropriate thing to do at that time. The state clearly had sufficient revenue to take care of its needs. People were finding that they didn't have to say no very much on the halls of the legislature or elsewhere. And it was a pretty good thing to do with the money. It was sort of opened up the rural economy in many ways. Aided and assisted a lot of people who needed that kind of influx of cash. And I think it was a good thing. Is it something that the trustees would look at at all or discuss or have to discussed whether or not if things get bad in terms of red state revenue if it is then something to look at not funding if you need to protect the

body of the fund or get earnings back into the fund. It's not an issue that the trustees would address as we look at our investment. Responsibility because you know we. If. We discuss inflation proofing for example. As an investment function and the responsibility of the trustees the dividend itself. Is a function of the disposition of the earnings of the fund and is properly a policy function of the legislature. And. The other branch of government. So you would wait then to take your instructions from what the legislature or the people of Alaska through the legislature would decide. That's right. Right. We don't take any instructions on that. As soon as the income's produce is turned over to somebody else that's it. I think speaking as a former trustee I know that we were were very careful to watch any retreat from from a commitment to

inflation proofing for instance because we thought that was appropriate to maintain the purchasing value of the fund. Beyond that we didn't figure it was any of our business course to this. It's mine now. I'm in a different position. All right I would like to take a car. We've got one more line go ahead please. Go ahead with your question break it is the state is in trouble with money and the people get paid for house payments. The problem is the people. I think so. How come they can't make payoffs to people so much but they pay the bills. And then what

evidence is at stake. Instead it was the state tax or sales tax. Traded it on. That's something that I don't know how much was discussed initially but how permanent wasn't the Permanent Fund for me. Is the permanent fund maybe Mr. Rasmussen. Well the word permanent means forever is just like documents doesn't it. Well it's a savings if you have a personal savings account. Is that something that's forever in tough times you may have to dip into your savings account a little bit so that fund trustees kind of think about that at all initially. I think each one of us is trying to say that the Permanent Fund is best administered and managed if you leave up to the trustees the job of best maintaining the principal and earning the money and leave it up to the people of Alaska who have a lot of different opinions as to how they want that money spent and leave that up to the people that have that responsibility which

I say to the governor and the legislature. So the trustees are then insulated a little bit. And public opinion will come to them through the legislature. Well I think a good example of mixing your responsibilities is the situation with the Heritage Fund of Alberta that gave them an impossible task because they charged not only with managing the fund but also with social responsibilities with development responsibilities with responsibilities that had to do with the care of their people. And I think in great wisdom our legislature and our governor at that time with the formulated the principles that they didn't mix with that there was some discussion initially of making a permanent fund Social Investment and Development Bank or social investments as a matter of fact and the legislature did set up those programs at the same plan and

set up the permanent fund they set up programs for new developments. We set up programs for subsidizing housing to individuals a whole smorgasbord of programs were set up fisherman loans and so on. These were intended to take care of those things that the Heritage Foundation was also in response. So then obviously they said these are specialized functions. So that was spun off. They were funded from the general fund and from the revenues too. And the same thing. This was just part of one end of the spectrum. All right was that several cars waiting on the line go ahead please. Hi. Go ahead with your question. My name is Kevin Jacobson. I'm from Anchorage. My question about the current first concerns are both state income tax and whether we should build a permanent fund first. I find it Chris during an economically depressed time when all segments of the private economy are struggling to survive government leaders to keep the state income tax when the

state has billions of dollars in theory when the program was established we were told that it was for the people of the state of Alaska and their children. Yeah we've seen thousands of foreclosures in the paper and unemployment at an all time high. Many businesses have had to close while others reduced their payrolls to keep going. And sure most of us are seeing opportunities severely limited. My question is if now is not the time for the person to help the people of this state then when and if it's not going to be spent. Who are the true beneficiaries of the. Is that something that comes up in discussion. I mean we've mentioned what the trustees do in terms of managing the fund and basically we should remind viewers that it is the legislature that decides whether or not to move into the fund or how to deal with or not deal with the dividend program but it just as trustees I would think that you couldn't help but have a smoke into your

head. Well I've been trying to be a permanent fund do we think about an income tax as opposed to spending stimulus and then will come up at all in discussion. Mr.. Well it does come up certainly you know we exist within within the reality of the. Of the state. But I think that what that does is it reinforces. The the the the investment decision making responsibility that. That we have and the permanent fund does generate significant earnings that that can and and as a matter of fact does have a significant positive impact on the overall economy of our state right now. How. Does that work. How does it is that the earnings estimates of the fund. In certain sectors of the Laskin economy and of course through the Alaska dividend program there are several hundreds of millions of dollars in earnings of the fun

placed directly into the Alaskan economy each year on a per capita basis which is unique and it is and it has to be considered a major economic consequence of the operations of the fund. But that's a function of the public policy decisions that are made for the utilization of the earnings. And while we as citizens and even as individual recipients of the the the actual dividend check ourselves can't help but. Think about that as trustees of the fund. Our responsibilities are carefully circumscribed as. Having to do with the investment of the of the capital of the fund and I you know and we've said that any number of times here and it's difficult to stress and it sometimes sounds as if we're really trying to avoid the reality. Of the circumstance of the state. Of affairs.

As Mr. Rasmussen has emphasized several times the legislature Governor Kooper. I think we should remind viewers that if they have specific points they'd like to bring on how to use the foundation let their legislators and let the governor know. I think what Kevin Jenkins The caller asked was helping the world we do when going out asking for taxes when all this money is going out dividends. It's a legitimate question. And as someone who was asked about an income tax do you have an answer for that also. Well I think that that kind of question is going to have to be hashed out over the next few years because believe me even with a tax. It's going to be extraordinarily difficult to hold on to any decent level of government services over time without some utilization of the Permanent Fund. Income not the principal income. And it's it goes back to what I said before which was that the flexibility is the best thing we've got

going on in terms of the fund we can use that money in any way that the public wants to use it. Back in 1980 term we decided that the best thing to do is to pay it out and dividends. There will probably come a time when we don't think that's the best thing to do with the money and it will be the public that decides through letting the legislature now through the executive branch through that process. I think the public is going to have to vote on a similar initiative. If if the dividend goes away or it's eroded in any way I think that that the public is going to have to be heard from. All right well thanks to a couple of more calls. I'm going to use a caller on the line. Go ahead with your question. We got a caller on the line. Hello. Hey can continue on from there. I got someone else on. Go ahead please. Yes go ahead.

My name is Earl Petersen from Anchorage Alaska. I have directly question Mr. Cooper because the people have been talking that it will be a legislative concern and administrative concern is a legal requirement that requires a custodial account for minors. My question is why not let her children's dividends right until the 18th because the. Investment return has been so much better than I can get any other place or my children's accounts. It's just such a good thing. Why can't it. What if it ends right is where along with this that amount of money we have there. Thank you. Well I think that it's a pretty good idea. You'd have to ask to the permanent fund management people whether they want to manage other people's money. I don't know if they do or not or how difficult it would be but I don't and I certainly don't see anything wrong with the idea of allowing people to just leave their dividends

in the pot so to speak and let them turn it over and over and over in the interest of change. Yeah that's a good idea. All right let's take another caller. That one on the line. Go ahead please. Go ahead. OK we've got another caller on the line. Go ahead. You know with the American way we get stuff for every dollar the state uses We put one in the hopper for the people. I mean you know. We get to spend the money and the bureaucracy and we get some money to spend to stimulate the economy. It is. I mean using someone to promote a fund earnings every year for next let's see what you run up for the next five years. Whether we get some money. And the bureaucrats will get some money for the government.

Or is that something that wasn't always I think that was better there was a philosophy of the dividend was that look it was total money doesn't shouldn't be in the hands of the bureaucrats to decide let's spend let's put some of it in the hands of the of the people. This is not a permanent part of trust. This is the legislature speaking right and that's exactly what they did. So that's it. This is a way that the caller was not actually asking a question. He was really restating the philosophy of the program. OK here's something for you to expend whatever way you'd like. There was a lot of talk when the fund was being formed and the money was coming in through oil revenue deposits. Before before there was a dividend program of use of the fund for economic development we talked about some of the social kinds of purposes. Is that something that current trustees still think about Mr. Melmotte economic development you mentioned an economic advantage through through the dividend check and you know there are some investment in Alaska bonds. But does the trust trust you still think about other

ways to use the fund for economic development in state. We have established several. Programs to invest portions of the fund within the state. If those kinds of investment meet the overall investment criteria of the fund and so in that regard reducing are there ways that the fund within the investment policies can be utilized within the the boundaries of the state. But. In terms of utilizing the fund as a primer of the pump for example and for specific even General economic development goals once again we believe that that is the function of the utilization of the earnings. And. That. To get back where we started with the functional legislature in the state administration we are responsible for the investment management of the

fund and those are entirely different principles and responsibilities from economic development. The current way the permanent fund is only allowed to invest in companies which are based incorporated in the United States what was the reasoning behind that originally. I mean is there a reason to maybe change that now. Yeah somebody asked that question. When we were introducing legislation to broaden the investment powers of the permanent fund it was a recommendation of our board. I think there are unanimous wasn't it right George that we be allowed to include the equity investments and bonds of international character foreign ones. And the argument runs something like this. 10 years ago about 75 percent of the listed securities of the world were in the United States at the present time it is scarcely 50

percent and it is decreasing all the time. So the Free Trade Agreement for international investments is that we don't want to be shut out of investment in half the world if we're going to run this fund. Right. I could go a little more philosophically on that. But from a practical standpoint the returns on the international investments. The only time that has existed since the funds started have been actually higher in the. International arena. And what would it take then for the Permanent Fund to change a couple of hundred million over. Well it was taking a change in legislation right. I tried to be as persuasive as I could to those who were responsible for the committees and the legislation legislature to include international securities. They were afraid of it. I think that it might be too speculative

or that it was money used outside of the United States. I don't know. I. Continually urge the trustees to bring up that point again for consideration by the legislature to broaden this scope of their investment powers that not only get a higher return but more and more businesses becoming international. Is that something that the trustees are now looking at cholesterol testing be able to invest. As a matter of fact the trustees have prepared and have advanced to the administration a draft piece of legislation which would allow the trustees some of the funds to invest in international markets. And are you going to support that. Yes I will will put that bill in and support it actively and I think that the the climate right now is more favorable. There was a fear 10 years ago if anything for. No we're sort of looking. As governor Cowper's whole philosophy of looking up at the Pacific Rim as an investment

area which will benefit Alaska. We have to be part of that community. We are whether we know it or not. But we have to act as responsible members of the community. So I think the atmosphere has changed. All right we'd like to take a couple more calls for you. OK. Go ahead please. We have a caller on the line. Hello. I'm a great guy. And what was stated earlier in the program. They say that my kids get invested outside of them. That's my good girl. I want to be a percentage that maybe our government could create between Alaska and a database for having trouble. Now we have trouble. We have trees that are closing. The fishing industry could is statewide. It would seem that money would be

spared if they could be allocated in accordance with a return on the investment companies and government in the state. Now this discussion I understand from reading the history of the fund was a plant that was brought up many many times in the creation of the fund. What was the reason for not doing that initially initially in respect to diversification. If we had done at the beginning of the permanent fund would be near bankruptcy right now. I think that's maybe exaggerating a little bit but not much. I remember well I think that you've got to be philosophic about it. I took the position that all the oil revenue was part of our. Permanent Fund. Even though only part of it was set aside say 25 percent of the royalty in the so-called permanent fund. So the legislature decided to use part of that oil money.

For appropriations for not only capital investments like roads and metals and roads and so forth but also for many loan programs. Unfortunately the from the standpoint of the Treasury those loan programs have not worked out. Very well. But. The concern that we had and this is true with the experience of other nations and other states you know Alaska is not the only state that has a permanent fund. There are a lot of states that they'd made that call a permanent fund but they have investment funds and they're they're managed very well. And so our concern was that it would be carefully managed it would not be lost but that we certainly did not believe that there should be a discrimination against state investment as a matter of fact. When George and I were one of the trustees we set aside a certain block of money for the purchase of the kind of housing that was

not at that time eligible for the Alaska Housing Development Corporation and it was well it was four types of houses that didn't qualify and it's turned out very well it's had good earnings. I understand some of the argument at the time against spending a lot of money from permanent fund earnings and investing in Alaska is that some investments in Alaska haven't done so well but if you were a private investor you wouldn't necessarily invest in some Alaskan businesses especially now as as economic times as not doing your point because I don't want anyone to think that I am pessimistic. The last time I read that I know the argument the point here is that you do not invest a fund by geographical basis you invest it according to a potential return basis and the opportunities for investment in the last year

were so bye bye bye. The low above sea fab I can't remember all of the numbers making investments in the in Alaska and know that we need the money particularly. It's a good thing that we did give this geographical distribution according to the best return and save. And now we have it. All right. Fair enough. Let's take another caller. We've got one on the line. Go ahead please. Hi. Hello. Hi. Go ahead. Yes. My name's Gary Carson and I make great you've got a call asking to use the permanent fund and not the income tax. I just wanted to I'm not for the income tax. You. The president says we have to do one. I believe I would prefer a permanent front and pay an income tax and then take the other part of it and using it

to support my community which is put it into a bay or you know into a savings account or whatever I want to put it into. All right. Thank you. We'll pass that along and hopefully some legislators are watching who can take that. And for your information governor Cooper go ahead. We have another caller on the line. Please go ahead with your question. We have a caller from National I believe. Go ahead. Hi. We hear that the best use of primitive but it would add up to our educational program with the money that was put into the private part of the first place. We feel that it would be very constructive at this time. Perhaps 50 percent of the monies that is paid out every year to individuals

and put them into a fund that was good for the occasional program we are already seeing serious cutbacks in a program that was already done before and I don't understand why the people that control the program don't see education as one of the most important things we're doing. That's a good point. I read a registration has been introduced which would take earnings and from that fund set the money aside for school spending perhaps take part of another bill would take part of mineral revenues and set aside a University Foundation a different kind of a fund maybe perhaps managed by the Permanent Fund. And the trustees look at those proposals as they come in or how would you deal with them. Well we would not deal with them once again that would be the responsibility of the legislature. Governor COOPER But you know I think that's. The important point. From an investment point of view is that there exists that kind of flexibility at the state level that we have a whole range of public policy options that

the earnings of the fund can help. To address. And I think Governor Cooper made that point early that that was one of the great strengths of the Permanent Fund. And as we look at difficult revenue times not panic not catastrophic revenue times over the next several years the wisdom of having be Permanent Fund and the ability to flexibly use those earnings is determined by public policy. I think it is going to prove more and more the both the existing and the long term value and importance of the Permanent Fund to the people of the state. We have just a couple of seconds left. I'll start off with you Mr. Lott if you have any closing thoughts that people should think about about their savings account the is that in many ways I think that I've just made my closing statement. All right fair enough but the question of scale I think is important that we have to maintain a permanent fund that is of sufficient size over time to help meet some of the real needs of the people of our state and that

requires some relatively substantial learnings. And you do that by maintaining a relatively large fund. All right Governor Cooper would you have anything to add to that. Well I thought I'd make a pitch here well I had a couple a couple of second just a second. I think that. We do have some so-called pots of money out there some disputed taxes and royalty payments that go up into the billions of dollars. And to me what once the state recovers that money you know to go to the permanent flood as well as as well as some of the types of endowments that the caller mentioned previously the money ought to be invested not spent. All right thank you Dr. Rogers. The other thing is that we should look at the Permanent Fund as a natural resource that is being drawn upon right now the dedicated revenues from the oil industry are smaller than the earned income from the investment. That's exactly the way that the end of the pension fund is left intact. The more the earnings will grow even with the declining oil revenues and this is precisely the function of the permit.

A very good point. Mr. Rasmussen since you're on the air you've got about 15 seconds to conclude with something. I'm sorry. It's obvious from the callers that they see an identity between the permanent fund trustees and the decisions that we have been trying to claim or the state you know we're individuals have very definite views. In my own mind as to what ought to be done with the money but not as a trustee. Well maybe you could lobby the governor here. I should have mentioned what we've heard is the way things that people should be passing along to their legislators to the governor and discussing them themselves to use the public's money to fund that and thank you all for adding your insight and your historical perspectives to the history of the Permanent Fund thanks for joining us. Thanks for those of you who call in or trying to call in tonight. We appreciate it. To go on TV and you know I'm Janine Paul. Good evening. Hi. This permanent fun 10th anniversary special is made possible in part through a grant from the

permanent foreign corporation and came to your own TV. Presentation of the public television network of Alaska