It's essential to fix this Permanent Fund oversight
Legislative oversight was high on the list of priorities for the lawmakers who led the effort to get the Alaska Permanent Fund up and running after voters created the savings account 50 years ago.
“We want insulation without isolation,” is how Rep. Clark Gruening put it.
But a couple of years after the Alaska Permanent Fund Corporation came into existence, the Legislature abandoned its oversight duties.
What had been identified in 1979-1980 as an urgent need for legislative review and monitoring—not just approving the annual budget—disappeared as legislators moved onto other priorities with oil prices, soaring then crashing.
Turnover among legislators, a new governor, inertia, cost, the lack of a large professional staff, strong returns from the fund, trust in the trustees and CEO Dave Rose—along with the incessant political focus on the dividend—help explain why the Legislature pulled back.
With the Permanent Fund now at the half-century mark, and the fund’s assets near $90 billion, the need for oversight is greater than at any time in our history. It would be good for the fund, the trustees, the corporation staff, the Legislature, the governor and the public.
The law still requires that the Legislative Budget and Audit Committee conduct “an annual post audit and annual operational and performance evaluation of the Alaska Permanent Fund Corporation investments and investment programs.” But the annual reports of that committee do not mention the Permanent Fund or any evaluations.
The Legislative Budget and Audit Committee is a permanent interim committee of the Legislature with five senators, five representatives and two alternates.
The thinking early on after the Permanent Fund corporation was launched was that the Legislature could set up a special committee to deal with the fund after seeing how the budget and audit panel performed.
But as early as 1986, a legislative history of the Alaska Permanent Fund found that the committee had been “inconsistent in the level of effort placed on oversight activity.”
Authors Sheila Helgath and Sara Bibb, writing for the Rural Research Agency of the State Senate, said there was minimal review of the Permanent Fund by legislators after 1982.
“One of the reasons oversight may have been minimized is that during this time Merrill Lynch produced a report which was incomprehensible to anyone who was not a trained financial analyst. That report did not provide interpretation and application of the statistical analysis in a form useful to policymakers,” they wrote in “The Alaska Permanent Fund: Legislative History, Intent, and Operations.”
“There was some consensus that the potential for such a report, especially without narrative, to cause confusion and be misinterpreted by the public was a greater risk than the mismanagement of the fund,” the authors said, attributing that insight to Dave Rose, the first executive director of the corporation.
The chairman of the LB&A committee then told Rose that it “would accept the annual audit of the Permanent Fund corporation,” Helgath and Bibb wrote.
They said there was also confusion about whether the executive branch or the legislative branch would handle the independent analyzing of the Permanent Fund and its performance.
“However, to date no capacity for oversight appears to be in place in either body,” they said, meaning the Legislature and the governor’s office.
“By capacity we mean the financial expertise to understand and assess activity occurring in large capacity investment functions,” they said. “This expertise goes beyond an audit function to an understanding of portfolio management concepts, market irregularities, and realty investments."
An “abridged and edited” version of Helgath’s and Bibb’s study was included in Trustee Papers Volume 5 in 1997, but the abridgement did not include the blunt text regarding the lack of legislative oversight. It was toned down, but there was still no oversight.
The report noted that the state House in 1979-80 “clearly stated that if the Legislative Budget and Audit Committee did not provide adequate oversight, a special Permanent Fund Committee providing legislative oversight should be set up.”
The LB&A committee “should consider establishing a continuing evaluation program which includes periodic independent audits and performance analysis on an annual, three-year, and five-year basis. Legislative staff, with appropriate expertise, should evaluate the Permanent Fund performance analysis on behalf of the Legislature.”
Outside reviews will “protect the fund, the trustees and the public.” I believe that is absolutely correct.
It would have been no simple task to create external oversight of the fund 45 years ago.
We should have made it a priority, but we didn’t. The external review is missing.
It is essential for us to correct this oversight as the fund nears the $100 billion mark.
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(I hope you will join me at an online presentation and panel discussion March 31 about key issues regarding the future of the Alaska Permanent Fund, organized by Alaska Common Ground, a nonpartisan group that focuses on Alaska public policy.
The evening is to begin with an overview by veteran Alaska attorney and former Rep. Cliff Groh on the structure and governance of the fund.
A panel discussion, with questions from the online audience, will follow. The other panelists are former Senate President Rick Halford, who served in the Legislature for more than 20 years, and former Attorney General Craig Richards, a former trustee of the Permanent Fund and a longtime Alaska lawyer.)