Republican legislators wanted to ban stock market investments by the Permanent Fund
Fifty years ago last week, the state House of Representatives approved its version of the Permanent Fund amendment to the Alaska Constitution on a 36-1 vote.
Most of the voices you hear are from great public servants who are no longer with us, but deserve to be remembered as among the many fathers of the Permanent Fund, including Hugh Malone, Clark Gruening and Mike Bradner. Terry Gardiner, who was 25 at the time, is still hale and hearty.
The vote that day, though it was not the final legislative action, was one of the most important in Alaska history.
The only “no” vote on March 25, 1976 came from Dillingham Democratic Rep. Nels Anderson, 36, who said he worried the pipeline would not be finished by 1977, as expected, and that the state could not afford to put large amounts of revenue off limits.
Anchorage Democratic Rep. Clark Gruening, three days shy of his 33rd birthday, countered Anderson by saying the perfect time to decide to save public money was before it arrived and there was a temptation to spend it.
“The Permanent Fund was debated of course at the time the state received the bonus lease monies from the sale of oil at Prudhoe Bay,” said Gruening, referring to the $900 million lease sale in 1969.
“At that time the needs of the state were viewed as overwhelming and I think over the years as that money has been used to run the government I think there is some regret that it wasn’t adopted at that time,” said Gruening, the grandson of former Democratic Sen. Ernest Gruening.
“We can delay this time time and time again. Probably now is the best time at which when the state now has sufficient operating revenues to meet budgetary needs over the next four or five years.”
“Believe me we will always find needs in the future,” said Gruening. He said the state would always find ways to spend all nonrenewable resource revenues to provide services as soon as the money was available.
“So I think it really behooves us to act on it now while we’re not under the gun,” said Gruening.
The biggest argument that day was over a plan by House Republicans to ban the fund from investing in the stock market. That was a terrible time for stock investors.
The stock market decline in 1973-74 of nearly 50 percent, triggered in part by the OPEC oil embargo, was the worst since the Great Depression.
Anchorage Republican Rep. Rick Urion, 37, proposed language to limit Permanent Fund investments to those “which have a guaranteed rate of return.”
The GOP minority leader said the state had lost $5.6 million on the $18 million investment it had made in the early 1970s, taking a small part of the fabled $900 million and buying stocks.
“We must maintain the integrity of the fund by prohibiting constitutionally any investment in a speculative market such as the stock market, Mr. Speaker,” Urion said.
“I think we can remember that infamous $900 million that’s no longer with us. Out of that $900 million in 1972 we invested $18 million in the stock market,” he said.
As of July 31, 1975 the state had sold off its remaining investment at a loss of $5.6 million.
“If we had invested that $18 million over the past four years at a mere 6 percent interest we would have accumulated over $4 million, so our actual loss was in excess of $10 million, which is more than 50 percent of the original investment. And I don’t wish to see that happen again,” said Urion.
Though it was hardly a sensible investment decision, the Hammond administration unloaded the stocks when prices were down because it had become regular campaign fodder. Many Alaskans, not just Urion, thought going into the stock market was the equivalent of going to Vegas.
They couldn’t imagine the bull market that began in the 1980s.
The Democrats argued that the scope of investments could be determined by future legislators.
Gruening said one of the goals of the fund would be to encourage development of an economic base “beyond that of extraction of nonrenewable resources. And it may require an investment in the state that is somewhat more risky than a guaranteed loan.”
Kenai Democratic Rep. Hugh Malone, 32, a land surveyor, responded that it made no sense to limit state investments in the constitutional language as Urion wanted. “I don't think that would serve to diversify the state's economic base," he said.
He said state officials are called upon to make prudent investments. The proposed constitutional amendment allowed future legislators to specify in law what investments would be allowed.
“I don’t think we can guarantee a rate of return in a constitutional amendment,” said Malone. “Or if we do I’m very much afraid then we’re saying that the only investments that this fund might ever make would be government securities. And I don’t think that would serve to diversify the state’s economic base.”
Malone said approving the fund is “something that we can do for posterity now that we may not have the chance to do again in the future.”
He said there were predictions that the fund would grow to $2.8 billion by 1985. (The fund had $8.4 billion by 1986.)
On a voice vote, the House rejected Urion’s plan. Urion complained that the House majority didn’t care if the fund survived for a decade, so sure was he that stocks were a reckless gamble.
Had his amendment been adopted, the fund would never have grown to the size it is today, more than $85 billion.
The House spent far more time that day debating a resolution changing time zones than the Permanent Fund before referring the measure back to the rules committee for more work.
Gruening joked that changing the clocks was “a time whose idea has not come.”
The Permanent Fund was an idea whose time has come.
Alaska voters approved the Permanent Fund in a landslide vote later that year. While this was a great achievement, we also need to take note of what might have been—a lost opportunity that no one has calculated.
Next: The 1976 Senate revised the House plan and decided to save a lot less money, a decision with permanent ramifications for Alaska.
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(I hope you will join me at an online presentation and panel discussion Tuesday 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.