Alaska still richest oil economy on earth, even with big budget deficit
Alaska may have a nearly $4 billion budget deficit looming over its head, but a Harvard researcher brought to testify before the Alaska Legislature said we’re still better off than most other places.
“Alaska is the richest country in the world based on sovereign wealth fund assets,” Malan Rietveld told the legislature Tuesday. Rietveld misspoke about Alaska being a country, but was right about Alaska’s big oil money investments.
Legislative finance director David Teal said Alaska could live off of its savings alone for the next two to three years, a luxury many other states undoubtedly wish they had.
But Teal and Rietveld said Alaska lawmakers should act now to ensure Alaska’s long-term fiscal stability amid declining oil prices and production.
Rietveld has been researching the concept Gov. Bill Walker wants to model our Permanent Fund after — called the Sovereign Wealth fund model — for the last decade. The name is trivial, it’s the same as what we refer to as our permanent fund: a large pot asset based on oil money and investment income.
“The Sovereign Wealth Fund name is about ten years old now, and the recognition of what it is and what it’s about has been growing. But what they actually are has been around for a very long time,” Rietveld said.
What changes in our Permanent Fund, according to the governor’s proposal, is the way oil money flows in, and the amount spent on government.
Right now, the total Permanent Fund is valued at $49.1 billion. About $7 billion of that money lies in the Permanent Fund’s earnings reserve — that’s the only part of the fund lawmakers can pull money from. Each year, a portion of that money is spent on inflation-proofing the corpus of the fund and another on paying Alaskans a dividend check. In years of high interest, there’s money left over that remains in the reserve for future use. None of the money is currently used to fund government — that’s what the governor’s bill would change.
Many other countries, and even other states, have funds like ours, but Alaska is the only oil-based economy with a dividend program. The governor’s bill would unlink the dividend from the Permanent Fund completely. Alaskans would receive an annual payment from oil revenues based on royalties from oil companies instead.
That’s a detail of the proposal some lawmakers said they’re not comfortable with yet.
“We’re securing funding for government with a steady stream via the stock market earnings, but we’re not necessarily securing that same funding stream for dividends,” said Sen. Wielechowski. “If you look at the production forecast for the next 10 years, the oil production is expected to plummet down to about 300,000 barrels per day. As the production drops, and the price doesn’t go up, you’ll see declining dividends.”
Senate Majority Leader John Coghill said he’s been encouraged by Rietveld’s presentation and in seeing how Alaska compares to other places in the world, but is skeptical of the complexity of the governor’s bill.
“I think probably we should use some of the earnings of the permanent fund for government,” Coghill said. “I’m okay with that, but I still think we should share some of that wealth with the people of Alaska in other ways than just through schools and public safety.”
The Senate Finance Committee will meet with members of Walker’s administration and Rietveld on Thursday to discuss the bill further.
Rietveld is being paid $3,500 a day, plus expenses, to testify before the Legislature. His contract is capped at $50,000, according to Katie Marquette, a spokeswoman for the governor’s office.
The post Alaska still richest oil economy on earth, even with big budget deficit appeared first on KTVA 11.