Alaska’s budget problem isn’t the dividend — it’s fiscal honesty

Angela Rodell is a former CEO of the Alaska Permanent Fund Corp. and commissioner of the Alaska Department of Revenue. (Mark Sabbatini / Juneau Independent)

By Angela Rodell

As the Alaska Legislature prepares to return to Juneau, lawmakers once again confront a familiar and contentious choice. The governor has proposed a so-called “full” Permanent Fund dividend and a budget that relies on a roughly $1.5 billion draw from the Constitutional Budget Reserve to deliver it. 

Far from easing political tension, this shifts the conflict to the Legislature, forcing lawmakers to choose between draining savings and confronting the unresolved question Alaska continues to avoid: How should the state pay for government in a way that is durable, transparent and fair across generations?

Alaska’s fiscal system is unusual. Unlike nearly every other state, Alaska does not require residents to contribute through a broad-based income tax, statewide sales tax, or property tax. Instead, Alaskans collectively fund public services by forgoing a portion of the Permanent Fund dividend—an arrangement that reflects Alaska’s tradition of independence paired with responsibility, and an understanding that contributing today is part of stewarding the state for future generations.

The portion of the Permanent Fund Dividend that is forgone functions as taxation, funding schools, public safety, transportation and basic government services. Paying dividends by draining savings or weakening the fund is no different from deficit spending. It may feel painless now, but the costs are real and long-term. 

And the issue is not whether Alaskans value the dividend, but whether the state is honest about how government is funded and who pays for it. That cost is regressive: every Alaskan forgoes the same amount and means-testing would fundamentally change the dividend’s purpose and public support. 

So, in practice, Alaska has chosen universality, both in who receives the dividend and in who contributes to government through it.

That choice places an obligation on all of us to support managing the Permanent Fund with discipline.

The fund is often described as constitutionally protected, divided between an untouchable corpus and a spendable earnings reserve account. Today, the corpus holds roughly $59 billion, with another $14.5 billion in unrealized earnings. The earnings reserve account holds about $9.2 billion with $4 billion earmarked for FY28 and another $2.4 billion in unrealized gains. This structure may give the appearance of providing strong protection, but it relies heavily on political restraint.

While the trustees of the Alaska Permanent Fund Corp. have a fiduciary duty to manage the fund in the best interests of its beneficiary, current law does not prohibit the governor and Legislature from changing statute in ways that would require unrealized gains in the corpus to be realized and transferred into the earnings reserve account. Asset liquidation to realize gains is a routine investment activity, and once those gains are realized, they become fully available for appropriation. 

As a result, nothing in current law creates a clear legal barrier to policymakers directing the realization of a significant portion — or even all — of the Fund’s unrealized gains to preserve dividends or avoid new revenue.

This structure naturally creates fiscal risk and shapes how the Permanent Fund is invested. Because Alaska relies so heavily on realized earnings in the earnings reserve account to fund both government operations and the dividend, investment strategy is implicitly constrained by the need to ensure unrealized gains are available to be realized on demand. 

Add to that the fact that trustees have a fiduciary duty to act in the best interests of the fund within statutory side rails that tie appropriations to realized income. The result? A built-in pressure to limit downside volatility, maintain liquidity, and avoid investment strategies that could generate strong long-term growth, but produce interim losses that reduce those realizable gains.

Short-term earnings availability is implicitly favored over long-term value maximization. This dynamic also increases the likelihood of asset sales at less-than-ideal times, not because of market conditions, but because of budgetary demands. In effect, the state’s reliance on realized gains turns investment management into a fiscal backstop, even though that role was never the Permanent Fund Corp.’s purpose.

A single, unified endowment governed by a percent-of-market-value draw would materially change these incentives. Under such a model, withdrawals would be constitutionally limited to total fund value rather than tied to realized gains, allowing negative market years to be absorbed by the total fund rather than forced 100% and immediately on the corpus. Cash needs would continue to be met through deliberate liquidity management. This structure would allow trustees to invest with a longer horizon, take appropriate long-term risk, and focus on growing the fund’s real value over time, while still providing predictable, disciplined funding for both government and dividends.

Funding government through forgone dividends is already Alaska’s reality. The real question is whether we are willing to be honest about that choice, and design a system that manages it with clarity, discipline, and foresight.

• Angela Rodell is a former CEO of the Alaska Permanent Fund Corp. and commissioner of the Alaska Department of Revenue who is currently a business consultant and member of Juneau International Airport’s board of directors. Her column appears the second Tuesday of every month.