While the Constitution protects the principal of the Permanent Fund from being spent, the Board believes that this is not enough of a protection for the entire Fund. State law directs that the earnings of the Fund remain with the principal, where they are invested in the same range of assets. At times, the Fund’s earnings have been a significant part of the Fund’s value as a whole, and have also contributed to the growth of the Fund through the additional earnings they generate. The accumulated earnings have been as much as a quarter of the Fund’s total value before dividends and inflation proofing, yet the entire earnings reserve is available for appropriation at any time.
A good metaphor for this situation is the notion of sustainable yield. Take Alaska’s fisheries - you could catch more than the sustainable limit of fish for a few years and think that you were doing great. But those few years of over-fishing would lead to subsequent years with ever-declining yields and eventually the fishery would be gone. It is the same thing with the Permanent Fund. There is a limit to how much income can be withdrawn annually from the Permanent Fund over time if the goal is to keep the Fund permanent and its real value maintained for future generations.
The Trustees believe that the sustainable yield for the Fund is five percent each year. They have proposed amending Alaska’s constitution to limit withdrawals from the Fund to no more than five percent the Fund’s average total value for the previous five years. Because the Trustees’ investment goal is a five percent annual return after inflation, limiting spending to five percent of the Fund would still allow it to grow at the rate of inflation. Often this proposal is called “POMV” since the limit is five Percent of the Fund’s Market Value.
The Board has passed three resolutions supporting POMV: