Josh Church, Bart LeBon: The case for a stronger Permanent Fund structure

By JOSH CHURCH and BART LEBON

Alaskans are hearing a lot right now about combining the Permanent Fund and the Earnings Reserve Account. Unfortunately, much of the discussion has created more heat than light. The structure of the Fund is technical, and even well-meaning commentators sometimes miss how the pieces fit together.

This issue deserves a clear, plain language explanation.

This is not about taking the dividend as some have suggested. Claims that consolidation is a backdoor way to reduce the Permanent Fund Dividend are not accurate.

The uncomfortable truth is that the dividend has already been reduced multiple times over the past decade. Whether people supported those decisions or not, the current system has not protected the dividend.

Please allow us to explain the issue.

As of January 31, 2026, the Permanent Fund sits at about $87.5 billion. $12.6 billion is in the Earnings Reserve Account. The principal is constitutionally protected. The ERA is not. The Permanent Fund held about $17.8 billion in unrealized investment gains, about $2.7 billion is associated with the ERA. That means 15 billion of unrealized gains and 12 billion in the ERA, totaling 27 billion that is not protected from legislative draws.

Because the ERA can be accessed by statute, it naturally becomes a target during tight budget years. Large, unprotected balances tend to attract attention when the state is short on cash.

Bringing the ERA under the same constitutional protection as the principal would not eliminate the dividend. A larger, fully protected fund creates stronger and more stable revenue whether for government services or for paying the dividend.

This risk of overdrawing the unprotected balance from the permanent fund and ERA is not theoretical. Alaska has already come close two major ERA actions.

In 2019, the Senate Finance Committee advanced a plan involving about $12 billion from the Earnings Reserve. In 2022, the House discussed a transfer of roughly $5.5 billion. Neither ultimately happened, but both show how quickly large balances can enter the political crosshairs.

We looked at what would have happened if reductions of that size had occurred, using the Fund’s actual return history. I will spare you the math here but based on past returns these two draws would have cost roughly $25 billion in lost value, meaning the Fund would not be 87 billion today but closer to about $59 billion.

That is an unacceptable risk.

Large endowments and sovereign wealth funds commonly follow a simple rule. They limit annual withdrawals to a sustainable percentage of market value. Most land somewhere between 4 percent and 5 percent. I (Josh) sit on the city finance committee in Fairbanks and have observed the success of their 4.5% draw rate for years.

Most Alaskans, no matter where they fall in the dividend debate, would probably agree on three things. Protect the Fund’s real value. Earn solid long-term returns. Put rules in place that will still work decades from now.

Moving to a single endowment structure would fix several weak spots in the current system. One it would place a constitutional limit on annual withdrawals. That makes it much harder to justify a large one time overdraw.

It would extend constitutional protection across the full balance of the Fund instead of leaving the ERA and unrealized gains exposed.

It would give investment managers more predictability. That matters in investing. If you do not have confidence, you can leave the money long enough you will be limited in your investment choices.

None of these changes are flashy. But over long periods, discipline and structure make an extremely big difference.

Permanent Fund math is simple. Smaller principles mean smaller sustainable draws.

At about a 4.25 percent draw rate, our preferred number for the cap, a $25 billion difference in fund size translates into roughly $1 billion per year in spending or dividend capacity. Which for perspective could have more than doubled last year’s dividend.

The Permanent Fund was created in 1976 to turn a finite resource into a permanent financial asset. By any fair measure, it has been an extraordinary success. That does not mean it is perfect and cannot be improved upon. The question is whether Alaska will put the right structure in place to protect it for the next generation.

If Alaska improves Fund performance, keeps investment costs under control, restrains spending growth, and grows the private sector, the state can generate billions more in sustainable annual revenue over time.

The state faces a broad fiscal challenge. Government spending has grown faster than the private sector economy. Long term stability will require spending discipline, improved performance, and stronger economic growth. Increased oil throughput and a more diverse private economy are crucial. Protecting the structure of the Fund is something Alaska can do right now.

The dividend represents a direct share of Alaska’s resource wealth. Strengthening and protecting the Fund that supports it should be common ground.

Protect the principal today, and the Permanent Fund will continue protecting Alaska for generations.

Joshua Church is an investment adviser representative and candidate for lieutenant governor, and Bart LeBon is a former Alaska State House representative and retired executive vice president of Mt. McKinley Bank.