The challenge of adolescence: dealing with the Alaska Permanent Fund.

• Author: Richardson, Jeffrey
• Position: Governor Walter Hickel and other public officials try to map out its purpose and management - Includes related article on the Board of Trustees

The Challenge Of Adolescence: Dealing With The Alaska Permanent Fund

At 14 years of age, this offspring of the state's oil assets presents new management challenges.

Do you know where your Alaska Permanent Fund is tonight? Is it safe from the ravages of inflation and legislative invasion? Is it generating surplus earnings for present and future generations?

Alaska's 14-year experiment with a colossal savings account has often generated the same anxiety experienced by a mother and father waiting for a child to come home from a first date. In fact, analysts often refer to the fund's "infancy" or "adolescence" when debating its maturity, performance and prognosis.

There are strong indications that the Alaskan public doesn't fully grasp some of the crucial complexities facing the fund in its second decade. The inexorable decline in Prudhoe Bay oil production and the diminished revenues (and Permanent Fund deposits) that result are precipitating a near-term crisis that threatens two of the fund's most important facets: dividends paid to residents and inflation-proofing to protect the corpus of the fund for future generations.

When Gov. Walter Hickel abruptly dismissed three Alaska Permanent Fund Corp. trustees earlier this year, concerns about the future of the $10 billion nest egg deepened. Hickel was criticized from several quarters for tossing management of the fund into political mud, jeopardizing its earning ability in the investment marketplace.

Byron Mallott, one of the trustees dismissed, says that neither in reality nor in perception should politics drive management of the Permanent Fund on a day-to-day basis. "It just shouldn't be subjected to political influence by a new administration."

According to Mallott, the fund is a business that seeks to be profitable in a competitive environment where stability is highly esteemed. If trustees become tainted with a political brush, stability is questioned and "the fund begins to lose its competitive edge in the investment community," he adds.

"Whether or not there was a specific policy reason for the change, the fact that there was a change in the majority of non-government members (of the board of trustees) makes change much more likely than was the case before," Mallott asserts. "There was real surprise and I believe some alarm about what the changes may portend. That's still an open question."

At least two possibilities seem to haunt Hickel's critics. First, that the governor will seek to use fund earnings to underwrite pet capital projects, upsetting the delicate balance between the dividend program and inflation-proofing, and second, that he will do so without thorough public consultation.

Commissioner of Administration Millett Keller, one of the new governmental trustees, bristles at the reaction to Hickel's move. "That fear is insulting and ridiculous," he says. Keller adds that the present trustees are people of high integrity, as are the people who were replaced.

"There's no single genius keeping the fund alive and well. (When a new team takes office), we expect them to change the government. That's why we...