The city of Fairbanks’ permanent fund went up in 2019. The fund ended at $134,703,446, according to the city’s Chief Financial Officer Margarita Bell — an 11.6% increase over the previous year.
The city’s permanent fund is not to be confused with the Alaska Permanent Fund dividend, a yearly payment from the state to Alaskan residents.
A stock market dip caused a dramatic decrease in the fund’s total in December of 2018, but the the following month, the market stabilized and those funds were replenished and remained steady throughout 2019, according to Bell.
While the $135 million in the permanent fund makes for a nice nest egg for the city, money can only be removed from the fund in a specific way. Each year, the city calculates the five-year average of the permanent fund and removes 4.5% of that average. This money is then split between the General Fund and the Capital Budget. The General Fund receives 4% of the five-year average and the Capital Fund receives 0.5%.
For the 2020 budget, $4,961,945 is budgeted to be removed from the Permanent Fund and applied to the general fund and $620,243 will be applied to the capital fund for a total withdrawal of $5,582,188.
“The city relies on the permanent fund to have sufficient funds to provide services for the citizens of Fairbanks, because without it we would not be able to provide that service. Our revenues do not provide enough funds for the services that our citizens need and the permanent fund fills in the gap,” Bell said.
The high in 2018 was $135,334,892, but this was recorded in September, just before the yearly withdrawal and is not an accurate measure of the year’s performance, according to Bell.
The permanent fund is managed by Alaska Permanent Capital Management, an investment firm based in Anchorage. It replenishes each year based on low-risk investments. In addition to the investment earnings, the fund grows a small amount with annual lease payments from Golden Heart Utilities and real estate sales. More rarely, the city council has applied surplus funding from the General Fund to the permanent fund in the past.
According to the firm’s annual report to the Fairbanks City Council, the permanent fund is expected to average a 6.4% rate of return over the next 10 years. Even accounting for inflation, the projected returns are expected to support the city’s annual 4.5% withdrawal.
The annual withdrawal is written into the city’s code. In order to change the code, the city council would need to unanimously approve the change and it would need to be taken to a majority vote by the public.
Contact staff writer Cheryl Upshaw at 459-7572 or find her on Twitter @FDNMcity.