The Political Compass of the
Executive
Director of the Alaska Permanent Fund Corporation
Nicholas T. Palso
Department of Human Resources
According to Haass
(1999), to succeed in one’s professional life, one must identify the
layout of
the organizational landscape he or she works in so as to fully
understand
it. The best way to achieve this,
especially in large and complex organizations, is to create a compass
that
represents the relationships between different parts of the
organization. At the center of Haass’
compass is the
individual in question. To the north are
those whom that individual works for, that supervise and have control
over him
or her. To the south are those whom work
for the individual. To the east of the
center are the people with whom the center works. They
do not have direct control over the
center, but they can influence and be influenced by it.
Finally, to the west are the people and organizations
outside of the center’s organization with whom he or she should work to
improve
operations. By creating this compass,
one can understand the workings of his or her organization and then use
that
understanding to succeed and avoid mistakes (pp. 1-7).
Understanding such a compass could be useful
to the Executive Director of the Alaska Permanent Fund, CEO of the
largest
public trust fund in the democratic world.
The Alaska
Permanent Fund
In the late 1960s, vast
quantities
of oil were found in extreme northern Alaska
along the shore of Prudhoe
Bay, and part of the Arctic
Ocean. Under the newly written
constitution of the
state these oil deposits, like all mineral wealth, were the property of
the
State of Alaska and its
people. In 1969, the state auctioned the
leases to the land around Prudhoe Bay to oil
companies
eager to begin exploring for and extracting the oil.
This sale netted Alaska
over $900 million dollars in a single day—over eight times the previous
year’s
budget. This gave the people of Alaska
and their government a picture of
just how much money they
could make
by selling their oil. That first $900
million was used to develop badly needed infrastructure for the state,
and it
was depleted in a little over a year. Although
there was a consensus at the time to
spend the money right away, citizens and lawmakers became upset when
they
realized just how quickly it had gone (APFC 2001, pp. 1-3). They saw this instance as another chapter in
the long history of boom-and-bust times in Alaska. Starting with the Russians in the 1740’s,
“Outsiders” had been coming to Alaska, exploiting the resources until
they ran
out, and taking the money they made with them back home.
This left Alaska
with little money or development even after centuries of fur, fish,
timber,
gold, and oil extraction. To ensure that
future revenues would not be wasted in the same way, Alaska’s
legislature,
spurred by Governor Jay Hammond, worked to develop the Alaska
Permanent Fund (Stauffer, 1999, pp. 25-28).
The Alaska Permanent
Fund became
functional on February 28, 1977
with an infusion of $734 million in state oil revenues.
The Fund was legally formed by an amendment
to the Alaska state
constitution
voted on by the people of Alaska
in a November 1976 ballot proposition.
The purpose of the Fund was to take at least 25% of the revenues Alaska
earned from oil sales and dedicate those funds to a permanent
state savings plan intended to earn interest income and
ensure that the money from current resource booms will last
indefinitely. The legislature also has the
ability to
deposit budget surpluses into the Fund, which it has done on several
occasions. Currently, the Alaska
Permanent Fund has assets of just over $23.1 billion, and had a peak in
the
late 1990’s of close to $27 billion (APFC, 2002).
No other state in the U.S.
has anything like Alaska’s
Permanent Fund, and few other places in the world do.
Over the years, other governments with rich
oil reserves, such as Venezuela and Alberta, have attempted to develop
funds
similar to Alaska’s, but these have failed largely due to the fact that
they
were not created to generate the maximum amount of profit from interest
and
because the principles of the funds were easily tapped by the
governments. Alaska’s
Fund
is protected by an amendment to the State constitution that requires
the
passing of another ballot proposition in order to change it. This effectively puts the control of the Fund
in the hands of Alaskans. The only other
government in the world that has a fund more successful than Alaska
is Kuwait,
and
that is largely because that nation has far more oil than Alaska
and because their fund is managed by an authoritarian monarchy with
absolutely
no control from the people (Rose, 1997, pps.
1-5).
In 1980, the Alaska
legislature took steps to refine the Fund into its current operational
shape. At that time, Alaskans debated
whether the Fund should be managed as a savings account or as an
economic
development bank to fuel business in Alaska. The legislature decided that the Fund should
serve as a public trust account. At this
time, the legislature also created the Alaska Permanent Fund Corporation
(APFC)
to manage the Fund. Finally, and what
most Alaskans view as most important, the legislature created the
Permanent
Fund Dividend program (PFD). Under the
PFD, dividends from
the earnings of the Fund
are paid
out to every Alaskan man, woman, and child who meets rigid residency
requirements (APFC, 2002). This, of
course, instantly became an incredibly popular aspect of the Permanent
Fund,
but as will be seen later, has led to some severe problems.
The Alaska Permanent Fund Corporation
The APFC is a
self-described
“quasi-independent state entity”. It is
insulated from short-term political decisions and is at the mercy of the
legislature only in that it must have its budget approved by lawmakers
annually
and that constitutional amendments required to change it must be enacted
by the
legislature. Ultimately, the APFC is
accountable
to all Alaskans (APFC, 2001, p. 33). It
is expressly forbidden to take any part in politics, including lobbying
for ballot
propositions that may affect its functioning (APFC, 1994, p. 4). The finances, holdings, and actions of the
APFC are always transparent, as the money it manages belongs to all
Alaskans. The mission statement of the
APFC is “To
maximize the value of Alaska's
Permanent
Fund through prudent long-term investment and protection of principal
to produce income to benefit all generations of Alaskans,” (APFC, 2001,
p. 45)
Today, the APFC has
vast holdings
in domestic and international stocks, bonds, mortgages, and real estate. The ability of the APFC to act independent of
politics is further exemplified by the fact that the Fund has only three
of its
58 real estate holdings in Alaska. While Alaskan politicians would doubtlessly
love to see the Fund construct malls and
office
buildings in their districts, bringing the double benefits of
development
and revenue to their
constituents,
the APFC has seen that large-scale investing in Alaska,
with its shaky resource-based economy, is not sound for long-term
financial
gain. Incidentally, the Fund does own a
development of luxury condominiums near West
Chester,
PA (APFC, 2002).
The Political Compass of the Executive Director of the APFC
The Executive Director
(ED) is at
the center of the compass. Currently,
this position is held by Robert Storer.
The ED is the CEO of the APFC. He
is in charge of the day-to-day operations of the Fund.
The duties of the ED include:
- Provide
for the execution of all operational, administrative, and financial
actions
of the Fund
- Act as
the secretary and treasurer of the APFC by signing all contracts,
deeds,
and other documents as well as recording minutes at the meetings of
the
APFC Board of Trustees
- Manage
all receipts and funds of the Fund
- Safe
keep all APFC instruments
- Provide
for disbursements of the funds for investments and expenses
- Present
reports to the Board of Trustees
- Hire
staff as needed (APFC, 1994).
Ultimately, the ED is in charge of running the
Alaska
Permanent Fund.
North
To the direct north of
the ED is
the APFC Board of Trustees. This is a
six-member board that hires the ED and basically tells him what they
want him
to do in order to get the results that they want. Four
of the board members are appointed by
the governor to staggered four-year terms.
These members are often prominent business people or
political-hopefuls
who are looking to get into politics, and over the years have included
the
presidents of banks, owners of car dealerships, and the children of U.S.
senators. The other two board members
are the Alaska Commissioner of Revenue and one other state cabinet
member of
the governor’s choosing (APFC, 2001, pp 33-34).
The Board of Trustees,
formal goals
are to protect the money in the Fund, maximize the Fund’s long-term
returns,
maintain the real value of the Fund and support it against inflation,
and work
with the legislature and the public to support the Fund (APFC, 2001, p.
34). In reality, most of this work is handed
down
to the ED. Few, if any, of the Board
members actually take an active role in working for or promoting the
Fund (Rose
1997, p. 8).
North of the Board of
Trustees is
the Alaskan governor Frank Murkowski. He
is in charge of appointing all the members to the Board (APFC 2002). Although that is the extent of his legal
power over the Fund, he doubtlessly has the power as the state’s most
powerful
figure to persuade the members to get results he wants.
In reality, however, it seems that most
Alaskan governors have left the APFC alone to do its job, probably
knowing that
the ED and his staff have a better idea of how to run things than he
does.
South
To the south of the ED
are the 32
employees of the APFC, all of whom are hired by him.
These are the people to whom the ED delegates
the tasks of running and investing the fund.
Immediately south of the ED are the Chief Operating Officer (COO)
and
the Chief Investment Officer (CIO). The
COO, Robert Bartholomew, works closely with the ED to handle the actual
mechanics and business operations of the Corporation.
He supervises the Director of Communications,
the Director of Information Technology, the Director of Finance, and the
Administration Department. The CIO,
Allan Moore, is responsible for all investment functions of the Fund. He is the man who actually works with the
Fund to earn more money. Under the CIO
are the managers of the various types of investments, such as real
estate and
bonds (APFC, 2001, pp 35-36).
East
To the east of the ED
of the APFC
are the 20 Senators and 40 representatives of the Alaska State
Legislature. The legislature would
actually probably be best situated northeast of the ED, as it does have
some
formal power over the APFC but also works with it on other matters. The legislature can control the workings of
the Permanent Fund, but only through the propositions of amendments to
the
state constitution. This can be a
lengthy process, as all proposed amendments must be voted on by the
people of Alaska
(Rose 1997, pp. 4-5). It also serves to
free the elected officials from any blame if things go wrong with the
fund, as
it is the voters who ultimately decide what action will be taken. The Fund can wield power over the
legislatures, too, as bad returns and lower dividends would make
constituents
discontented with their politicians. The
legislature
can also indirectly
affect the fund
by manipulating dealings with the oil companies working in the state to
affect
how much revenue the state earns, and ultimately, how much goes to the
Fund (Alaska
State Legislature House Finance Committee Department of Natural
Resources, 2002).
Also to the east of the
APFC are
the various departments of the State of Alaska. Some of these have more workings with the
Fund than others. For instance, the
Alaska Department of Public Safety has little to do with the Fund, but
the
Department of Natural Resources Division of Oil and Gas, which is in
charge of
oil drilling, can affect it by determining
how much
oil corporations can take out of the ground (State of Alaska Division of
Oil
and Gas, 2002). Basically, any state
department that has dealings with the oil industry can affect the Fund,
and
while the APFC is not legally allowed to lobby on behalf of itself, it
does
take some under-the-radar actions. For
instance, while working for the Alaska Department of Fish and Game
(ADF&G)
in Fairbanks, I noticed that
the
APFC was always sending up pamphlets to our offices that promoted the
Fund as
the future of Alaska and
explained how important oil revenue was to its creation.
This was of no small coincidence, of course,
as the ADF&G was responsible for monitoring the Porcupine caribou
herd in
the Arctic National Wildlife Refuge and most of its employees were
highly
biased towards protecting the herd and stopping oil exploration in that
area. Clearly, the APFC was trying to help
us keep
our options open.
West
To the west of the ED
and the APFC
is one group that the Fund desperately needs to work with in order to
protect
itself and the state—the people of the State of Alaska. After spending five long years as a student
in Alaska, I observed that
the
people of the Last Frontier are a unique group who love their Permanent
Fund. Although it has only been around
for 25 years, the PFD has firmly rooted itself into the collective
psyche of
the state and its people. All television
and radio stations interrupt their programming to announce the amount of
each
year’s dividend once it is revealed by the first week of October. Then, a week later when the money is
direct-deposited into thousands of Alaskan bank accounts, the few stores
found in
the state line their aisles with appliances while scores of “Dividend
Specials”
fill the newspapers, offering vacation packages that cost the exact
amount of
the payouts. Many Alaskans view their
dividend not as their portion of the sale of their collective mineral
wealth
but as their right as Alaskans. Political
candidates refer to the Dividend as Alaskans’ “hard earned money” and
accuse
their opponents of wanting to tap the Fund to pay for budget gaps (AP,
2002). Except perhaps for their support
of the Second Amendment to the U.S. Constitution, Alaskans generally do
not
feel stronger about any other political matter than keeping the PFD
large. It would be political suicide for any
politician to work to lower dividends.
In a state where most of the residents show extreme distrust and
loathing towards any sort of governmental power, the APFC is sacrosanct.
While the PFD program
has made the
Alaskan people extremely happy, it could in the end lead to great
problems. Currently, the Alaska
state budget is in horrible shape. It
relies almost solely on oil revenue for its funding, as there are no
state sales
or income taxes. Oil prices have dropped
precipitously in the last 15 years and Alaskan politicians seem
reluctant to
attract any sort of business other than oil (Hunter and Spiess, 2002). While other governments in extremely similar
geographical and economic situations to Alaska,
such as Finland,
have moved past resource-based economies to become powerhouses of
high-tech
communications and computers (Laakso, 2002), Alaska
still concentrates principally on trying to expand resource
exploitation. This has resulted in a $1
billion budget
shortfall (Hunter & Spiess, 2002).
In a state with so little for the government to take care of in
the
first place, this is having drastic effects.
For its immense size (one fifth of the land area of the United
States is in Alaska),
Alaska actually has less
than
3000 miles of non-residential roadways (Alaska Dept. of Transportation
and
Public Facilities, 2002). The state
government
has been toying with the idea of closing some of the roads in winter to
snow
removal, effectively destroying the communities that depend on them. The state government is also shutting down
some of its state parks and is considering stopping restaurant
inspections (Cockerham,
2002). From much personal driving
experience, all but about 100 miles of those roads would be considered
country
highways in the Lower 48, and a good quarter of them are not even paved. The roads are not the only things that are
archaic in the state, however. From
personal observation, many people have no running water in their homes
and
bathe infrequently, if at all. Outhouses
are abundant, and street signs are often unreadable due
to shot-gun attacks. Illness, alcoholism, air pollution, wide-spread
forest fires, drug abuse, and domestic violence are widespread problems
that
can be seen on the streets, and if the weather is bad in Tacoma,
Washington, Alaskans do not get
their
groceries delivered on time. Many of
what are considered “civilized” parts Alaska
are still like the Wild West, yet the state is sitting on $23 billion,
with
over $1 billion paid out to its people each year (APFC, 2002). The general consensus amongst Alaskans is
that as long as they get their money each October, they do not care what
else
happens. Since the Alaskan people also
have to vote on any constitutional amendments that affect the Fund and
the PFD,
it is almost laughable to think that they would garnish their dividends
to
cover the fiscal gap and pay for things like roads or health care when
they
instead could use that money to buy snowmobiles, TV’s, and trips to Hawaii. As the Alaska Attorney General during the
creation of the PFD, Avrum Gross, insightfully summed it up 20 years
ago:
“I picture Alaska
in the year 2020 with the streets swept with wind, holes in the road and
mobs
of uneducated people. In the center of
town there would be a marble temple with an alabaster statue. The temple was the Permanent Fund
Headquarters and the statue depicted, presumably, Gov. Hammond. Each year the executive director of the Fund
would announce the dividend and the throng of people would run to the
airport...,” (Wohlforth, 1999).
Gross
probably
hoped that his prediction would not be as accurate as it has proven out
to
be. The ED of the APFC needs to improve
the public relations aspect of the Corporation to better inform the
public of
its mission and purpose.
The Fund already does a
wonderful
job of detailing its holdings and operations on its website (www.apfc.org) and in pamphlets and
books, yet
it needs to somehow wrestle Alaskans away from the idea that it exists
solely
to give them checks each year. The
mission of the APFC, after all, never mentions direct-deposits. Alaskans already have more than enough money
to cover any budget gaps they have, they just do not want to touch it.
Clearly,
if the
relatively young state of Alaska
is to remain financially viable in the future, it needs to work more
closely
with the vast wealth it has in its Permanent Fund. The
Fund itself does not even have to be
touched—the profits it earns each year are enough to solve all budget
problems
in the state. The ED at the moment is
lucky. The Fund is probably one of the
few state organizations that functions very smoothly, and it is
certainly the
most loved. Even though the Fund has
lost close to $4 billion in recent months due to the recent downturn in
the
stock market (APFC, 2002), few people hold the APFC and its managers
responsible. If the number of harvestable
moose were to drop by 15% due to extremely cold weather, it is doubtful
that
the ADF&G would receive the same kind of support.
To ensure that Alaska
does not revert back to a wild, untamed frontier while sitting on a
public
trust that is larger than the gross domestic products of Cuba
or North Korea,
or of Honduras
and Latvia
combined
(CIA, 2002), the ED and the APFC will have to start working to educate
Alaskans
on how to better use their money. Unless,
of course, the ED is merely content to collect his $1,850.29 each
October like
everyone else.
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