A measure on the ballot for the Oct. 3 election has sparked debate over the Haines Borough permanent fund’s purpose—whether the principal should function as a “rainy day” savings account during economic disasters, or whether the fund is strictly intended to support the borough through its earnings.
The ballot measure, which the assembly approved in June, asks voters to decide on a one-time, $450,000 draw from the permanent fund to offset unexpected costs associated with this year’s school bond debt payment.
Under current charter, the permanent fund’s principal consists of invested income from land sales. Each year, a certain amount of the fund’s earnings must be reinvested in the principal to protect it from the effects of inflation. The remaining income can be used for borough expenses. The fund’s principal can be spent, but only with voter approval.
Assembly member Zephyr Sincerny, who originally proposed the ballot measure, said he thinks a draw from the fund’s principal to help the borough through financial difficulties is an acceptable use of the money, in keeping with the original intent behind its creation.
“The intention of the permanent fund is to be used as a long term resource for the borough,” Sincerny said. “The interest generated by the fund is used regularly by the borough. Additionally, the principal could be used to benefit the borough… It is valuable to know that we have assets that could be utilized as needed and determined by a vote of the people.”
At the time the assembly approved the ordinance putting the measure on the October ballot, Sincerny said it made sense to use a small amount of the total permanent fund, roughly 5%, to cover unanticipated, pandemic-driven costs.
In a Wednesday interview with the CVN, he said his thinking has changed somewhat–he’s no longer certain the borough’s financial situation warrants a draw from the principal.
“At the time the ordinance was composed there was significant pressure on our budget. Since then, the CARES Act has significantly changed the borough’s economic situation,” he said.
Others have pushed back against the idea of using the permanent fund as an emergency savings account, saying the original intent of the fund was to turn land into a renewable source of revenue and that any draw from the principal goes against this goal.
“Spending money from the permanent fund would be like a farmer eating next year’s seeds,” said Fred Shields, who served as borough Mayor beginning in 1988.
The borough’s permanent fund was created on Tuesday, Feb. 21, 1984, according to CVN archives.
Shields said the borough’s fund was modeled after the state’s, which came into existence in 1976.
Unlike the state’s, which invests revenue from mineral royalties, the borough’s permanent fund was originally created through the sale of land received from the 1978 Municipal Entitlement Act, which approved the transfer of 868,935 acres to municipalities across the state, including 2,800 acres specifically to the Haines Borough.
“(Bob Henderson) was borough Mayor at the time the state of Alaska conveyed the land to the municipalities with the goal of putting land in the hands of people and money in the hands of municipalities,” Shields said. “Henderson started channeling the proceeds from those (land) sales into the permanent fund with the idea that those earnings would help offset taxes.”
CVN archives indicate that borough leaders involved in the fund’s creation made an effort to give the public a say in how it was spent.
A Feb. 23, 1984 CVN article notes that a final hour amendment was made to give the public more discretion over how the fund’s income is spent, deleting a line specifying that “income derived from the investment of permanent fund principal shall be used to provide funding for the capital and operating expenses of the Haines Borough.”
Permanent fund earnings add roughly $300,000 to the borough’s budget each year, although this was not always the case.
The permanent fund, which consists of a mixture of bonds, treasury notes, stocks and real estate, is currently worth $9,319,069, according to chief fiscal officer Jila Stuart. The fund’s value dipped this spring, in the early days of the coronavirus pandemic, but since then, it has regained its value.
The borough has grown the fund over the years through land sales.
In 1989, while Shields was Mayor, the borough added $250,000 to the fund. Borough clerk and interim manager Alekka Fullerton said she believes this was the last time the borough developed land for sale.
The current assembly has expressed interest in developing and selling more lands to help grow the fund and, in turn, increase fund earnings that can be used to support borough expenses.
The fund has nearly doubled in size since borough consolidation in 2002. At the time it was worth $4.9 million.
Assembly member Jerry Lapp, who served as Mayor in the late 1990s, said he’s seen the fund grow over the years and feels strongly that the money should be left in the principal. Back when he was Mayor, the fund was worth $2.8 million and its earnings added roughly $60,000 to the borough’s budget, he said.
Lapp credits a switch in permanent fund management with the fund’s significant growth. For the past two decades, the fund has been managed by Alaska Permanent Capital Management.
“Once they took over (the fund), they started growing it. They adjusted some of the investments and added some more from land sales,” Lapp said, adding that this was the first time the fund was managed in a cohesive way.
Haines isn’t the only Alaskan community with a permanent fund. Other municipalities including Valdez and Skagway have funds of this type. Valdez’s was created in 1977 using $13 million earned from pipeline-related construction. Skagway’s, like Haines’ fund, was created through the sale of land from the Municipal Entitlement Act.