The Weekly Top 3
The Weekly Top 3
The Weekly Top 3 (1.5.2026)
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Welcome to The Weekly Top 3 — our look at the top 3 things on our mind here at Alaskans for Sustainable Budgets — for the week of January 5, 2026.
This week, our top 3 issues are these: 1) we discuss what we view as the single most important fiscal issue facing the legislature this coming session (2:05), 2) we discuss what the impact of a potential new surge in Venezuelean oil development could have on Alaska (18:42), and 3) we explain how a recent report from the Permanent Fund Corporation itself demonstrates that its Board continues to overspend and underperform (36:13).
The Weekly Top 3 is a regular weekly segment on The Michael Dukes Show. The Show broadcasts on Facebook and YouTubeLive as well as via streaming audio from the Show’s website weekdays from 6–8am. We join Michael weekly in the first hour of Tuesday’s show, from 6:25–7am, for a discussion between the two of us about our three issues.
This is Brad Keithly, Managing Director of Alaskans for Sustainable Budgets. Welcome to the Weekly Top Three, the Top Three Things on Our Mind here at Alaskans for Sustainable Budgets for the week of January 5th, 2025. The Weekly Top Three is a regular segment on the Michael Duke Show. The show broadcasts on both Facebook Live and YouTube Live, as well as via streaming audio from the show's website weekdays from 6 to 8 a.m. I join Michael weekly in the first hour of Tuesday's show from 6.10 to 7 a.m. for a discussion between the two of us about our three issues. We post the podcast of our discussion following the show on the Alaskans for Sustainable Budgets Facebook, YouTube, SoundCloud, Spotify, and Substack pages, also on the Alaskans for Sustainable Budgets website, as well as the projects page on national blog site, Medium.com. You can find past episodes of the weekly top three also at the same locations. Keep in mind that in addition to these podcasts during the week, you can also follow and participate in the discussion with us of these and other issues affecting Alaska's fiscal and economic condition by following us on the Alaskans for Sustainable Budgets Facebook page and through our posts on Twitter. This week, our top three issues are these. First, we discuss what we view as the single most important fiscal issue facing the legislature this coming session. Second, we discuss what the impact of a potential new surge in Venezuelan oil development could have on Alaska. And third, we discuss how a recent report from the Permanent Fund Corporation demonstrates that its board continues to overspend and underperform. And now, let's join Michael.
SPEAKER_01:We should just get things uh get things cranking here. So, of course, we are 14 days away uh from the start of the uh of the session. And um, you know, lots of questions as to what we're gonna be facing as far as uh, you know, nobody's talking about a crisis. There was a Bill Willikowski and Loki Tobin uh opinion piece yesterday talking about how if just the governor had just given them their their their SB 113 and the, you know, but there was no discussion on deficits or anything else. And I mean, we can already see how things are lining up, but your number one here is the most important fiscal issue in front of the legislature this year. Let's uh let's get started.
SPEAKER_00:So we're gonna have a lot of discussions about fiscal issues during the course of the legislature. The governor still says that he's going to come up with a fiscal plan before the start of the legislature and hope that the legislature uh addresses that during the course of the uh during the course of the of the session. Um individual legislators have said they're gonna you know make various proposals with respect to fiscal plans. So there's gonna be a lot of fiscal issues going on to talk about. But before we get into the session, I wanted to highlight what I think is is the most important long-term fiscal issue that's gonna be in front of this session and uh and make sure that I sort of set that up and keep our and then keep our eye on it as as we're going along. It is the proposal uh by some in both the Senate and the House to merge the two permanent fund accounts into a single account. The the proposal to take the earnings reserve and merge it into the permanent fund corpus and set those up as a one account, a proposed constitutional amendment. That constitutional amendment got a lot of hearings last session. Um it did not pass either, it did not get out of committee uh on either side, but it sets in both Senate finance, the last committee, um, it's only committee on the Senate side, and it sets in House Finance uh the last committee before going to the floor on the House side. Um and the proposal is, I mean, we've talked about it a lot on the show. There's been op-eds about it. The proposal is to just merge the two accounts together and then set constitutionally a 5% draw. That's what the percentage is in the proposals in the various bodies, to set constitutionally a 5% draw uh against that merged uh account uh going forward. Here's my problem with it, and and and and I've got I've got two problems with it. One is it sets us up, sets Alaska up, creates a backdoor into the corpus, and sets up Alaska to start gradually draining the corpus. Now, people will tell you, oh no, it's to protect the corpus, but they're either lying or or they just don't understand. The the corpus as it currently sets is absolutely inviolate. The constitution says you cannot spend from it. Uh the constitution says you cannot you cannot do anything with it other than grow it, other than invest it for uh for returns. The only thing you can spend is the earnings reserve, the earnings, the the account that catches the earnings that comes off the um comes off the permit fund or the corpus as as the investments uh uh mature. Um but what this would do is merge the two accounts together and and allow a 5% draw against the merged balance. If the if if you don't earn 5% a year, if you don't earn the amount that uh the amount in earnings per year to to fund a 5% draw, you nevertheless can continue to to to draw 5%. Under the current system, you draw that you draw that amount from the earnings reserve. If you drain the earnings reserve, you're done. Uh you can only uh thereafter, you know, continue to draw whatever uh is in the earnings reserve, and it constrains you from getting at the corpus. The two account system constrains you from getting at the corpus. I mean, maybe instead of 5%, you're only earning 3%. And so you can only draw 3%. Maybe you're only earning, maybe you're earning 4%, you can only draw 4%, but it constrains you from spending more than the earnings. You can't go back into the corpus uh to make that up that difference between 5% and what you're actually earning. Merging the two accounts it eliminates that constraint so that you can continue to earn, you can continue to take 5% regardless of whether the earnings reserve, regardless of whether the permanent fund is gener generating 5% uh earnings or not. Right. The the permanent fund has not been generating five percent 5% returns. And so you can easily see a situation in which in which the the legislature, if this constitutional uh provision passed and the two accounts were merged, you can easily see a situation in which the the the the the they go back, they use that back door to go into the into the corpus and start and start taking uh additional amounts. The problem with that long term is that you're draining the corpus. You're essentially taxing future generations by reducing the corpus, reducing the the earnings uh power that you have uh in order to supplement revenues, supplement uh uh revenues coming into the current generation. Um, and it's just a continuation of what we've seen since the early 2010s. First, we drained the SBR, then we drain the CBR. Now we're in the process of draining the the PFD uh as a as a revenue source, and this would just be a continuation of opening up the corpus to start being drained. The second that so that's that's that's a huge problem. I just want to make a multi-generational problem.
SPEAKER_01:I just want to make a quick point because I was having this conversation the other day during my vacation, unfortunately. But I was having this conversation with somebody when they were talking about that, and I said, this is not about protecting the corpus, this is about protecting the spend. That's really what this is about. That I mean, it has nothing to do with because the corpus, like you said, 100% untouchable at this point. This would make it touchable, and it's about protecting the spend. I'm sorry, go ahead.
SPEAKER_00:No, no, that's that's absolutely right. And it and it is, I mean, you you see a lot of a lot of words that people are throwing out, protecting the corpus, you know, modern uh uh investment strategy, all that sort of stuff. But at the end of the day, it is exactly that. It's it they want to make sure they get their 5% out of the permanent fund, regardless of whether they have to go into the corpus to do it or not. The second thing this does is it eliminates the incentive for the permanent fund board to do a good job. Um, so right now, the permanent legislature looks at the permanent fund and says, you need to be producing 5%. That's what the POMB draw is. And if you don't produce 5% in earnings, then we're not gonna, the earnings reserve is not filling up at the rate it needs to to be able to continue to take, to be able to continue to take the 5%. So you've got the legislature looking over the permanent fund board's soul shoulder saying, you guys need to do your job. You need to maximize returns in order to make sure that we have enough in the earnings reserve to fund the 5% uh uh POMB draw. It creates a huge incentive for the permanent fund board, not that they've felt it much yet. We'll talk about that in a in uh in the last segment, but but it creates a huge incentive for the permanent fund board to do its job. If the legislature can draw the 5% without regard to whether or not uh the the permanent fund is actually earning 5%, it reduces the incentive. I mean, the permanent fund board will sit there and say, oh, we got incentive to maximize. But you don't really. I mean, the legislature is going to take five percent, it's gonna get five percent regardless of whether you of whether you maximize your returns or not. And so it encourages, it it deincentivizes the permanent fund board focusing on maximizing returns and and incentivizes them to just sort of sit around and and you know claim the per diem or whatever they get uh without really focusing on maximizing returns. And and we've seen sort of a a cover your ass type approach to investment, uh, to investments being made by the permanent fund board. Oh, we just don't want things to go down, we don't want to take any risk. So, you know, we're we're fine with very with very low returns as long as we don't take any risk. We've seen what that sort of does to the permanent fund board. And I'm concerned that if we pass this constitutional amendment, we would, we would successive permanent fund boards would not have the incentive to continue to grow. So the reason this this is the number one issue to me is it's a long-lasting issue. Whatever Governor Dunleavy proposes in its fiscal plan, we'll debate, we'll decide, but it can be changed next year. Whatever, whatever Governor Dunleavy, whatever the legislature proposes for a fiscal plan, we'll debate, we'll decide, but it can be changed next year. This thing can't be. What they're proposing is a constitutional amendment which would constitutionalize merging the two counts into a single account and constitutionalize that 5% draw. They may say it's up to 5%, but come on. We're we're smarter than that, aren't we? We know that we know that if they set 5% as the as the draw, that they will take 5%. So it's it is it is the long-term consequences of this proposal that to me makes it makes it rise to the to number one on number one on the uh on the hit parade uh this coming session.
SPEAKER_01:Any feeling right now before we go, uh any feeling on uh on what the breakdown is in the legislature? I know that we just saw that that whole thing about the seven Republicans who are trying to unify behind a unity, you know, unity platform or whatever. And they've said that combining the funds is a no-no, but I mean that's only seven of nineteen on the minority. Any feel on what the because I've had a lot of Republicans say, yeah, we need to combine this. And I sit down and I say, Do you know why? And that was part of this conversation that we were having. And then they were like, oh, oh, uh it just doesn't seem to be a lot of discussion on this, other than this is a great idea.
SPEAKER_00:There's going to be a big push by by the fiscal plutocrats in the state, the old companies and the and the top 20%, a big push for this because they view it as a way of continuing to dodge taxes. They view it as a way of continuing to have the free money from the permanent fund coming in for the for government to spend, uh, and and them getting off the hook from uh from from paying for the expenses that they continue to vote for in terms of in terms of spending level. So there's gonna be a big push for that. And you can see it from Commonwealth North, you can see it from uh from other sources, the chamber, you can see it from other sources that are that are that are gearing up to push for this. It's sitting in the in the last committees it's gonna sit in. Uh the the Senate version is a Senate finance version, and the House version is proposed by the the House minority, uh House House Majority Leader. And when I've talked to various representatives on the on the majority side, they've said, oh, well, he's proposed it. I mean, he's in favor of it, so yeah, it must be a good thing. So it's it it I think it's dangerously close. It would, it will take um the Constitution requires two-thirds in each body to get a constitutional amendment out. Governor can't veto it. So it's gonna take seven to stop in the Senate and 14 to stop in the House. And um, it's gonna be we're gonna be talking about this a lot, I'm afraid, yeah, during the course, whether we can get seven in the Senate and 14 in the House to stop it.
SPEAKER_01:Yeah, I mean, uh again, it I'm amazed at the number of people who have come up to me over the last six, eight months and have have mentioned this in passing. Oh, we've got to get this, we've got to get this done to protect the I mean, this is the whole Bill Walker thing again about protecting the permanent fund by rating the permanent fund. This is the whole, we've got to protect it by doing all this voodoo math and showing all the draws, but none of the deposits in the permanent fund or the ERA. You know, that was his thing when he did all the charts and showed how much money we were drawing out, but then failed to show all the deposits that were going in from the earnings. Same kind of thing. It's that scare tactics, right? I mean, it's the it's the fear-mongering, it feels like.
SPEAKER_00:It's a combination of two things. That's that's that's part of it. I mean, the misdirect on protecting the permanent fund corpus, absolute misdirect on that. But it's also it's also part of what went behind uh ranked choice voting, the ranked choice voting uh proposal. It's good government. People are trying to get out there and say, oh, it's good government, it's modern, it's you know, it's it makes a lot of you it's what it's what all these other investment funds and sovereign wealth funds are doing. They're merging everything together and they're drawing it, drawing it a fixed percent. It's it's the good government way to uh to be handling uh the permanent fund. And and so you're you're gener you're you're getting the kind of responses when I talk to people about it initially, people have the same reaction of, oh well, you know, we need to move into the modern age with the permanent fund and and we need to, you know, adopt these things that that that Harvard and other places are doing. And I and and my response to that is have you thought through why Hammond and others, you know, set up this thing in in the two account system? Have you thought through the the protection that gives to future generations? And the answer is usually no, but you know, that Hammond, that was a long time ago. We don't we don't you know pay attention to him anymore. It's we're paying attention to uh to what's going on with um uh paying attention to what's going on with Harvard or, you know, Saudi Arabia or somebody like that. Um and so it's it's it's it's some of the same stuff that that drove uh drove the the ranked choice voting uh uh uh uh demand. And I'm and I you know frankly, I'll I I would imagine I'll see we will see Scott Kendall and others out in front of out in front of uh this as well. But at its core, it is exactly what you described it, uh Michael. It is protect the spend. It is protect the ability to draw those revenues from the fund, regardless of whether it's earning 5% or not. Protect the ability to draw that 5% from the fund, protect the ability to to have that revenue to spend, uh, regardless of what the permanent fund corporation is doing. And um, and it's you know, and and people don't see that. So the the the the way that uh I've tried to to describe it is to say, look, there's a reason that we set this fund up in a two-account system, and the reason still exists, and it is to protect future generations and is to protect overspending relative to what the earnings are from the from the fund is is to protect against drawing into the corpus. That's what the two account system does. It's what it did back in in uh night in the 1970s, it's what it did in the 80s, 90s, 10 zeros, tens, 20s. It is it protects the fund. And what you're and what the this proposal would do is open the fund up, open a backdoor into the fund to allow people to start drawing from it.
SPEAKER_01:Well, and I think that's the that that again is the main draw here. This really, they keep saying it's about protecting the the corpus, uh, that is protecting that, but this again is the same, it's the same uh draw that uh, like I said, that Walker had, which was we want to protect it by taking from you. We want to protect it by taking from you and putting it back and essentially saying we need to put it in our hands instead of your hands, because that's going to be that's gonna be better in the long run.
SPEAKER_00:This is really gonna be a test for for particularly for Republican legislators in the House. It's gonna be a test. Are you are you do you are you can more concerned about protecting the oil companies and the and the top 20% than the non-resident industries? Are you more concerned about that, or are you more concerned about protecting uh uh working Alaska families now and into the future? And and that's gonna be that this this issue, this vote, if the if it gets to the floor in each body, and it will, it this vote is going to be that question. Who are you concerned about more?
SPEAKER_01:We're continuing now. Brad Keithley, Alaskans for Sustainable Budgets, is our guest, who is a lot more to unpack on that. We were getting into that in the break, but uh, we need to move on to number two of the weekly top three as we move forward. Uh, and that is something that probably many of us are not thinking of or haven't thought of, and that was, of course, the uh the uh the attack on Venezuela, the deportation and capture of Nicolas Maduro as the uh as the narco-terrorist dictator, I guess. Um, but there are ramifications, even for Alaska, uh, on what has taken place down in uh Venezuela. Uh so Brad, what's uh what's the what's the rundown here?
SPEAKER_00:So this is all about oil, and this is all about the potential impact of opening up Venezuela to uh additional investment and new production techniques um uh and what that could do to oil. Uh as background, Venezuela is currently producing about a million a day. Um to for reference, Alaska is producing about 450,000, 475,000 uh barrels a day. So Venezuela is roughly double the size um of Alaska in terms of in terms of current production levels. Um But that is, but but that's sort of Venezuela's historic low. They have been as high in the in the pre-expropriation period, in the in the period prior to Maduro and Chavez, they've been as high as three and a half, and and we're closing in on four uh million barrels a day. So that's a jump of it's it's like you know, if you went from from one to three and a half to four, you're talking about adding multiple Alaskas all to the to the oil supply out there in the world. And so people have have started speculating or have started addressing what that type of production jump uh could do. Several things to say about it. First is it ain't it's not happening tomorrow. Venezuela isn't down to a million barrels a day from its from its historic highs, isn't down to a million barrels a day because it's turned off valves uh or or somehow lost markets uh and can just sort of turn valves and all of a sudden it'll just all jump out there, uh, all that historic production will jump out there again. That's not what's going on. What's happening is sort of like if you would have let Prudhoe, in Alaska term, sort of if you would have let Prudhoe go without any sort of investment or attention to uh new production techniques for 20 years, Prudhoe would be a significantly lower, smaller field uh than it than it is today. The reason Prudhoe has an extended life and is continuing to produce at levels that really no one anticipated 10, 20 years ago uh is because Prudhoe has constant attention, constant reinvestment of new uh uh new techniques, of new wells, of a variety of new things to keep that field going. Venezuela hasn't had that. And so you can't just jump in, there's not a valve, a master valve in there. You just jump in and turn, and all of a sudden, boy, we're back up to three and a half. You're gonna have to go in and make up roughly 20 years of underinvestment and inattention to uh to the type of oil that that Venezuela produces to get it back up to this historic levels. The reserves are there, the oil didn't go away, but but the the production techniques they're using and the and the investment that they've got, the infrastructure they've got to produce it now just isn't up to it isn't capable of doing that. So, so we're talking about potentially a period of time. Now, we are talking about you know a major uh uh opportunity here. We are talking about an opportunity to go from a million barrels a day to two to two barrels to two million to two and a half to three million barrels a day. And you don't find that in the world much. You don't find those sorts of new opportunities opening up. So it's an opportunity that under the right economic circumstances and with the right incentives and with the right security, feel of security from the on the oil company's part, not physical security, but security of their investment, it's uh it's an investment that that people will make. The thing, the, the the thing you really need to, in terms of price, the thing you really need to think about, we are currently in a supply glut, uh uh and and that has had the effect of depressing price. But the supply glut is not expected to last forever. It's expected to last uh until sometime in the 2030s. And then the the demand and the supply are expected to catch back up to each other and prices are expected to go up. That's been when you look at the futures market, when you look at the projections made by by various entities that do these things, um, that's been the expectation that we will we will suffer through this supply glut and the resulting low relatively low prices for a period of time, and then we'll and then we'll start ramping back up. What Venezuela, the timing of Venezuela, which is probably 10 years before you start seeing significant additional production flows, the the timing of Venezuela could slot into that picture in a way that keeps additional product that brings additional production on just as you think you were getting to the end of the supply glut that we're in now. And so it could add additional downward pressure at that point. We're talking 10 years out, five, 10 years, 15, 20 years out, bring additional pressure to keep prices down at that point. So for those who are thinking about long-term Alaska, uh, it could have an impact in terms of continuing to keep prices at a level lower than they otherwise would be. Near-term Alaska, no impact from the oil price standpoint. Um, there's one other factor on price. We OPEC is always the wild card in this. You never know what OPEC's going to do. And in fact, Venezuela is a member of OPEC, at least they have been up to this point. Uh, and OPEC is pretty good at managing their production in a way, their overall production in a way that sort of controls price. Um, not always. I mean, they prefer the price to be higher than it is now, but they've but they've they've have some constraints that they've still got in place to sort of prop up price from where it otherwise might be. They're pretty good at managing price within a fairly broad range. If Venezuela does come on with the additional production, one wild card that we don't know what would happen is how would OPEC respond to that if Venezuela stayed part of OPEC. Um, I mean, if if the if if that is is one of the outcomes of this, then they would have they would be able to help control Venezuela production to develop price. So a lot of factors at work, but generally speaking, we're looking at a 10-year down the road uh potential impact uh on price as as we otherwise were coming out of the glut. I'm sorry, go ahead. Well, second the second thing is um from a from an investment standpoint, it Venezuela opens up a whole lot of new opportunities. And oil investment isn't limitless. There isn't a limitless amount of money in the world to be invested in oil. And so, Venezuela, if if Venezuela opens back up and if companies go in and start investing in Venezuela, that's going to take some money out of the oil investment market. And the question is where that shows up, where that where the where the delta, where they're pulling that money from. Uh, those are those are already sanctioned and they're gonna go through uh as they're currently sanctioned. But to the extent there would be additional opportunities Alaska out in the future, to the extent somebody makes a big find or to the extent somebody wants to make incremental investments in Alaska, um it could have an effect at the margin on Alaska having enough money to uh to make those additional investments. And interestingly enough, one of the companies that does have some experience in Venezuela and has some interest in seeing Venezuela production increase because they've still got debts down there or they've still got uh obligations that Venezuela owes them that haven't been fulfilled yet. One of the companies that that is most mentioned about going back into Venezuela is Coneco Phillips. And if and if Coneco Phillips decided to go back in, that's going to divert management attention, some management attention to Venezuela. It will divert some of Coneco's uh Phillips' investment uh monies to uh to Venezuela. It won't affect Willow, but to the extent there was another, there's another step out out there that Conoco Phillips might have discovered in the absence of the opportunity of Venezuela, uh, it might affect that. Again, that's a down the road thing for Alaska, but but something that's out there.
SPEAKER_01:Well, it also makes me ask the question about timing because there's also a limited and finite window here where if these companies decide they want to invest in get, well, the get is good, so to speak, um, before the next dictator shows up to nationalize the industries or whatever. Um, there's also a finite window where they may want to pour a bunch of money in now to get as much oil out as possible before the change happens again, right? I mean, there's a timing issue on this as well.
SPEAKER_00:Yeah, there's a time there is a timing issue. Um, but there's only so I mean, Venezuelas let their industry and let their infrastructure go down so much that there's only so much you can do. There's only so fast you can bring it back. I mean, you can't throw ever the the world's population down there to to build new things or to or to re-engineer the fields. And so it really, I mean, you've you've got to pace these things, you've got to pace investment. So it's um it's if somebody wants to go in, they'll go in, but they'll go in in a way that's paced to uh to to match uh match uh the opportunity, match the things that needs to be done. So um, yeah, I mean, if if Conico Phillips wants to go in and and says, you know, we're gonna we're gonna start focusing on Venezuela, that's gonna have an effect in terms of things beyond Willow. Is it gonna start is they're gonna start sta sapping their attention from focusing on things beyond Willow?
SPEAKER_01:Uh two minutes, Brad, real quick. Uh, what does this mean? Uh you said this is a 10-year window, so it's not immediate, but in terms of a global perspective and the fact that a president continues to want to try and push oil prices down for American consumers and everything else, what is this, you know, what is this, how does this play into the short and midterm with this long-term impact that's gonna be coming? What does this play in your mind uh uh into the uh pricing on the short and midterm for Alaska?
SPEAKER_00:Oh, I think the short and the midterm keeps keeps responding to the current glut. I mean, the current glut's not going to go away. If somebody bombed the Saudi oil fields, maybe it would, but uh the current glut's not going to not going to go away anytime soon. And that's going to continue to continue to affect price. Um and so it really uh it just doesn't. I mean, to the extent there are knobs that that Trump can can twist or Trump's successor can twist, because we're talking about a time frame well beyond Trump, to the extent there are knobs that they can twist to keep oil prices down, like you know, have a good relationship with Saudi Arabia and ask Saudi Arabia to to turn their knob down a little bit. Um, to the extent that they can twist those, they're gonna continue to twist those. But the current current situation, next five years, is gonna be controlled by the current GLUT. Ben says, Does this mean the U.S.
SPEAKER_01:is now a member of OPEC? No. I know they said we're gonna be, I mean, you know, we're we're running the show, I guess, for a limited basis, but I mean, I don't know. Uh, I haven't been following this close enough to to really uh know all the ins and outs. But Brad, this doesn't mean that we're members of OPEC, right?
SPEAKER_00:It just might be that our our country might be a member. But recall that during Trump's first term, we had uh we had an oil price issue. We had prices were spiking, and Trump pushed OPEC to get things under control, um, pushed hard to get OPEC to get OPEC to bring down price, to to do the things that OPEC can do, turn up volumes to bring down price a little bit, or to affect price a little bit. And OPEC's response was, well, you know, you're the world's biggest producer now, U.S., what are you gonna do? And Trump made some promises uh that essentially coordinated U.S. policy with uh with OPEC. Certainly the U.S. didn't become a member of OPEC, and I don't think we're gonna do so through Venezuela. But but Trump has been known to coordinate when it when it fits his purposes. Um uh Trump's been known to coordinate U.S. policy with OPEC. So yeah. I I it it'll it it really, I mean, I'm gonna be fascinated by this. One of the one of the things that really has helped OPEC help Saudi and others over the years is this demise in Venezuela production. Saudi to control price in the way they have, Saudi and others would have had to cut back production, their production, a lot more to keep price levels where they to avoid price levels dropping through the floor, to keep price levels where they wanted that, they would have had to cut production a lot more had Venezuela not collapsed. If Venezuela was still three and a half, uh then OPEC would have a much bigger problem. The other members of OPEC would have a much bigger problem than they do. So the collapse of Venezuela has been has been a help, significant help to OPEC. Uh now that uh if if we go in and we help OPEC dig out or we help Venezuela dig out from this current current situation, um it's gonna it's gonna be a problem for OPEC. And it's gonna be interesting to see how the other members of OPEC, it's gonna be interesting to see how they respond. Um, so yeah, the US the U.S. certainly will have a lot of interaction with OPEC. I don't think they'll become a member, but they'll certainly have a lot of interaction.
SPEAKER_01:This is an interesting wrinkle, but again, I'm still going back to the president's policies and what he wants and how that might be good for the American consumer as a whole, but it's kind of antithetical to what Alaska is doing as far as trying to continue to generate revenue and have a, you know, and have a uh make a good return uh on the stage. And I think that to me is the most important and interesting thing here in the short term is what is the how are the president's policies continuing to affect us um in uh in this regard. And what do we, what do we, what do you think we're looking at here in the uh in the short term, next five years as the president winds out his term?
SPEAKER_00:Oh, I think I think he he will do things. I think he wants to leave a legacy uh of low oil prices. Uh, and I think that's one of the ways that he wants to say that he's addressing affordability issues. Um and I think he will, you know, where he can, uh, I think he will, you know, propose things and and and do things that uh that increase the supply uh of oil to uh to keep the price uh keep the price down. I mean, he's opened up all of Alaska, and I'm not sure that's gonna result in a whole lot of new investment or a whole lot of new development um on its own, but he's opened up all of Alaska, and that's part of what you would do to uh to increase the supply of oil and affect price. He's opened up a lot of the Gulf of Mexico, he's open or Gulf of Alaska Gulf of America. Um he's opened up, he's he's talking about opening up other other regions. So he he is at the margins, he's doing what he can to increase the the supply of uh supply of oil in the world. And we'll do continue to do that.
SPEAKER_01:Yeah, and that continues, of course, to put uh pressure on the legislature. They have to try and figure out a way to, again, hence the combining of the funds, etc. They have to find a way to uh continue to protect the same level of spending with a lower with a lower amount of uh of revenue coming in because of those low oil prices.
SPEAKER_00:Yeah, it's everything's connected, Michael. I yes. Uh subject two does connect to subject one. And some will cite that. Some will say, oh, we need to we need to you know merge the two accounts so we can have access to the to the permanent fund to continue to have those revenues because oil revenues are gonna be you know are gonna continue to decline. Look at Venezuela. I I expect that will be cited as well. To me, they're two separate issues.
SPEAKER_01:But well, and again, the the looking at uh which we're gonna get into in number three here, the permanent fund corporation not doing their due diligence and not and not you know generating the returns that they should, this would be a good solution, but nobody wants to seem to uh shine a light on this except for you. I mean, you and I seem to be the only ones talking about this uh over the last six, eight months. And uh, and I'm like, if you hey, if you guys really want to just spend the way you've been spending, there's one way to get it done, and that's to squeeze the permitted fund corporation to do what they're supposed to be doing. And if they were getting those returns, your money would be there. Um, so but we're gonna, I guess we'll get into that here in uh in number three. We're continuing. Uh Brad Keithly, our guest. It's the weekly top three, the first weekly top three of the year. It's all good. We're on to number three, which I think is going to be a reoccurring theme this year. And then I just I have a feeling the performance of the permanent fund corporation. Uh Brad, uh, give us the give us the rundown here. This this is not um, we were just talking about how this this, you know, if they if they want to keep the spend up, they could do one thing to help keep the spend up, and that would be to increase their revenues from their one major source of money, and that is the permanent fund. Unfortunately, it is continually underperformed. Um, and you've got some thoughts on the uh performance of the permanent fund corporation.
SPEAKER_00:The permanent fund corporation quarterly uh produces a report called uh the the management fees, management and investment fees report. And that is the fees that the permanent fund has paid uh to outside parties uh to help manage the fund and produce the returns that the permanent fund corporation is achieving. Those those are so those are produced quarterly. They look they look at a at a fiscal quarter or calendar quarter, um uh and uh and are an important source of information about how the permanent fund uh is doing. In Christmas week, something like 86 days after the end, 86 days, that's more than two months, after the end of the fiscal of first fiscal quarter of FY26, the permanent fund finally produced, permanent fund corporation finally produced their fees report uh for the for the first quarter. And it was eye-opening in the sense that that we're continuing to go down a road we should not be going down. I sent you a couple of charts, Michael.
SPEAKER_01:Do you have yeah, I'm sorry, give me a second here, I'll pull them up. You could start talking about them. I apologize.
SPEAKER_00:Well, the first one is a bar chart that shows the amount of fees paid by the permanent fund uh since they've been producing their uh their quarterly reports. Uh they started producing these quarterly reports in 2016. You can go back in what they produced and and and look at the look at the fees they've paid since uh FY uh uh FY16. And you can look now over roughly 10 years of data to see what the uh what the Permanent Fund Corporation has been doing. Here it is. And it's it's eye-opening. The bars are the amount of money being paid on an annual basis, annualized basis, by the permanent fund corporation in fees to third parties to help them help them manage the fund. And it's the bars sort of are on a continual upward drive. There's a drop between 2022 and 2023, but then they start going back up again. The latest report uh for the first quarter of 2026 shows that those fees are now running at a level of$950 million, nearly a billion dollars uh annually, uh, which the$950 million reported for the for the rolling 12 months through the first quarter is the highest it's ever been uh in uh in the history of them reporting on the on the fees. They incurred these fees before 2016, by the way, but didn't report them. Um and and there's some view that that what's happened in terms of the growth over time, over particularly the first five years, was they started reporting more and more of the fees. Some of these fees are embedded deeply in the investments and and it takes some effort to to dig them out. And so some of that growth is. Over better reporting of what the fees are. But now we're 10 years into the reporting, and uh and we are now reporting the permanent fund is now reporting$950 million annually in fees. The red line on the chart is the percent uh of the permanent fund uh uh investment or the percent of the permanent of the amount available in the permanent fund that's being that's being spent on fees. And as the red line shows, it's gone from three tenths or three-tenths of a percent, four-tenths of a percent in 2016 now up to over a percent, almost a 1.1.1 percent of the permanent fund uh uh uh amount is being uh is being spent on fees annually. That compares to uh Norway, for example, that's at 0.04 percent. If if we if we were spending at the rate Norway is, Norway reports, our spending this past year on fees would have been$38 million instead of$950 million. Um so you can see that that the Alaska spend is is is very significant, both in terms of the dollars being spent and in terms of the per spent percent being spent. What is even more interesting to me is a second is a second chart I did um as a result of some discussions with others that went back and looked at the the performance of the permanent fund in terms of percent return compared compared to the performance of an SP 500 ETF, exchange traded fund, electronic traded fund. Um and the the the the one the SP 500 ETF with the longest history is is State Street's uh SPY Fund, SPY. That's their trade uh uh trading name for for their um for their S ⁇ P 500 fund. Uh Vanguard has one, others have one. Generally I use the Vanguard fund, but that didn't start until 2011. That wasn't launched until 2011. So SPY has the longest history. And I went back and looked at it. A lot of the times that you get into these discussions with people from the permanent fund or people who are defending the permanent fund corporation, they will say, oh, the reason we undertake this, our approach, is because we don't want to go through what we went, what what would have happened in the in the two of 2008 fiscal crisis uh uh in terms of in terms of the drop in value. And you can see, if you look in the middle of the chart and look at the red line, which is the return generated by SPY, the return generated by the SP 500 ETF, uh, if you see that, if if you look at the red line, you can see in the the blue line is what the permanent fund did, uh the returns the permanent fund achieved. Now, that was before fees, they did they weren't reporting fees during that period. So that's somewhat an apple's to oranges comparison, but nonetheless, just taking that at face value, you can see that in 2008, there indeed was a deep drop uh in the returns generated by the by the SP by the SP 500 ETF. Uh, in there was a 26% loss during that period. But look at and so and so that's a fair point. You got to think about that point. But look at what's happened since then. From 2000, roughly from 2009, in which during which the the red line, the S the return from the generated by the S P 500 ETF, the the red line jumped back above the blue line, which is the permanent fund. From 2009 to the present, that entire 16, 17 year span, from that during that period, the red line has been above the blue line. The that is the SM the returns generated by the SP 500 ETF have been above the uh the the returns generated by the permanent fund in every year since 2009, except for one, the COVID year of 2002, in which the uh SP dropped uh below uh the uh the permanent fund for one year and then it bounced back. That that entire span, the entire 2009 to 2026 span has been has been a period during which the SP 500 ETF has exceeded uh the permanent fund. So yeah, you can look back at the 2008 and say, oh, that was bad. We need to, we need to avoid that. But the problem is in avoiding that, the permanent fund has given up the upside uh of the S P 500. And if you go back and do the the balances through this entire period, there's another chart that I did in last Friday's column that does that. Last Friday's landmine column that does that. If you go back and look through this entire period, the SP, the balance generated, the investment balance generated by the S P 500 far exceeds uh uh the balance being generated by the permanent funds uh approach. So, yes, the SP goes up and down. And yes, in some years it's gone down a lot. But in terms of in terms of what's been going on generally and what's been producing the best returns over the long over the long stretch of period since 2008, um it's been it's been the SP, it's been the SP 500. Right. I I to to some degree, I titled last week's column in the in the landmine, the F the PFC's Magin Maginot Line Investment Strategy. For those who know history, those they will know that in after the end of World War I, the French built what was called the Maginot Line, which was supposed to be hugely expensive, but built this defense mechanism, the Maginot Line, that was supposed to defend against any potential invasion by France ever again. In World War II, at the beginning of World War II, with the Blitzkrieg and with the other advanced technology and advanced tactics that the Germans developed, the Majinot line was irrelevant. It fell like in, you know, in a day that the Germans were able to end run it. They were able to overcome it in terms of in terms of air power. Um, and it was useless. The French have made this huge investment in it, but it was useless in terms of dealing with the the modern era. That's what this, that's what the permanent fund strategy, permanent fund corporations board strategy is reminding me of. It's reminding me about of investing a lot and spending a lot on fighting, on developing the Majinot line, fighting the last battle, while the SP 500 and other ETFs are streaking along and producing uh superior returns, excessive tremendous superior returns ever since that time.
SPEAKER_01:You know what's interesting to this to me on this chart, again, going back to the uh return chart, it's like the PFD or the PF corporation is continually showing you, well, look, we did better, we we did better on a year-to-year basis. But isn't investments a long-term game? I mean, if you look at it in a 10-year period or a 15-year period or a 20-year period, as we're looking at this, even though they had some great drops, I mean, again, 2008 is a is a huge, you know, is a huge example of that. But on the other side, the fact that they're above the line so much, those returns would have outweighed any of those, uh, any of those drops, right? I mean, you did the math on where the PF, where the permanent fund would be today, instead of 80 billion, it'd be what, 120, 125 billion dollars if they had just stayed with the SP, with an S P type uh type fund uh over that same period of time. It seems like they're fighting an annual battle instead of the long-term investment battle. It seems like that that's their excuse here.
SPEAKER_00:Yeah, it's it's it's more than that. They're they're fighting a past battle. They're saying, look at 2008, look at 2008, look at 2008. We're we're protecting you against 2008. Well, we've we've been we're we're now you know 18 years down the road from 2008. We've only had one year in the period since when the SP when the permanent funds approach has has outperformed the SP 500 approach, and and and the superior performance of the SP 500 prior to that one year, and the superior performance of the SP 500. I mean, look at it. Since 2022, look at the red line and how it has has exceeded uh the blue line since that time. We we we're that one that the focus on 2008 is driving an investment strategy that A is hugely expensive. I mean, that's how they justify spending a billion dollars a year, nearly a billion dollars a year in investment fees. Hugely expensive compared to compared to alternatives in the world. Um, and it is that's what's driving that. I mean, this focus on 2008 is what's driving that, and it's what's driving the focus on, you know, taking safety first, the the the you know, maintaining these these low-risk uh investments and passing up the opportunities uh that the market that the market's giving you. So it's um it's not so much a year-to-year thing. It's it's just you know, the continual focus on this one event in the past that uh that they think is you know is it justifies these huge fees and justify an investment strategy that is allow is is you know having Alaska miss out on all of the market opportunities that are out there for everybody else.
SPEAKER_01:I see Ben is making a comment that I've heard uh in part from other people. Does a permanent fund gaining outstanding return get us more or less government? I mean, and it but that's a question. I mean, we're we're getting more or less government now. They're just taking it all from the permanent fund and taking it from the people. I mean, at least I mean, would it would it mean a bigger permanent fund for us, or would it mean more government? And that's a different problem. But again, their whole point here in trying to combine the funds is to keep that spending up. If they had 120 million in the in the permanent fund versus 80 million, they'd have bigger returns anyway. I mean, again, this is a this is a problem. And if it's a billion dollars a year, how much is that billion dollars compared to the return? How much does that eat into the return every year? If it was only if it was only, you know, 40 or 50 or 100 million dollars versus a billion dollars, how much more would be reported then in the return? So, I mean, I understand what Ben's saying here, but at the same time, we're not getting the biggest bang for our buck.
SPEAKER_00:I mean, one perspective on this, my perspective, one perspective I would take on this is look, we're gonna spend what we're gonna spend. And they're gonna take it out of the SBR and CBR and permanent fund dividends, and they're gonna try to crack into the corpus, open a backdoor into the corpus to continue to continue spending. Um, and so what building the permanent fund, what building permanent fund earnings uh would do is is relieve the pressure on uh cracking into permanent fund dividends. It would allow us to rebuild the S the CBR, it would allow us to rebuild maybe the SBR. Um, it would it would relieve the pressure on the other sources of revenue uh that they're that they're using to continue to uh to fund the spending. So more money to me, uh more money from investment returns is never a bad thing.
SPEAKER_01:No, because again, you're you're losing out. And going back to this other chart, if you go back to 2016, and I know you said they weren't accounting for all fees at that point, but from 2016 to 2026, 10-year period, you saw an 80% increase in the in the in the fees. 80% in 10 years. That's insane. I mean, that's insane, especially when you look at the returns that they're getting for that 80% increase versus what you would see in an SP. I mean, that's a uh it's a it's it's mind-boggling at that point.
SPEAKER_00:Yeah, it's uh it I mean, I at one point I think in the first segment I was talking about the permanent fund corporation taking a CYA, cover your ass, uh, type approach. And and basically what they're doing is saying, look, you know, we're we're we're we're worried about 2008. We're gonna protect against 2008. You know, if it ever occurs again, we're gonna be there uh protecting against it. And look, we paid all these fees to all these advisors. Ain't our fault if it goes bad, ain't our fault if we if we miss out on opportunities because we paid all these fees to all these brilliant advisors uh to uh you know to tell us what to do on our investments. That's one of the things when Warren Buffett developed the 9010 approach that we've talked about before on the show, that 90% of which is is invested in the SP, uh an SP ETF, and 10% of which is invested in a bond ETF. Buffett said, look, one of the biggest problems out there in the world uh are investment advisors because they're always touting their product and saying, oh, you're gonna earn these superior returns. You just have to pay us a little bit to get that, but you're gonna earn these superior returns from our product. And and Buffett said that is one of the biggest problems in the investment community because you're spending all this money on fees. You're you're you don't have you're not investing the money, you're just paying it in fees, and you're getting these safety first, uh, these safety first returns. And Buffett said you look over time, the 9010 approach is going to produce superior returns at much lower cost because the ETFs have much lower costs than than paying advisors.
SPEAKER_01:Brad Keithley, Alaskans for Sustainable Budgets. Brad, thanks very much. I hope again you're feeling better and uh you continue to recover. We'll talk to you again soon. Michael, as always, thanks for having me.
SPEAKER_00:Well, that's a wrap for another week's edition of the weekly top three from Alaskans for Sustainable Budgets. Thank you again for joining us. Remember that you can find past episodes on our YouTube, SoundCloud, Spotify, and Substack pages, and keep track of us during the week on Facebook and Twitter. This has been Brad Keithley, Managing Director of Alaskans for Sustainable Budgets. We look forward to you joining us again next week for another edition of the weekly top three.
