Alaska Permanent Fund

The Alaska Permanent Fund is a constitutionally established fund, managed by a semi-independent corporation, established by Alaska in 1976. Shortly after the oil from Alaska’s North Slope began flowing to market through the Trans-Alaska Pipeline System, the Permanent Fund was created by an amendment to the constitution of the U.S. state of Alaska to be an investment for at least 25% of proceeds from some minerals [such as oil and gas] sale or royalties. The Fund does not include either property taxes on oil company property nor income tax from oil corporations, so the minimum 25% deposit is closer to 11% if those sources were also considered. The Alaska Permanent Fund sets aside a certain share of oil revenues to continue benefiting current and all future generations of Alaskans. Many citizens also believed that the legislature too quickly and too inefficiently spent the $900 million bonus the state got in 1969 after leasing out the oil fields. This belief spurred a desire to put some oil revenues out of direct political control.

The "Alaska Permanent Fund Corporation" manages the assets of both the Permanent Fund and other state investments, but spending Fund income is up to the Legislature. The Corporation is to manage for maximum prudent return, and not--as some Alaskans at first wanted--as a development bank for in-state projects. The Fund grew from an initial investment of $734,000 in 1977 to the current sum of approximately forty billion dollars as of July 13, 2007. Some growth was due to good management, some to inflationary re-investment, and some via legislative decisions to deposit extra income during boom years. Each year, the fund's realized earnings are split between inflation-proofing, operating expenses, and the annual Permanent Fund Dividend.

Permanent Fund Dividend

The Permanent Fund Dividend is a program benefiting Alaskans without a felony conviction who have resided in the state for at least one calendar year preceding the date applied for a dividend and intend to remain an Alaska resident indefinitely at the time applied for a dividend. The amount of each payment is based upon a five-year average of the Permanent Fund's performance and varies widely depending on the stock market and many other factors.

Though the payouts have varied from the smallest ($331.29 per person in 1984) and the largest ($3,269.00 per person in 2008 when a one-time $1,200 Alaska Resource Rebate was added to the dividend amount [http://www.adn.com/legislature/story/488420.html] ), they usually vary between $600 and $1,500 ($900 and $1,800 when adjusted for 2005 dollars). Although the principal or corpus of the Fund is constitutionally protected, income earned by the Fund, like nearly all State income, is constitutionally defined as general fund money [subject to legislative appropriation for any purpose ... but, in practical political terms, the public tolerates spending Fund income mostly only for 'inflation-proofing' and for paying dividends] .

The first dividend plan would have paid Alaskans $50 for each year of residency up to 20 years, but the U.S. Supreme Court in Zobel v. Williams disapproved the $50 per year formula as an invidious distinction burdening interstate travel. As a result, each qualified resident now receives the same annual amount, regardless of age or years of residency. In effect, this equal-amount aspect mathematically means a greater percentage of added income for people of lower incomes. Conversely, any cut, limit, cap, or end of the equal-amount PFD would mean low-income Alaskans would experience the greatest percentage loss of income. The PFD payout, which comes in or near October of each year, is acknowledged to have a substantial effect on Alaska's economy, both in total and especially in rural Alaska where unemployment can reach 60% and where cash is scarce.

Annual individual payout (in nominal dollars):

‡ A one-time $1,200 Alaska Resource Rebate was added to the dividend amount in 2008.

Constitutional Budget Reserve (CBR)

The Constitutional Budget Reserve is a companion fund to the Permanent Fund which was established in 1980 to deal with the problem of short-term oil revenue variability. Deposits into the CBR consist of settlements of back taxes and other revenues owed to the state. Draws from the CBR into the general fund require a 3/4 vote of each house of the legislature and must be repaid. To date, the general fund has amassed a debt of approximately $4 billion to the CBR in order to maintain a stable level of public spending.

Issues with the Constitutional Budget Reserve

The size of the debt as related to that of the budget has spawned doubt over the probability of eventual repayment. The CBR is based on the assumption that the general fund deficit will remain constant over time (allowing paybacks to balance draws). Believing this to be mistaken, critics allege the state uses resources from the CBR to avoid reducing the budget, acknowledging debt, or increasing taxes. According to them, falling oil revenues and growing spending requirements will leave paybacks consistently lower than draws, causing the CBR to fail.

Former state senator Dave Donley (R-Anchorage) recognized that the high vote requirement to spend CBR money (3/4 of each house) had a perverse and unintended consequence, The high vote requirement was meant to insure that draws from the CBR would be rare, but in fact such draws are common. Donley explained that the high vote requirement really empowers the minority party [in the 2000-07 era, Democratic Party] , who can then get what they want in a 'Christmas tree bill' [presents for everyone, both majority and minority] in exchange for their votes [which minority votes would not be needed with the usual 51% voting rule] . Donley thus explains why both parties can and do use the higher voting rule requirement to more frequently spend from the CBR.

Issues with the Permanent Fund

Dividends and Spending

While the Permanent Fund generally generated large surpluses even after payment of the Dividend [PFD] , the state general fund operated at a substantial deficit. However, the consolidated account of both General and Permanent Funds usually shows a surplus. The Funds' ultimate uses were never clearly spelled out at its inception, leaving no current consensus over what role Fund earning should play in the current and expected state budget shortfalls. However, some people argue that the original intent was to fund state government after the temporary oil riches ceased, while others note that the Fund's intent changed from its 1976 origin when in 1982 the Dividend program began. Public opinion strongly favors the Dividend program. Indeed, in 1999, with oil prices going as low as $9 per barrel and Alaska's oil consultant Daniel Yergin forecasting low prices "for the foreseeable future", the State put an advisory vote before Alaskans, asking if government could spend "some" part of Permanent Fund earning for government purposes. Gov. Knowles, Lt. Gov. Ulmer, and many other elected officials urged a "yes" vote. Campaign spending greatly favored the "yes" side. The public voted "no" by nearly 84%. (Oil prices rose dramatically, starting about two weeks after Yergin's prediction, to above $60 per barrel, though the quantity produced continues to fall.) Many Alaskans now think of it as a "permanent dividend fund", much to the dismay of "original intent" advocates. Perceived support of the dividend program is so universally strong that it ensures the dividend's continuity and the protection of the Fund's principal, since any measure characterized as negatively impacting dividend payouts represents a loss to the entire populace. That is, legislators willing to appropriate the Fund's annual earnings are constrained by the politically suicidal nature of any decrease in the public's dividend.

Percent of Market Value (POMV) Proposal

Some officials c. 2003? proposed changing the Permanent Fund's management system to a Percent of Market Value (PoMV) approach which would require an amendment to the state constitution. The PoMV proposal would allow the state to withdraw up to five percent of the fund's value each year to use for the dividend program and government spending. Tentative, unapproved proposals indicate that half of this five percent withdrawal would go to each purpose — but POMV died in the Legislature because most there saw POMV as unambiguously tied to such politically unpopular spending proposals. Most Alaskans (84% in 1999) disapprove of allowing the government to tamper with the fund, especially if that means government might spend Fund income.

See also

* Asset-based egalitarianism
* Citizen's dividend
* Permanent University Fund - funds universities in Texas from oil revenue.
* The Government Pension Fund of Norway

External links

* [https://www.pfd.state.ak.us/ State of Alaska - Permanent Fund Dividend Division]