Alaska Permanent Fund
Encyclopedia
The Alaska Permanent Fund is a constitutionally established permanent fund
, managed by a semi-independent corporation, established by Alaska
in 1976, primarily by the efforts of then Governor Jay Hammond
. 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 Alaska Constitution
to be an investment for at least 25% of proceeds from some mineral
(such as oil and gas) sales or royalties. This does not mean the fund is solely funded by oil revenue. 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 approximately $38 billion as of October 2011. 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.
The Alaska Permanent Fund Gains 20.6% in FY 2011:
In June 2011, the Fund's chief investment officer announced he would leave the sovereign wealth fund and re-enter the private sector, joining consulting firm Wurts and Associates. They have yet to hire a new chief investment officer.
as a result of conviction
in this state of a felony
; during all or part of the qualifying year, the individual was incarcerated
as a result of the conviction in this state of a
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), 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):
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 ensure 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.
to tamper with the fund, especially if that means government might spend Fund income.
Permanent fund
In the United States, a permanent fund is one of the five fund types established by GAAP classified as a government fund. Put simply a permanent fund may be used to generate and disperse money to those entitled to receive payments by qualification or agreement, as in the case of Alaska citizens or...
, managed by a semi-independent corporation, established by Alaska
Alaska
Alaska is the largest state in the United States by area. It is situated in the northwest extremity of the North American continent, with Canada to the east, the Arctic Ocean to the north, and the Pacific Ocean to the west and south, with Russia further west across the Bering Strait...
in 1976, primarily by the efforts of then Governor Jay Hammond
Jay Hammond
Jay Sterner Hammond was an American politician of the Republican Party, who served as the fourth Governor of Alaska from 1974 to 1982.-Early life:...
. Shortly after the oil
Petroleum
Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...
from Alaska’s North Slope began flowing to market through the Trans-Alaska Pipeline System
Trans-Alaska Pipeline System
The Trans Alaska Pipeline System , includes the Trans Alaska Pipeline, 11 pump stations, several hundred miles of feeder pipelines, and the Valdez Marine Terminal. TAPS is one of the world's largest pipeline systems...
, the Permanent Fund was created by an amendment
Constitutional amendment
A constitutional amendment is a formal change to the text of the written constitution of a nation or state.Most constitutions require that amendments cannot be enacted unless they have passed a special procedure that is more stringent than that required of ordinary legislation...
to the Alaska Constitution
Alaska Constitution
The Constitution of the State of Alaska is the constitution of the U.S. state of Alaska. It was ratified in 1956 and took effect with Alaska's admission as a state on January 3, 1959.-The statehood movement:...
to be an investment for at least 25% of proceeds from some mineral
Mineral
A mineral is a naturally occurring solid chemical substance formed through biogeochemical processes, having characteristic chemical composition, highly ordered atomic structure, and specific physical properties. By comparison, a rock is an aggregate of minerals and/or mineraloids and does not...
(such as oil and gas) sales or royalties. This does not mean the fund is solely funded by oil revenue. 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 approximately $38 billion as of October 2011. 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
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
-proofing, operating expenses, and the annual Permanent Fund Dividend.
The Alaska Permanent Fund Gains 20.6% in FY 2011:
In June 2011, the Fund's chief investment officer announced he would leave the sovereign wealth fund and re-enter the private sector, joining consulting firm Wurts and Associates. They have yet to hire a new chief investment officer.
Permanent Fund Dividend
The Permanent Fund Dividend is withstanding the provisions of (a) - (c) of this section, an individual is not eligible for a permanent fund dividend for a dividend year when during the qualifying year, the individual was sentencedSentence (law)
In law, a sentence forms the final explicit act of a judge-ruled process, and also the symbolic principal act connected to his function. The sentence can generally involve a decree of imprisonment, a fine and/or other punishments against a defendant convicted of a crime...
as a result of conviction
Conviction
In law, a conviction is the verdict that results when a court of law finds a defendant guilty of a crime.The opposite of a conviction is an acquittal . In Scotland and in the Netherlands, there can also be a verdict of "not proven", which counts as an acquittal...
in this state of a felony
Felony
A felony is a serious crime in the common law countries. The term originates from English common law where felonies were originally crimes which involved the confiscation of a convicted person's land and goods; other crimes were called misdemeanors...
; during all or part of the qualifying year, the individual was incarcerated
Incarceration
Incarceration is the detention of a person in prison, typically as punishment for a crime .People are most commonly incarcerated upon suspicion or conviction of committing a crime, and different jurisdictions have differing laws governing the function of incarceration within a larger system of...
as a result of the conviction in this state of a
-
- (A) felony; or
- (B) misdemeanorMisdemeanorA misdemeanor is a "lesser" criminal act in many common law legal systems. Misdemeanors are generally punished much less severely than felonies, but theoretically more so than administrative infractions and regulatory offences...
if the individual has been convicted of- (i) a prior felony as defined in AS 11.81.900 ; or
- (ii) two or more prior misdemeanors as defined in AS 11.81.900 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), 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):
| Year | Amount |
|---|---|
| 2011 | $1,174.00 |
| 2010 | $1,281.00 |
| 2009 | $1,305.00 |
| 2008 | $2,069.00 + $1,200 Alaska Resource Rebate |
| 2007 | $1,654.00 |
| 2006 | $1,106.96 |
| 2005 | $845.76 |
| 2004 | $919.84 |
| 2003 | $1,107.56 |
| 2002 | $1,540.76 |
| 2001 | $1,850.28 |
| 2000 | $1,963.86 |
| 1999 | $1,769.84 |
| 1998 | $1,540.88 |
| 1997 | $1,296.54 |
| 1996 | $1,130.68 |
| 1995 | $990.30 |
| 1994 | $983.90 |
| 1993 | $949.46 |
| 1992 | $915.84 |
| 1991 | $931.34 |
| 1990 | $952.63 |
| 1989 | $873.16 |
| 1988 | $826.93 |
| 1987 | $708.19 |
| 1986 | $556.26 |
| 1985 | $404.00 |
| 1984 | $331.29 |
| 1983 | $386.15 |
| 1982 | $1,000.00 |
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 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
Unintended consequence
In the social sciences, unintended consequences are outcomes that are not the outcomes intended by a purposeful action. The concept has long existed but was named and popularised in the 20th century by American sociologist Robert K. Merton...
, The high vote requirement was meant to ensure 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
Christmas tree bill
In the United States Congress, a Christmas tree bill is a political term referring to a bill that attracts many, often unrelated, floor amendments. A Christmas tree bill consists of many riders. The amendments which adorn the bill may provide special benefits to various groups or interests...
(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.
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.) 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
In 2000, the APFC Board of Trustees 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 limit withdrawals to five percent of the fund's value each year, to be spent at the discretion of the Legislature. Currently the Legislature has authority to appropriate all of the fund's realized earnings. Tentative, unapproved proposals indicate that half of this five percent withdrawal would go to the dividend and half to government spending — 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 governmentGovernment
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...
to tamper with the fund, especially if that means government might spend Fund income.
See also
- Asset-based egalitarianismAsset-based egalitarianismAsset-based egalitarianism is a form of egalitarianism which theorises that equality is possible by a redistribution of resources, usually in the form of a capital grant provided at the age of majority...
- Citizen's dividendCitizen's dividendCitizen's dividend or citizen's income is a proposed state policy based upon the principle that the natural world is the common property of all persons . It is proposed that all citizens receive regular payments from revenue raised by the state through leasing or selling natural resources for...
- Permanent University FundPermanent University FundThe Permanent University Fund is one of the methods by which the State of Texas funds public higher education within the state. A portion of the returns from the PUF are annually directed towards the Available University Fund , which distributes the funds according to provisions set forth by the...
- funds universities in TexasTexasTexas is the second largest U.S. state by both area and population, and the largest state by area in the contiguous United States.The name, based on the Caddo word "Tejas" meaning "friends" or "allies", was applied by the Spanish to the Caddo themselves and to the region of their settlement in...
from oil revenue. - The Government Pension Fund of NorwayThe Government Pension Fund of NorwayThe Government Pension Fund of Norway comprises two entirely separate sovereign wealth funds owned by the Government of Norway:* The Government Pension Fund - Global...
- Basic IncomeBasic incomeA basic income guarantee is a proposed system of social security, that regularly provides each citizen with a sum of money. In contrast to income redistribution between nations themselves, the phrase basic income defines payments to individuals rather than households, groups, or nations, in order...