Alaska Permanent Fund

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The Alaska Permanent Fund is a constitutionally established permanent fund managed by a state-owned corporation, the Alaska Permanent Fund Corporation (APFC).[1] It was established in Alaska in 1976[2] by Article 9, Section 15 of the Alaska State Constitution[3] under Governor Jay Hammond. From February 1976 until April 1980, the Department of Revenue Treasury Division managed the state's Permanent Fund assets, until, in 1980, the Alaska State Legislature created the APFC.[4] As of the end of 2016, the fund is worth nearly $55 billion that has been funded by oil revenues.[5]

History[edit]

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. It was designed to be an investment where at least 25% of the oil money would be put into a dedicated fund for future generations, who would no longer have oil as a resource.[6] This does not mean the fund is solely funded by oil revenue[further explanation needed]. The Fund includes neither 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.[Context?] The Alaska Permanent Fund sets aside a certain share of oil revenues to continue benefiting current and all future generations of Alaskans. Many citizens[who?] 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.[citation needed] 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 $53.7 billion as of July 9, 2015.[7] 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 fund is a member of the International Forum of Sovereign Wealth Funds[8] and has therefore signed up to the Santiago Principles on best practice in managing sovereign wealth funds. The Fund's current chief investment officer is Marcus Framption[9].

Alaska Permanent Fund Corporation[edit]

The Alaska Permanent Fund Corporation is a government instrumentality of the State of Alaska created to manage and invest the assets of the Alaska Permanent Fund and other funds designated by law.[10][4]

Board of Trustees[edit]

The Board of Trustees are governor-appointed[11]

  • Bill Moran, Chair, reappointed 2014
  • Carl Brady, Vice-Chair, reappointed 2015
  • Larry Cash, appointed 2013
  • Gary Dalton, appointed 2012
  • Randall Hoffbeck, appointed 2014
  • Craig Richards, appointed 2015

Permanent Fund Dividend[edit]

The Permanent Fund Dividend [PFD] is a dividend paid to Alaska residents that have lived within the state for a full calendar year (January 1 – December 31), and intend to remain an Alaska resident indefinitely.[12] This means if residency is taken on January 2, the "calendar year" wouldn't start until next January 1.

However, an individual is not eligible for a PFD for a dividend year when:

(1) during the qualifying year, the individual was sentenced as a result of conviction in this state of a felony;
(2) during all or part of the qualifying year, the individual was incarcerated as a result of the conviction in this state of a
(A) felony; or
(B) misdemeanor 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

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. The PFD is calculated by the following steps:[13]

  1. Add Fund Statutory Net Income from the current plus the previous four fiscal years.
  2. Multiply by 21%
  3. Divide by 2
  4. Subtract prior year obligations, expenses and PFD program operations
  5. Divide by the number of eligible applicants

The lowest individual dividend payout was $331.29 in 1984 and the highest was $2,072 in 2015.[14] However, in 2008 Governor Sarah Palin signed Senate Bill 4002[15] that used revenues generated from the state's natural resources and provided a one-time special payment of $1,200 to every Alaskan eligible for the PFD.[16]

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.[citation needed]

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, 457 U.S. 55 (1982) 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.

Annual individual payout[edit]

This is the fund's history of annual individual payouts, in nominal USD.[17]

Year Amount
1982 $1,000.00
1983 $386.15
1984 $331.29
1985 $404.00
1986 $556.26
1987 $708.19
1988 $826.93
1989 $873.16
1990 $952.63
1991 $931.34
1992 $915.84
1993 $949.46
1994 $983.90
1995 $990.30
1996 $1,130.68
1997 $1,296.54
1998 $1,540.88
1999 $1,769.84
2000 $1,963.86
2001 $1,850.28
2002 $1,540.76
2003 $1,107.56
2004 $919.84
2005 $845.76
2006 $1,106.96
2007 $1,654.00
2008 $2,069.00 + $1,200 Alaska Resource Rebate
2009 $1,305.00
2010 $1,281.00
2011 $1,174.00
2012 $878.00
2013 $900.00
2014 $1,884.00
2015 $2,072.00
2016 $1,022.00 (dividend was estimated to be $2,052 however Governor Walker's veto reduced it)
2017 $1,100.00 (dividend was estimated to be over $2,300 however it was reduced by legislative action)
2018 $1,600.00 (dividend was estimated to be $2,700 however it was reduced by legislative action)[18]

Constitutional Budget Reserve (CBR)[edit]

The Constitutional Budget Reserve is a companion fund to the Permanent Fund which was established in 1991 to ease problems from the variability of oil revenue, which vary depending upon the price of oil in the market. 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[edit]

The size of the debt owed to the CBR has raised doubts[who?] over 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[who?] 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 (¾ 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, the 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[edit]

Dividends and spending[edit]

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[edit]

In 2000,[19] 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 government to tamper with the fund, especially if that means government might spend Fund income.

Again in 2015–2017, a POMV approach was considered. The market price for North Slope oil fell from an average $107.57 per barrel in FY2014 to $50.05 per barrel in FY2017.[20] This price shift caused an 80 percent decline in state revenue[21] and resulted in a multibillion-dollar budget gap.[22] Both bodies of the legislature have passed a bill that provides for an annual draw of 5.25% of the average balance of the Permanent Fund (average of the first 5 of the last six years).[23] Since the formula is based on an average, rather than a single year, the effective draw is only about 4.2%—enough to preserve the real value of the fund considering that the fund has returned close to 9% annually. The legislature carefully vetted this percentage over the course of two sessions and has come to a consensus. This draw is projected to produce $2.7 billion in FY2019 and grow with the balance of the Permanent Fund. The major point of disagreement, however, is the size of the dividend: The House of Representatives version of the bill uses 5.25% draw for government (33% of for Dividends and 67% for government services) and an additional 0.25% draw for Permanent Fund inflation proofing. This produces $2.7 billion ($1.8 billion for government use, net of a $900.9 million dividend—about $1,250.00 per Alaskan—growing with the value of the fund). The Senate version of the bill uses the same 5.25% draw as the House, but directs only 25% of the draw to dividends. This produces the same $2.7 billion but government services receive $2.0 billion while the dividend receives just under $700 million—about $1,000.00 per person—growing with the value of the fund.

Oil revenues are forecast (by the state Department of Revenue) to remain stagnant through FY2027,[24] and traditional budget reserves may be empty by FY2019[25] but with a Permanent Fund value in excess of $60.0 billion,[26] the budget gap can be reduced significantly. Since this POMV proposal does not close the gap entirely, members of the legislature are considering a tax bill as well.[27]

Impact[edit]

A 2018 paper found that the Alaska Permanent Fund "dividend had no effect on employment, and increased part-time work by 1.8 percentage points (17 percent)... our results suggest that a universal and permanent cash transfer does not significantly decrease aggregate employment."[28]

See also[edit]

References[edit]

  1. ^ "About the Alaska Permanent Fund Corporation (APFC)". Alaska Permanent Fund Corporation. Retrieved September 27, 2012.
  2. ^ "What is the Alaska Permanent Fund?". Alaska Permanent Fund Corporation. Archived from the original on July 28, 2012. Retrieved September 27, 2012.
  3. ^ "Alaska State Constitution, 9.15". State of Alaska. Retrieved September 27, 2012.
  4. ^ a b "About the Alaska Permanent Fund Corporation (APFC)". Alaska Permanent Fund Corporation. Retrieved September 27, 2012.
  5. ^ Helman, Christopher. "Biting the Hand that Feeds You". Forbes (November 29, 2016). |access-date= requires |url= (help)
  6. ^ "Why did Alaskans create the Fund?". Alaska Permanent Fund Corporations. Retrieved September 27, 2012.
  7. ^ "Alaska Permanent Fund - Balance Sheet" (PDF). Alaska Permanent Fund Corporation. Retrieved September 27, 2012.
  8. ^ International Forum of Sovereign Wealth Funds. "IFSWF Our members". Archived from the original on September 27, 2016. Retrieved 24 September 2016.
  9. ^ "APFC Promotes Marcus Frampton to Chief Investment Officer - Alaska Permanent Fund Corporation". Alaska Permanent Fund Corporation. 29 September 2018.
  10. ^ Alaska Permanent Fund Corporation Bylaws (PDF). Alaska Permanent Fund Corporation. February 25, 2011.
  11. ^ "Alaska Permanent Fund Corporation - Board of Trustees". www.apfc.org. Retrieved 7 January 2016.
  12. ^ "Eligibility Requirements". pfd.alaska.gov. Retrieved March 29, 2018.
  13. ^ "How the PFD amount is calculated". Alaska Permanent Fund Corporation. Archived from the original on January 17, 2013. Retrieved September 27, 2012.
  14. ^ "$2,072: 2015 Alaska Permanent Fund dividend amount announced". Alaska Dispatch News. Retrieved September 21, 2015.
  15. ^ "Senate Bill No. 4002". State of Alaska. Retrieved September 27, 2012.
  16. ^ "Palin signs energy relief package". Capital Weekly. August 26, 2008. Retrieved September 27, 2012.[permanent dead link]
  17. ^ "Annual Dividend Payouts". Alaska Permanent Fund Corporation. Archived from the original on October 6, 2014. Retrieved October 12, 2014.
  18. ^ Herz, Nathaniel. "Alaska House votes to more than double PFDs, splintering majority and threatening budget progress". Anchorage Daily News. Retrieved 19 April 2018.
  19. ^ http://www.apfc.org/_amiResolutions/Res00-13MA.pdf
  20. ^ Revenue, Alaska Department of. "Alaska Department of Revenue - Tax Division". www.tax.alaska.gov. Retrieved March 29, 2018.
  21. ^ Revenue, Alaska Department of. "Alaska Department of Revenue - Tax Division". www.tax.alaska.gov. Retrieved March 29, 2018.
  22. ^ https://www.omb.alaska.gov//ombfiles/18_budget/PDFs/10-Year_Plan_1-9-17.pdf
  23. ^ http://www.akleg.gov/basis/Bill/Detail/30?Root=sb26#tab1_4
  24. ^ http://tax.alaska.gov/programs/documentviewer/viewer.aspx?1387r
  25. ^ http://www.akleg.gov/basis/get_documents.asp?session=30&docid=17405
  26. ^ "Home - Alaska Permanent Fund Corporation". Alaska Permanent Fund Corporation. Retrieved March 29, 2018.
  27. ^ http://www.akleg.gov/basis/Bill/Detail/30?Root=hb115
  28. ^ Jones, Damon; Marinescu, Ioana (February 2018). "The Labor Market Impacts of Universal and Permanent Cash Transfers: Evidence from the Alaska Permanent Fund". NBER Working Paper No. 24312. doi:10.3386/w24312.

External links[edit]