alaska permanent fund

ANCHORAGE, Alaska -- Alaskan will find out tomorrow how much their bank accounts will grow this year courtesy the state's oil wealth.

Gov. Palin will be announcing the amount of this year's Permanent Fund Dividend check tomorrow afternoon in Valdez.

Channel 2 News has estimated a "best guess" at this year's amount in order to save residents a lot of complicated math.

After averaging five years of profits and deducting expenses, the Permanent Fund board transferred nearly $990 million for this year's check.

The state has not yet released how many Alaskans applied for this year's PFD check, but if applications increased by the amount of the population - roughly about 1 percent - then approximately 608,000 Alaskans probably applied.

Divide the amount available by the number of Alaskans eligible and the Channel 2 News prediction for this year's check is $1,626.48.

The official results will be available tomorrow afternoon and will be posted at www.ktuu.com.

Today is the happiest news day of the year for Alaskans, for even when the news about the annual Permanent Fund Dividend checks isn't completely positive, it's always good.

An estimated 604,149 Alaskans will be paid $1,654 to be residents of Alaska in October.

We all sometimes joke about our state payoff, but it is serious business for local economies and for many families that struggle to make ends meet in what can be a costly place to live.

No other state can match this benefit, however, and with our annual good news it would be best for Alaskans to consider how blessed, and cursed, we are to have such a program.

We truly are blessed beneficiaries of the foresight of those who created the Alaska Permanent Fund and the annual dividend payout that is designed to give residents a vested interest in keeping the Permanent Fund, well, permanent.

The checks, however, are not pulled from the principal of the fund but are an amount that is calculated based on the average earnings of the Permanent Fund over the previous five years from things like stock dividend income and the profits from management of stocks and investments.

Each year, a portion of the earnings also is made available to the state for use in government operations, but the Legislature chooses year after year to reinvest those funds. It has been deemed a political taboo to touch the earnings, and people call suggestions to do otherwise "raiding the fund," even though the principal is protected.

From an Outside perspective, however, these riches surely will catch up with us, and that will be our curse. An individual Alaskan who has collected all 26 past dividends will have received a total of more than $27,000 from the state after this year. From its inception in 1982, the state has given out more than $15 billion Permanent Fund Dividend dollars to individual residents. 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% required deposit is really more like 11% if those sources were also considered. The Alaska Permanent Fund sets aside a share certain 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 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. 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 ($1963.86 per person in 2000), they usually vary between $600 and $1500 ($900 and $1800 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 threw that out as an invidious distinction. So each qualified resident gets the same 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-about 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.




Year Amount
2007 $1654.00
2006 $1106.96
2005 $845.76
2004 $919.84
2003 $1107.56
2002 $1540.76
2001 $1850.28
2000 $1963.86
1999 $1769.84
1998 $1540.88
1997 $1296.54
1996 $1130.68
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 $1000.00


[edit] 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 2/3 [3/4?] vote 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 CBR

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 then draws, causing the CBR to fail.

Former state senator Dave Donley (R-Anchorage) recognized that the high vote requirement to spend CBR money [2/3? 3/4?] 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.


[edit] 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 Pernanent 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.


[edit] Sources



The state Department of Revenue reported the estimated fund balance as $38.7 billion this week.

From an Outside perspective, our state collects industry taxes and instead of using all the money on government services it invests those billions, splits the earnings with the public, and continues to hold out its hand for federal tax dollars.

The news of the announced Permanent Fund Dividend check will always be a happy news day, no matter the amount, but Alaskans should always accept these checks with full knowledge of the picture it paints of them to the rest of the country it competes with for federal tax dollars