Thursday, October 20, 2011

Module IX E Alaska Permanent Fund

No matter where you are, we're glad you're here!





Essential Questions
  • Describe the major reasons given for statehood and explain how those reasons are reflected in the Alaska State  Constitution.
  • Americans sometimes complain about feeling alienated from their elected officials and from the seats of power.  Is such alienation true in Alaska?  Explain, and link the explanation to Alaska's state and local governance structure.
  • Alaska Native Claims Settlement Act 1971 - Discuss two ways that this legislation has impacted Alaska, and two specific ways that it has impacted Alaska Natives.
  • Alaska National Interest Lands Conservation Act 1980 has been supported and derided by Alaskans, both in 1980 when it was passed and today.  Describe three impacts of this landmark legislation.
  • Alaska Permanent Fund - $41+ billion. It is our "rainy day account". So, is it "raining" yet?  How hard is it raining?  Is it time to spend some of the earnings of the AK Permanent Fund to provide for state services?  What arguments would you present to legislators reluctant to confront this issue?
  • Pick one contemporary issue from your region and discuss - explain the issue, identify the major players and their positions.

ENGAGE
1969 Alaska Oil Lease Sale,
Anchorage - www.apfc.org
Newcomers see Alaska as a very wealthy state with abundant natural resources and limitless potential for growth.  They may not be aware of the days before big oil when Alaska was one of the poorest states.

After the 1968 oil strike, the state issued leases to oil companies and took in $900 million. It was quickly spent on much needed infrastructure as well as on some speculative ventures.

Gov. Jay Hammond,
One of the Founders
of the AK PF
www.amazon.com
The money kept coming, and leaders such as Hugh Malone, Keith Miller, Clark Gruening (grandson of territorial governor and U.S. Senator Ernest Gruening), and Jay Hammond  recognized the need for a savings account from which to draw funds once the nonrenewable asset of oil was gone. A constitutional amendment was passed in 1976 and the Alaska Permanent Fund was created. (Article 9, Sec. 15 of the constitution)
Indeed, Alaska is a very wealthy state. The Alaska Permanent Fund is currently worth over $41 billion. To whom does this money belong? Remember the state constitution? 

Go back to Article 8. The resources of the state (on state land) belong to all of us. Therefore, the revenue generated from those resources likewise belongs to all of us.



Here are the APF basics:
www.alaskadispatch.com

Where does the Alaska Permanent Fund come from?
  • a % of taxes and royalties from AK mineral revenues (at least 25%)
  • inflation proofing money from fund earnings - to maintain fund value
  • special appropriations by the legislature



601 Pine St., Seattle-AK PF Holding
We own this building!
www.apfc.org
What is done with money in the fund?
APF investments are in three major categories:

  • domestic and global stocks (equities)
  • fixed income investments such as bonds
  • real estate








Dave Rose, First Executive
Director of the AK PF
www.capitalcityweekly.com
Managing Your Money
Management is done by the executive director and staff with guidance from the six member Alaska Permanent Fund Corporation Board of Trustees (appointed by the governor). The primary task of the board and the corporation is to "protect" the principal of the fund "for all Alaskans, for all of the future".

Management strategy - 5% real rate of return (after factoring for inflation) by adhering to the Prudent Investor Rule:
  • diversity
  • liquidity
  • quality
  • yield
Impact of Inflation on the Returns 
of the AK Permanent Fund
www.apfc.org
The principal of the AK Permanent Fund may only be used for investment purposes. The earnings of the fund may be spent by the Alaska legislature.

Use of earnings:
  • AK Permanent Fund Dividend
  • inflation proofing the fund to maintain its value
  • excess money is reinvested, but available for spending (Legislators have been reluctant to use this based on different opinions about the need and the possible political repercussions of using any APF earnings.)

Growth During Decline
Historic and Predicted Return
Mineral Revenue and PF
www.apfc.org
The production of oil on the North Slope has been decreasing for years. State oil revenues have remained high only because the price of oil has been high. This has provided a buffer from the reality that oil production has diminished.

Revenue from AK Permanent Fund investments first surpassed oil revenue in 1998. It is predicted that this will continue to be the trend. The question for all Alaskans is; when is it appropriate to use Permanent Fund earnings to supplement other revenue and to provide for state services?

Permanent Fund Dividends
www.adn.com
Recall that over 80% of the state budget is from oil taxes and royalties, and that 1/3 of the state economy is dependent on the oil industry.

And, what about the Alaska Permanent Fund Dividend? The AK Permanent Fund Dividend  (the "D" of the AK PFD!) has become near and dear to the hearts of most Alaskans.  Not only do individuals eagerly anticipate the fall deposit into bank accounts, but Alaska businesses gear up with promotions and sales.  


www.alaskadispatch.com
The dividend, and residents attachment to it, has made it difficult for a dialogue about it, or about any other use of AK Permanent Fund earnings. How many governments return money to the people simply because they are residents?

Historically, governments take from the people in the form of taxes; direct payments are unprecedented in the U.S., and unusual globally. The rationale for the AK Permanent Fund Dividend comes from a careful reading and interpretation of the Alaska Constitution, Article 8,sections 1 and 2.  

Since the natural resources belong to all Alaskans, advocates of a dividend argued that a direct return on that ownership represented the most equitable distribution of the collective wealth.

The first AK PFD was authorized in 1980, but was held up for distribution until 1982 due to a challenge to the constitutionality of the original structure for the PFD program. (Zobel vs. Williams, Commissioner of AK Dept. of Revenue). Hence, the first dividend of $1000 was actually three years' worth of dividends. (Note - Also in 1980 the State Legislature repealed the individual state income tax law.)

The Alaska Permanent Fund Dividend amount is calculated on an average of the previous five years' earnings of the AK Permanent Fund.  It is available to all qualified Alaska residents. The annual payout represents (2011- nearly $700 million) an infusion of cash into the Alaska economy that has become a stimulus with a ripple effect throughout the entire state economy and beyond.


EXPLORE
The best source for information regarding Alaska's Permanent Fund? The website of the Alaska Permanent Fund Corporation:
Start with the home page - browse and become familiar with what is available on this site.

Go also to these links:
  • Fund History  - This is a helpful timeline of the major events in the fund history. 
  • Fund Education - Classroom Power Point  View the Power point.  Note that it is a bit dated, having been made prior to the economic collapse of 2008. However, much of the information is still timely.

You might also find it helpful to download the Alaskan's Guide to the Permanent Fund from this page and review it.

  • Investments - Take a look at the investment categories, and the percentages in each.  Note the stock holdings.  Take a peek at where the corporation owns property.  Consider that these properties to all of us.


EXAMINE
  • Headquarters of APFC, Juneau
    www.apfc.org
    Describe the management structure of the Alaska Permanent Fund.
  • Explain the economic, political, and social impacts of the Alaska Permanent Fund Dividend.



EXTEND

Over the years there has occasionally been pressure on the AK Permanent Fund Board of Trustees to divest the fund of any investments in companies connected to controversial issues such as weapons production, tobacco production, dirty industries (in the late 1980's the issue was apartheid in S. Africa). 

The request has been to enact particular ethical principles to guide investment decisions. In each case the Board of Trustees has declined, and it continues to promote investments decisions made according to the principles and strategies mentioned above.  

What do you think? If the Board of Trustees was to guide investments according to ethical principles, what would those be? Would this be consistent with the original intent of the Permanent Fund?  

Here's another question; Alaska typically has voted Republican in national elections, and in many areas of the state the politics are dominated by fiscal conservatives. And, yet, Alaskans hold tight to the Permanent Fund Dividend, which could be considered to be more inline politically with left-leaning liberal politics.  What is your take on this apparent contradiction?

Grub for thought....

What's Next?

 - Current Issues.
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