Alaska Permanent Fund Dividends:
Basic Income from
“the People’s Portfolio”
Voz Alternativa, Mexico City, 6 November 2007
Steve Colt
Institute of Social and Economic Research
University of Alaska Anchorage

Introduction to Alaska
History of the Alaska Permanent Fund and the dividend program
Economic importance of the dividend
Looking ahead

Source: U.S. Census, Alaska Dept. of Labor.
July 1, 2006 estimates.

Remains a Vital Part of the
Economy
Total subsistence harvests about 25 million kilos
In some places, people consume 250 kilos of wild foods per person

Size of the Alaska Economy year 2005
Gross state product $39 billion
Personal income $25 billion
Employment 437,000
Retail sales $7.4 billion
U.S. Bureau of Economic Analysis, U.S. Census

everything else: about one-third petroleum and petroleum $$: about one-third federal spending: about one-third

rest of economy
Petroleum oil production oil revenues permanent fund dividends
ISER analysis of sources of personal income, year 2000

Federal government spending rest of economy civilian military
ISER analysis of sources of personal income, year 2000

personal assets /
"mailbox economy" air cargo tourism timber mining fish
Everything else rest of economy
ISER analysis of sources of personal income, year 2000

Resource booms have fueled growth and migration
Salmon
Gold
Pulses of migration shown in yellow
WW2 / Military
Pipeline
Oil money

History of Permanent Fund and
Dividend
1968
– Prudhoe Bay oilfield discovery: 9.6 billion barrels.
– Alaska population = 300,000
– State budget is very small ($100 million = $300 per person)
Alaska constitution Article VIII:
– The legislature shall provide for the utilization, development, and conservation of all natural resources belonging to the State, including land and waters, for the maximum benefit of its people.

Alaska oil is a one-time source of wealth
2,500,000
2,000,000
1,500,000
Oil Production 1969 - 2022
NPRA
Other NS
Northstar
Colville R
Badami
Duck Island
GPMcIntyre
Milne Pt
KRU.IPA+Sat
PBU.IPA+Sat
Cook Inlet
1,000,000
Prudhoe Bay Kuparuk
500,000
0
1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 2019
Source: Alaska Department of Natural Resources
Year

1969
– Prudhoe Bay lease sale provides $900 million in lease bonus payments to the State
Treasury.
– Economist Dr. Arlon Tussing proposes to give the money directly to individuals
1970
– New revenues lead to many new state programs – many feel money is wasted
– First bill to establish a Permanent Fund introduced in the Legislature.

1973
– Oil price increases from $3 to $16 per barrel
– Pipeline construction begins
1976
– Alaska Permanent Fund created by people of
Alaska (constitutional amendment)
Article 9: Section 15. Alaska Permanent Fund.
At least twenty-five percent of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments and bonuses received by the
State shall be placed in a permanent fund, the principal of which shall be used only for those income-producing investments specifically designated by law as eligible for permanent fund investments. All income from the permanent fund shall be deposited in the general fund unless otherwise provided by law [Effective February 21, 1977].

1977
– Oil production begins and first deposits are made into the Permanent Fund
– Four years of debate begins about whether the Permanent Fund should be managed as a public trust or as an economic development bank.
– In 1980, the Fund is established as a public trust -- to maximize cash income

1976 – Dividends were mentioned by some legislators when the fund was created
1977 – Poll: people do not like dividends
– Only 15% of people strongly in favor
– 50% of people are strongly opposed
– People in rural Alaska are more in favor than people in cities

1980
– Governor Jay Hammond is the main supporter of dividends ;
– First dividend law makes the size of dividend depend on years of residency
– U.S. Supreme Court says “no!”
1982
– New dividend law passed with equal annual dividends for everyone
– One-year residency requirement
– No changes since then!

One-half of the average realized earnings from the previous 5 years
Realized earnings to be calculated based on “generally accepted accounting principles”
See:
– http://www.apfc.org/fundlaw/Incomelaw.cfm

Permanent Fund balance
(billions of dollars)
45
40
35
30
25
20
15
10
5
0
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
1
N ov
20
07

(dollars)
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
$180,000 for a family of four
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06

5
4
3
7
6
-2
-3
0
-1
2
1
Components of change in fund balance
(billions of dollars) other change dividends special deposits oil revenue required oil revenue

$2,500
Annual dividend amounts adjusted for inflation – year 2006 dollars
$2,000
$1,500
$1,000
$500
$0
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Dividend as a percentage of per capita personal income
Average = 4% of per capita personal income
4%
3%
2%
1%
0%
7%
6%
5%
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Northwest
Arctic
Interior
Southwest
Southcentral
Southeast

Alaska DOLWD

Monthly wages are lower
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Wade
Hampton
Bethel Yukon-
Koyukuk
Anchorage
Year 2005 average monthly wages in covered employment, Alaska DOLWD

Costs are much higher
Electricity from diesel:
25 – 50 cents per kWh
Gasoline:
$6.00 - $8.00 per gallon
Running water
– is not available in many homes

Importance of dividend in remote rural Alaska
Per capita income can be $5,000 -
$8,000
For these families, dividends = 20% –
40% of cash income
Dividends are used as an input to subsistence work
(fuel, firearms)

Alaska has low inequality
G ini coefficients
(
0 = complete equality
100 = complete inequality)
Mexico 54.6
Alaska 41 without dividends
Alaska 38.0 with dividends
(based on household income)
Alaska estimated by author from US Census
American Community Survey 2004 – household income
UN Human Development Report 2005 Chap 2 – per capita income

Alaska Native corporations
– formed after 1971 land settlement
– received $1 billion (= $2.5 billion today)
– received 18 million hectares of land
– Have produced very small dividends compared to Permanent Fund
– Many have created their own trust funds similar to Alaska Permanent Fund

Community development quotas (“CDQ”)
– shares of the pollock fish catch were given by the U.S. federal government to 65 communities near the ocean
– They can catch the fish or sell the rights
– In 2003, the value of these permits held by the community groups was $250 million
– CDQ groups do not pay dividends
– http://www.dced.state.ak.us/bsc/CDQ/cdq.htm

Looking ahead:
Predictions are hard – especially about the future

Dividend program will continue everyone is treated equally the money belongs to the people, not the government
There is plenty of additional oil money for “government,” at the moment
Previous attempts to create an education fund failed
John Locke

However, oil money will not last forever
Government should provide:
– education
– health care
– public safety
Dividends do not accomplish this
There is no income tax in Alaska, no VAT, no sales tax
Jean-Jacques Rousseau
What is the social contract?

Alaska Permanent Fund Corporation
– www.apfc.org
Institute of Social and Economic
Research, University of Alaska
– www.iser.uaa.alaska.edu
Email
– steve.colt@uaa.alaska.edu

www.iser.uaa.alaska.edu