What is the purpose of the Alaska Permanent Fund? - Must Read Alaska
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Monday, August 26, 2019
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This topic contains 15 replies, has 1 voice, and was last updated by  AK-49 3 weeks, 4 days ago.

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  • #42721 Reply

    JMARK

    I am starting this topic in an effort to understand the views of others as to the purpose of the Permanent Fund. Why has money been appropriated to the principal of the Permanent Fund? This topic generally does NOT include debate over the size of the Permanent Fund Dividend.

    #43203 Reply

    NorthernLink009

    JMARK, I believe the purpose of the fund is multifaceted. Anyone who grants monopoly to one specific purpose that the fund was created is trying to mislead us. The fact is that there was much debate in the early 70’s over this new idea and there were people on both sides of the issue as far as what its main purpose was. It’s important to realize that Governor Hammond and many of his friends in the legislature never did come to a clear conclusion or “answer” to our question of what its purpose was. Different people alive during that time will tell you different reasons that they believe the fund was created. We today should not spend time sifting through archives and new articles looking for the be-all-end-all answer. Instead it is up to us Alaskans TODAY what we think the PF should be used for. And the people’s intent should be made more clear in the laws that govern the fund and the yearly payouts.

    However, I believe there are three main purposes of the fund. One is that it helps offset an expensive cost of living for those who remain in Alaska’s rural villages. This model is becoming increasingly unsustainable as time goes on and it’s time to take another look at this. Second, it provides a “share” of the massive oil wealth Alaska owns to each and every Alaskan. As our constitution says, the resources underground should be exploited for the benefit of every man woman and child, and the PFD is a way of making that happen. Third, it is a kind of “rainy day” fund for when there is not adequate funds from oil royalties to support a reasonably large government.

    The first step is all agreeing as Alaskans that the “purpose” of the PF is a hybrid of these three main reasons. Once we do that, we can have a frank discussion about how much of the fund should go towards each purpose. I think we need to spend a larger portion than we currently do on state government, but that’s a discussion we can have later. If Alaskans can not even agree on the purpose of the PF, or the fact that it may in fact have more than one, we can’t have a good-faith discussion about how to best structure it.

    #43265 Reply

    Bob Bell

    I agree with northernlink009 sort of. My recollection, abet a 45 yer old recollection, was that the permanent fund was created as a “rainy day fund” to fund state government when the oil money ran out. It was a state house representative from Kenai who first pushed for the fund . He was a surveyor, I can’t remember his name. It was a few years later that Hammond came up with the idea of a dividend. Many of us at the time thought the dividend was a bad idea. Why should we get a handout from the state? It appears to me the dividend has “evolved” over the years to being our fair share of the oil wealth and the funds purpose is to fund that dividend. Now we have the push to use some of that money to fund government. With all the oil money we have seen our state government balloon into an unsustainable money eating monster. The problem I see is if we let the state government start using fund earnings then it will remain the monster it is today until it is consuming all the earnings and only then will there be a reckoning and government will have to downsize to fit revenue. I would suggest that it would be better to starve the monster now by not letting it get its hands on the earnings. Pay the dividends and transfer the rest of the earnings into the corpus of the fund. Force the state to right size government before we allow them any new source of revenue.

    #43324 Reply

    Aaron Doyle

    I’m not sure this was the original purpose but it seams to have become at least a result. The paying out of dividends has focused the attention of an otherwise apathetic public on a large amount of money. This has made it much more difficult for the state government to take and otherwise waste this pot of money. Let’s face it the average Alaskan and American in general isn’t paying any kind of close attention to government spending. This is evidenced by our state and federal budget deficits. By continuing to pay a dividend it ads a degree of accountability and visibility to the public that I think wouldn’t be there otherwise. My non expert $.02 on the subject.

    #43325 Reply

    Jason Kerrone

    This opinion by Chet Showalter echos my opinion in more detail than I can muster”

    “THIS OLD TIMERS OPINION
    It occurred to me from a question from an out of state friend (out of Alaska), that many people, both from the ‘LOWER 48’, and MANY NEWER Alaska residents are not familiar with our “state dividend”, and the history behind it.

    Some people erroneously consider it State welfare, or socialism, or any number of other false beliefs.

    Many people that did not live here back in the day, really have no idea about why the program was set up, how it was originally envisioned, and what it (the fund), was supposed to be used for.

    I was here before Alaska WAS a state.
    HERE’S AN OLD TIMERS OPINION:

    Back in the mid 70s, early 80s, we had one of our most admirable governor’s, Jay Hammond.

    Alaska had just realized a huge windfall from oil lease sales in the state and it looked like we were going to have a very profitable oil resource industry.

    Simply put, Alaska’s Constitution designates the residents essentially as “owners” of our resources. We are essentially a kind of an owner state, in that the resources are supposed to be used for the benefit of all Alaska’s citizens.

    When we began to have windfalls of profits from the oil industry in the 70s and it looked like it was going to amount to quite a bit in the future? The state of Alaska did away with the state personal income tax.

    Oil revenue profits greatly exceeded the state income tax revenue from our small population, back then it was less than 1/2 million people.

    Hammond envisioned and helped create the “permanent fund”, which takes a certain amount of revenue from oil resources, and invests it in various entities: the stock market, bonds, real estate etc.

    A varied portfolio that would realize profits from investments, and not only be a nest egg for Alaska WHEN OIL REVENUE WENT AWAY, it would also encourage residents to WATCHDOG spending.

    Governor Hammond, looking forward, realized that if citizens weren’t paying out of their own pockets (state income tax), for government? They may lose interest in how the government spent its money.

    So he designed and instigated the “permanent fund dividend”

    He designed it so Alaska citizens get a dividend off of the profits from those investments from the permanent fund corporation.

    Before it was finalized to what it is today, it changed quite a bit from the way Governor Hammond originally designed the dividend, however the intent and purpose of the dividend stayed the same.

    We even had a lawsuit filed by some greedy attorneys (that worked for the state 🤔), that changed the way our dividends were distributed and calculated.

    Because Governor Hammond wanted to encourage people to stay in the state, in order that we would have a more permanent population rather than a transient one based on boom and bust cycles, his original idea was to base the size of the dividend on the amount of years you had been a resident of the state, encouraging people to stay, by monetary incentive, at the same time giving people something to help them be able to survive the boom-and-bust cycles of Alaska.

    His original idea also paid homage and recognized the pioneers that helped build the state and were still here, and had already toughed it out through the highs and the lows in our young state, because every year that you were here? gave you more of a dividend.

    Under the 1980 law, one-year residents would qualify for a $50 dividend, while someone who had been in Alaska since the first day of statehood in 1959 would have collected 50$ for every year of residency.

    I believe it would also NOT have attracted the people to our state that just wanted a “fast buck”, because at $50 a year it wasn’t much of an incentive to move to Alaska.

    However, it went all the way to the supreme Court, and we (Hammond and supporters of the original law), lost…:

    “Following some broad language in the United States Supreme Court case of Dunn v. Blumstein, 405 U.S. 330, 92 S. Ct. 995, 31 Ed.2d 274 (1972),[6] we interpreted this line of cases as holding that any durational residency requirement[7] imposed a penalty on the right of interstate migration, and thus automatically invoked the “strict scrutiny” analysis:[8]

    All durational residency requirements inherently infringe upon the fundamental constitutional right of interstate travel. Hence, all such requirements are prima facie invalid and will be countenanced only when they serve a compelling state interest.”

    Governor Hammond, and his supporters, including me, believed that promoting a stable population, and recognizing that Alaska is a severe environment, both economically and environmentally, and a program that encouraged people to stay, and gave them financial help in order to stay, was definitely a “state compelling interest” as it was designed to promote a better state.

    Getting back to the way the dividend is (SUPPOSED) to be calculated today, it’s from investment profits:

    “The Alaska Department of Revenue,Permanent Fund Dividend Division is responsible for determining applicant eligibility for the distribution of an annual dividend that is paid to Alaska residents from investment earnings of mineral royalties.”

    https://pfd.alaska.gov/Division-Info/About-US

    Governor Hammond knew that future politicians, being the nature of the beast, would always want to spend the money…. Piss it away…

    So what better way to keep the citizens of the state engaged in watch dog-ing the politicians and how they spent the States money? Then to pay a dividend to every citizen based on how much money the state had.

    Now that’s a bit simplified because the actual calculation of each citizen’s dividend is not based on how much money the state has:

    “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]

    Add Fund Statutory Net Income from the current plus the previous four fiscal years.
    Multiply by 21%
    Divide by 2
    Subtract prior year obligations, expenses and PFD program operations
    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”

    https://en.m.wikipedia.org/wiki/Alaska_Permanent_Fund…

    The problem developing over the last few decades is our governors and our lawmakers have been bloating our state government, because we had high oil revenue profits, and spent like drunken sailors.

    When oil prices plummeted to less than $40 a barrel a few years ago? Then the state’s revenue stream shrunk below what state government had been spending!

    The state had several nest eggs and savings accounts besides the permanent fund.

    However as they (politicians), begin to use those savings accounts up? They still refused to cut needless spending and programs that we couldn’t afford anymore.

    So the governor and other politicians started to raid the permanent fund…. Specifically targeting and reducing each residents dividend, rather then get state spending under control.

    The permanent fund wasn’t supposed to be used because there was a dip in oil prices!

    The permanent fund was supposed to be used when we have no more oil revenue, when the resource itself had essentially run it’s course, not just the price of those resources declining..

    Here is a brief history of the permanent fund:

    https://apfc.org/who-…/history-of-the-alaska-permanent-fund/ ” ~‎Chet Showalter‎

    #43326 Reply

    P.I. O’Neer

    It was Hugh Malone.

    #43339 Reply

    April Moore

    I have been in Alaska since before State hood, and I remember quite vividly why the Permanent Fund was established. The FIRST Oil Lease sale was suppose to be enough to fund education forever… The State received $900,000,000. Within 5 years it had “disappeared”, spent with no clear accountability. There was very little the people could do, the legislature just spent like there was no tomorrow… and I am quite sure there were a number of shady deals involved… so it became clear that the legislature could not have access to the nest egg…. when the second big oil lease sale took place, Jay Hammond was there to make sure this never happened again, and the Permanent Fund was established, to keep the funds OUT of the General fund that goes to fund government…. What has happened in the last 6 years is directly related to a lack of planning on the part of the legislature… Alaska should never be dependent on one stream of revenue… developing all our natural resources responsibly along with value added development of industrial jobs is the only way to keep from raiding the Permanent Fund. Foolish false starts on what could have been long term economic growth… like the Dairy Projects , MSB Ferry, Agrium Gas complex on the Kenai, and the shutdown refinery in Fairbanks for starters… Instead of developing our gas, oil and abundant minerals we spend millions to start a project just to moth ball it. Along with all the high paying jobs that went to support those projects.

    #43393 Reply

    JMARK

    A pleasant and spirited discussion. Thanks to all that have contributed. That said, and I am one that was here before Statehood, The first Governor to propose permanently saving a portion if oil wealth was Keith H. Miller. IMO, too much credit is given to Governor Hammond. Hammond certainly promoted the dividend, but there were other advocates in the Legislature as well.

    I will admit that I posted this topic mainly to discuss WHY we are saving money. Keep in mind that virtually NONE of the PF money is invested IN Alaska and the money cannot be encumbered thus not incentivizing investment here.

    I am no fan of a bloated State government and understand why we should not covert the Permanent Fund into solely a source of income to fund government. That said, we have largely evolved to the point where NO part of the earnings may be used for any purpose other than payment of dividends.

    We have saved money, but it does very little for Alaska, other than create earnings. And we are now evolving to the point where we cannot appropriate the earnings, other than for dividends. From my perspective, the Fund accomplishes very little for Alaska and Alaskans. Goldman Saks and their ilk benefit as much from the Fund as Alaskans.

    I urge continuation of the discussion.

    #43394 Reply

    AK-49

    JMark, you have hit the nail on the head. We have saved money. It creates earnings. The biggest beneficiary are the investment houses. We could have plowed more back into the principle but our Legislature and governors have had spending habits for years, mainly to try to win reelection. They are not rewarded for being miserly and plowing more into savings or, heaven forbid, paying down the retirement debt.

    We have a structural problem in that, when there are excess funds, we build, we spend, we grow, and then when there are not many funds (low prices, volume), we don’t have enough to support what we’ve built. But then when times are good again, we build even more and fill in for the needs and wants. Government grows and expectations cannot be throttled back.

    I now worry about the type of people a large dividend attracts to the state. Is it really the best thing to give a $3,000 dividend? Is $5,000 too much? I’m not sure the experiment can continue without some sideboards.

    #43663 Reply

    Bob Bell

    My recollection is that Hugh Malone introduced the idea of the permanent fund to the legislature and then pushed it through. Hammond came up with the idea of a dividend a couple of years later. Anyhow I think most Alaskans agree that our state government is bloated by at least 50% . I remember calling Governor Egan and pitching a fit because the state operating budget was more the $100,000,000. look at what it is now. What we have to keep in mind is that the legislature can appropriate all the of the fund earnings, after expenses such as the cost of running the fund, by a simple vote. If they decide to do that then the fund has no value to the average Alaskan other than paying for a government they don’t want 50% of. We all want an efficient and effective government with a sustainable cost. We don’t have that now and we don’t have a legislature that seems to be willing or able to accomplish that goal. I wish we could get people with stronger resumes to run for office, but with the legislature in session for 180 days a year anyone with a job or a business can’t afford to serve. The only thing i can suggest is that we do what we can to keep their hands off fund earnings. Pay it out as dividends or transfer it into the fund or maybe both.

    #43960 Reply

    907future

    Bob, nobody disagrees that our government is larger than it probably should be, but the items that are being cut simply don’t line up with where most of our “fat” lies. The University of Alaska is not the reason we have seen such a sharp increase. Health and Social Services and the monster of Medicaid is by far the largest line item in the state’s budget. Estimates tell us that some 70,000 additional people have become enrolled in health coverage provided by Medicaid in only the past 5 years.

    We are looking to cut and restructure in the wrong places, and it’s hurting so many young Alaskans from Pre-K to college level. And asking the University to count on 40% less state funding in one year? How can any reasonable person expect that to happen without massive layoffs and dozens of degree programs being cut?

    #44091 Reply

    Hard Rock Richard

    The concept of a fund which is ‘Permanent’ is absurd. Money changes value over time. so for example, a $1000 bill from 1900 would be worth more than that today, because it is very rare. As time changes our money, we must determine which institutions ought have the ability to math out what ‘Dividend’ we deserve. Frankly, the concept of selling dinosaur remains freaks me out, and makes me wonder whether spirits are being released. Maybe thats why gas smells so good. Either way, I couldnt care less about how much the PFD is, so long as I can hang out with my bros and keep hunting bears 😉

    #44197 Reply

    Daniel Shaw

    The idea that the PF does nothing for Alaska or Alaskans is wrong. The PFD checks bring in outside money to the State economy from the out of state investments that the Fund earns every year. Those checks fuel our local economies supporting retailers and the service providers and raising the standard of living of all the Alaskans receiving them. Also since it is outside money coming into the state it will expand up to Ten times value by the time it moves thru our economy. This years total PFD is around Two Billion Dollars and will generate up to Twenty Billion Dollars in our State Economy. That is equal to almost 50% of our total 2016 GDP of 45 Billion. That is why all the Economist said that was the worst thing for Alaska’s Economy when the politicians cut the PFD and it did put us into a repression and that is why Gov. Dunleavy was elected by a large percentage of the voters to fully fund our PDFs and downsize State Government to what it brings in which is still several Billions Dollars a year and going up with the increasing oil price and more oil being produced in the near future. They do not need our PFD checks or any part of the PF principle.

    #44771 Reply

    Frank McQueary

    When my friend Andrew Halcro weighed in on one of my posts supporting a full dividend and holding the line on MOST, not all vetoes, with the pronouncement that he knew Jay Hammond, and Jay would not agree with my position, I was in a quandary.
    With Andrew channeling Jay I was reduced to actually researching the writings of Jay to find out what he thought while he was still alive.
    The fact that Hammond may have changed his opinions since he died reminds me of all those Chicago Republicans, who over the years since they died, have consistently voted straight Democratic tickets.
    At any rate, after an entertaining read of the salient parts of Jay Hammond’s autobiography, Tales of Alaska’s Bush Rat Governor, I now have a greater respect for both the intellect and humor of Hammond and an intense desire to sit in on Andrew’s next séance with Jay. Maybe Jay can tell me what happens to all those Chicago Republicans who switched parties as soon as they died.
    At any rate here is Jay when he was alive: “Alaska’s dividend program is, of course, anything but socialistic. Socialism is government taking from a wealthy few to provide what government thinks is best for all. Permanent Fund Dividends do just the opposite. They take from the money which, by constitutional mandate, belongs to all and allows each individual to determine how to spend some of his or her share. What could be more capitalistic?”
    More salient to today’s debate, Hammond made the following comment in a public broadcasting interview: “If I had my way, I continued, “I’d use the dividend program to cut existing government spending as well.”
    “How would you do that?” he asked.
    I said I’d compile a laundry list of government programs not based on need or constitutional mandate. “I’d put that list on the ballot and let the electorate choose which to keep, For each one wiped out I’d propose that we use half the savings incurred to further increase everyone’s dividend check. Since politicians can’t seem to cut spending, let’s leave it up to the people”
    “What a great idea!” said my host. Then a horrible thought struck him. “But wait a minute. You wouldn’t put public radio on your list would you?”
    “Of course, but not to worry; I’m sure you could persuade listeners to dig into their larger dividends to come up with ample contributions,” I explained.
    At that he blanched, shook his head and pronounced, “Oh, No! There are some programs the government knows are best for the people, even if the people themselves don’t realize it.”
    There is more, so for those of you who are interested the above quotes and others similar can be found in Chapter 28, titled Money, Money, Money.
    In good conscience this is the Hammond I remember. But apparently he has modified his views since he died. I am waiting for my invitation to the next séance.

    #44896 Reply

    Lance Roberts

    Whatever the reason it was started for, which I think others have stated well, one of the reasons we need to keep it is because it is the recompense for our stolen property rights. Rights come from God not government, so when we foolishly let the Alaska government take our rights we fell into a trap. Personally I would trade the PFD for my property rights.

    I also agree with the logic of people getting involved, and this year has sure proven that. We wouldn’t even have a conservative governor if we didn’t have the PFD as an issue.

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