Alaska Permanent Fund
The Alaska Permanent Fund is often thought of as a remarkable success. Since adoption of the constitutional amendment which created the fund in 1976, the fund and the general health of the overall American economy have generated large earnings. In May, 2004 the Fund was worth over $27 billion. The Fund dividend program was established in 1982 by the Alaska legislature., It is also a success, at least from the viewpoint of Alaskans who receive an annual dividend. The annual dividend in 2003 was $1,107.56.
There is great controversy in Alaska over the proper use of the earnings of the Alaska Permanent Fund. Should the primary use be for the annual dividend program? Should any of the earnings be used to pay for state government? This question might not be as important except for the fact that over the last few years the state budget has not been in balance. The cost of state services has been greater than the amount of money state legislators have made available in the state budget. The earnings of the Permanent Fund could be used to balance the state budget if the legislature could use those earnings to pay for state services. But many legislators believe voters have said that they do not want the Permanent Fund earnings used in this way.
There is another fund which the legislature has taken money from for the last few years to balance the budget: the Constitutional Budget Reserve. This is a special fund created by constitutional amendment in 1990. It came from an 18-year tax suit with the oil industry that started with the oil flow in the trans-Alaska pipeline. State law had declared that one-eighth of the oil and gas from its lands belongs to the state, as a royalty. The state sells that oil to the oil industry, which transports and sells it for the state. In the suit the state charged that from 1977 on the industry had undervalued the state's royalty oil, thus cheating the state of revenue. In 1989 the state filed claims against 15 oil companies. One company, Amerada Hess, settled with the state for $319 million. Voters created the CBR to receive that award, and expected future awards from the case. In 1995 the other companies settled, just as the case was finally to go to trial. The state gained about $1 billion from the settlement. When the state budget grew tight the legislature used money from the CBR to balance the budget. In 2004 the CBR was worth about $2 billion.
Alaskans have recently become aware that in time, the CBR is will probably run out.. Then the question of whether to use earnings of the Permanent Fund to balance the budget will become extremely important. This has led many state leaders to urge the governor and the legislature to adopt a long-range state fiscal plan which takes into account the possibility that the CRB will be gone. Such a plan would most likely include the use of some Permanent Fund earnings and some new taxes. But because a number of legislators have been unwilling to ask voters to approve either the use of Permanent Fund earnings or new taxes, they have not yet come up with a plan.
In 2004 record high oil prices, at one point exceeding $40 a barrel, brought in enough revenue to the state so that legislators and voters could postpone a plan. Many smart advisors however, suggest that it is a question of time before the state will have to face their fiscal challenge directly.