Generating Revenue for Today & TomORROW
APFC is Looking to Tomorrow to Meet Known Obligations
As we look toward the future, an inherent risk we face with the two-account structure is the availability of spendable funds in the ERA to fully meet the obligations of:
- The Percent of Market Value (POMV) draw for the General Fund to support the dividend program and government services.
- Inflation Proofing Inflation proofing to maintain the purchasing power of the Principal.
Providing Stable State Revenues
The Fund’s earnings in the ERA are the source of the 5% Percent of Market Value (POMV) draw, which provides more than 55% of Alaska’s general fund revenue stream to support government services and the dividend program.
Intergenerational Benefit
Under the two-account structure, the Principal's intergenerational purchasing power is maintained through inflation proofing appropriations.
The Fund's Two-Account STRUCTURE
The Fund’s current two-account structure comprises the Principal, the permanent, nonspendable part of the Fund, and the ERA, which is spendable through legislative appropriation. Based on the two-account structure, spendable amounts are limited to the realized earnings available in the ERA.
Both are invested together using the same asset allocation, but they differ in how they can be used by law.
Principal
The Principal is the permanent part of the Alaska Permanent Fund. The Principal is to be used only for income-producing investments per the constitutional amendment establishing the Permanent Fund. The Principal grows through royalty contributions, special appropriations, and inflation proofing.
Principal holds unrealized gains and losses on invested assets from the time they are purchased until they are sold.
Contributions to Principal
Royalty Deposits – AS 37.13.010 (a) (1) and (a) (2)
The State Constitution directs that at least 25% of Alaska’s mineral royalties be deposited into the Principal. Alaska State Statutes mandate deposits of 50% for leases after 1979.
Special Legislative Appropriations – AS 37.13.010 (a) (3)
Legislative Deposits either from the Earnings Reserve Account or another source, such as the General Fund.
Inflation Proofing – AS 37.13.145 (c)
Since the Principal does not retain any of the realized gains on investments, it must receive an annual appropriation to offset the effects of inflation and preserve its purchasing power to benefit all generations. The inflation proofing calculation is based on deposits into the Principal and the inflation rate calculated per statute. Transfers from the Earnings Reserve Account to the Principal are subject to legislative appropriation.
Earnings Reserve Account
Once an investment is sold, it is recognized as a realized gain/loss, and that net realized income is then deposited into the ERA. The ERA is invested with the Principal under the same asset allocation and holds a portion of the unrealized gains/losses for its share of its investments.
The ERA is the primary source of revenue for Alaska today and for inflation proofing to ensure that the Principal maintains its purchasing power for intergenerational benefit.
The ERA is established in state law, AS 37.13.145(a), as a separate account to hold the net realized income, defined as Statutory Net Income (SNI), from the Permanent Fund's investment portfolio. The ERA is available for the Legislature to spend through its power of appropriation. Decisions about uses of the ERA are made each year by the people’s elected representatives – the Alaska State Legislature and the Governor. To date, the primary use of the ERA has been to pay an annual dividend to the citizens of Alaska.
The ERA grows through the receipt of SNI.
SNI is the direct result of investment activity (decisions to buy and sell) and excludes unrealized gains and losses. There are two components to this income that flow to the ERA:
- Operating Income: Cash inflows from stock dividends, bond interest, and real estate rental fees available for deposit.
- Realized Capital Gains/Losses: All the net income (i.e., realized gains minus realized losses) generated by investment sales.
SNI is unpredictable and can vary significantly from one fiscal year to another.
APFC manages the portfolio to provide a maximum risk-adjusted return, not toward SNI or gain realization as a key metric.
How are the earnings used?
Since inception through FY24, the investment of the Fund has generated more than $87.8 billion in net realized earnings deposited into the ERA, which have been used:
- to support the investment management and operations of the Fund;
- to partially fund state agencies involved with collecting royalties and distributing dividends;
- to pay dividends to eligible Alaskans;
- and to support government services and programs.
Percent of Market Value (POMV)
The Permanent Fund has become a key renewable financial resource for Alaskans, with the annual 5% POMV draw providing more than 55% of Alaska’s general fund revenue stream.
Per Alaska Statute 37.13.140(b), enacted in 2018, withdrawals from the ERA are based on a percentage of the average market value "POMV" of the Fund, a method designed to create a withdrawal structure that ensures no more than a sustainable amount is drawn on an annual basis.
The Percent of Market Value (POMV) draw is based on a percentage of the average market value of the Fund for the first five of the preceding six fiscal years; this average creates a smoothing effect across years. The POMV draw provides a certainty of liability for managing the portfolio and a stable, predictable payout from year to year. The draw is subject to appropriation and is set in statute at 5.0%.
POMV Calculation
| FY 26 Draw | |
| FY24 | $80,038.5 |
| FY23 | $77,587.5 |
| FY22 | $75,912.8 |
| FY21 | $81,472.8 |
| FY20 | $64,877.8 |
| 5 yr AVG | $75,977.9 |
| 5% Draw | $ 3,798.9 |
The POMV draw in FY24 was $3.5 billion, $3.4 billion in FY23, $3.1 billion in FY22, $3.1 billion in FY21, $2.9 billion in FY20, and $2.7 billion in FY19. The POMV draw for the Fund is limited by the statutory allowable percentage and the amount available for appropriation in the ERA – the 'checking account' of the Fund.
Inflation Proofing
Inflation Proofing is critical to maintain the purchasing power of the Principal.
Inflation proofing is an appropriation from the ERA to the Principal to protect the value of the Permanent Fund against inflation. Since the Principal does not retain any of the realized gains on investments, it must receive an annual appropriation to offset the effects of inflation by contributing to the Fund to preserve its purchasing power to benefit all generations.
By inflation proofing the Principal, the APFC ensures that the Permanent Fund continues to serve its purpose of benefiting all generations of Alaskans, not just the present one.
2002 Trustee Paper 7
Making the Case for Complete and Protected Inflation-Proofing
2008 Trustee Paper 8
Wealth Management Sovereign and Permanent Funds Around the World
2020 Trustee Paper 9
he Role of Sovereign Wealth Funds in Savings, Stabilization, and Generating Income
2024 Trustee Paper 10
A Rules-Based Permanent-Endowment Model for Alaska