HISTORY OF THE
ALASKA PERMANENT FUND
Alaska has long been known for its abundant supply of natural resources, and these resources have a long history of supplying revenue for the state.
Ten years after Alaska achieved statehood, oil was discovered on the northern coast line of Alaska and the state held the Prudhoe Bay Oil and Gas lease sale in September of 1969 that brought in $900 million in revenue. While there was a significant amount of debate at the time as to whether some or all of the money from the lease sale should be saved, ultimately the proceeds were used to support infrastructure and social programs throughout the young state.
In 1974, as construction of the Trans Alaska Pipeline neared completion, Alaskans were looking towards the future and deliberating on how to best utilize the anticipated mineral royalties. Many of the state’s decision makers supported putting a portion of the expected revenues into a ‘permanent fund,’ where they would be out of reach of day-to-day government spending and generating income into perpetuity.
Alaska’s Constitution does not allow for dedicated funds, so in order to direct these oil revenues into a permanent fund, the Constitution had to be amended. Placing the founding language for the fund in the Constitution had the added benefit of helping protect it from being spent by the Legislature without a vote of the people. A Constitutional Amendment requires a majority vote of the people of Alaska, and the item was put on the 1976 statewide general election ballot. By a margin of 75,588 t o 38,518, a Constitutional Amendment establishing the Permanent Fund was approved.
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.
On February 28, 1977, the Permanent Fund received its first deposit of dedicated oil revenues totaling $734,000. Investments were comprised almost entirely of bonds, while the Legislature had a four-year public discussion regarding whether the Permanent Fund should be managed as an investment fund or as an economic development bank. Governor Jay Hammond signed a bill in 1980 creating the Alaska Permanent Fund Corporation (APFC) for the purpose of managing investments. That year Legislature also approved the first Permanent Fund Dividend program, and the first dividend check of $1,000 was distributed two years later.
In 1983, the Fund made its first investment in the stock market, and later that year, in directly held real estate. The autumn of 1987 was accompanied by a stock market crash, but despite the bear market, the Permanent Fund’s performance ranked in the top 9 percent of all public funds in the U.S. Two years after the crash in 1989, the Permanent Fund assets reached $10 billion. Nearly a decade later in 1998, fund earnings exceeded state oil revenues for the first time, as the value surpassed the $25 billion dollar mark. Between 2000 and 2003, another bear market plagued the U.S., which led the Board of Trustees to further diversify the portfolio. As markets become bullish, the Fund reached $35 billion in 2006, an increase of $5 billion from the prior year. In 2008, a global recession caused one of the five worst years in the 218-year history of the U.S. stock market. Oil prices climbed to $140 per barrel, and despite declining production, produced the highest mineral deposits to the Fund’s principal to date: $844 million. By 2009 , the value of the Fund fell to $26 billion after a peak of $40 billion in 2007. Markets rebounded, and by 2014 the Fund reached of value of $50 billion . Today, more than four decades after the Fund was established, the value has exceeded $60 billion.