The Alaska Permanent Fund Dividend: A Case Study in the Direct Distribution of Resource Rent

Abstract

The Alaska Permanent Fund is a sovereign wealth fund of the state of Alaska established in 1976 by a vote of the people to preserve part of the revenues from current oil production for future generations. Twenty percent of direct petroleum revenues have been deposited into the fund which now has a balance of $32 billion. Over its life it has generated nominal earnings of $35 billion. The successes of the fun in saving a share of the Alaska petroleum windfall and generating income are due to several factors. The boom-bust economic history of the state has been a reminder of the need to actively manage public resources. Fund management is independent of general government finances and extremely transparent. It invests to maximize long run income. In addition, the modest share of petroleum revenues set aside in the fund has left enough available for the state to expand public spending, including the establishment of a number of programs designed to strengthen the economy in recognition of the non sustainability of the petroleum sector. Since these public programs benefit particular segments of the population, the Alaska Permanent Fund dividend program was created in 1982 to provide an annual unconditional direct cash distribution to all Alaska residents. The dividend was felt to be the most equitable way to distribute a share of the public wealth of the state to the entire population. Since the inception of the program, the dividend has been paid each year. About half of Permanent Fund earnings have been allocated to the dividend program and the rest to increasing the balance in the fund. The size of the dividend has increased as the fund has grown, but it fluctuates considerably because fund earnings change from year to year. In 2010 the dividend payment was $1,281 which augmented per capita income by 3 percent. The dividend program has become extremely popular since most Alaskans feel that individuals can benefit more from deciding themselves how to spend at least a portion of the public wealth rather than allowing the government to decide on their behalf. However a minority of the population feels the dividend fosters an attitude of consumerism and leads to underinvestment. And although the dividend has created a strong constituency defending the Alaska Permanent Fund, which many feel is the main reason for the success of the fund, there is concern that the dividend will prevent the fund from being used for its ultimate purpose which is to help support the economy after petroleum production ends. Beyond its obvious positive impact on aggregate income, employment and population, little analysis has been done of other economic, social, and political effects of the dividend program. Because the dividend is not viewed as a policy to improve social welfare, but rather as a means to share public wealth equitably, interest in these other potential effects has been limited.