Alaska’s Permanent Fundan overview for Alaska students

Lesson 1 – How did Alaska GET a Permanent Fund?

Lesson 2 – What IS the Permanent Fund?

Lesson 3 – What is the Permanent Fund FOR?

Three important questions about our Permanent Fund

Lesson 1: How did Alaska get a Permanent Fund?

Transitioning to an oil-based economy…

1968 – Atlantic Richfield strikes oil in Prudhoe Bay. Recoverable oil reserves estimated at 9.6 BILLION barrels.

1957 – 1968…exploratory drilling Alaska.

1968: Bonanza!

Alaska’s annual budget in 1969?

$112 million

What does a 10 year old state do with $900 million?

The state leaders held meetings around Alaska to talk about it.

Here were some of the ideas that people proposed:

• Basic “Infrastructure” • Loan program • Longevity bonus program • A “perpetual and permanent capital fund for the continuing development of Alaska”

The Legislature spent money on many new The Legislature spent money on many new projects and programs such as the Student Loan projects and programs such as the Student Loan Program, the Longevity Bonus Program and Program, the Longevity Bonus Program and infrastructure projects.infrastructure projects.

1969 – 1975: How Alaska used its budget 1969 – 1975: How Alaska used its budget surplussurplus

1968-1976…getting the oil to market: building the Alaska Pipeline

1968 – 1971 Progress stalls as oil companies wait 1968 – 1971 Progress stalls as oil companies wait for land claims with Alaska Native people to be for land claims with Alaska Native people to be resolved before developing oil fields.resolved before developing oil fields.

1971 – President Nixon signs Alaska Native Claims 1971 – President Nixon signs Alaska Native Claims Settlement Act (ANCSA)Settlement Act (ANCSA)

1973 – Congress passes TransAlaska Pipeline 1973 – Congress passes TransAlaska Pipeline AuthorizationAuthorization ActAct

1974 – 19761974 – 1976 Pipeline constructionPipeline construction

A second windfall was coming… What would Alaska do this time?19761976 Alaska voters approve a constitutional Alaska voters approve a constitutional

amendmentamendmentestablishing the Permanent Fundestablishing the Permanent Fund

19771977 Permanent Fund receives its first deposit Permanent Fund receives its first deposit ofof

constitutionally dedicated oil revenues; constitutionally dedicated oil revenues; $734,000$734,000

Representative Hugh Malone

Governor Jay Hammond and the Legislature

Permanent Fund constitutional amendment2 out of 3 voters said “Yes” to a Permanent Fund!

1977 - 1980 Alaskans debate: Alaskans debate: “ “How should Fund earnings be How should Fund earnings be used?”used?”

Leases were signed ANCSA was settled Companies were drilling for oil Pipeline was finished Permanent Fund was created Money was flowing into the Fund Investments were generating income

What should Alaska do with the income?

Was the Permanent Fund a good idea?

1977:

2006:

Dividends paid out1982 - 2006:

Why we have a Permanent Fund…

$0

$1

$2

$3

$4

$5

$6

1976

1984

1992

2000

2008

2016

2024

Billi

ons

State General Fund mineral revenues

Fund investment earnings that may be spent

1980: Legislature creates the Alaska 1980: Legislature creates the Alaska Permanent Fund Corporation to manage Permanent Fund Corporation to manage the Fundthe Fund

APFC Board of Trustees

Finance group

Juneau office building

Investment group

Lesson 2 – What IS the Permanent Fund?

STOCKS

BONDS

REAL ESTATE

Investing: trying to manage risk…Inflation

Principal

Interest rates

Liquidity

Credit

Markets

Corporate governance

The economy

Price of oil

Politics/elections

Investment

management

Natural disasters

?

The relationship between risk and reward…

A diverse asset allocation = risk management

***

* Private equities are stocks that are not traded on the public stock exchanges, such as the New York Stock Exchange ** Absolute return investments is another name for hedge funds, which involves a wide variety of investment strategies.

The effect of diversifying your assets (investments)

*A “return” means the profit on an investment, usually expressed as an annual percentage rate.

Annual inflation rates since the Fund’s early days

0%

2%

4%

6%

8%

10%

12%

14%

16%

78 80 82 84 86 88 90 92 94 96 98 0 2 4 6

Inflation rate*

* based on US Consumer Price Index

How inflation affects the Permanent Fund: total return – inflation = real return

* based on US Consumer Price Index

Germany 1923/24: heating with money

Money’s only value is what it can buy!

1. Who can spend money from the Fund ?

2. How much can be spent ?

3. What can Fund money be spent on ?...for YOU to decide…

Lesson 3 - What is the Permanent Fund for?