Transcript Document
Alaska’s Permanent Fund an overview for Alaska students Three important questions about our Permanent Fund Lesson 1 – How did Alaska GET a Permanent Fund? Lesson 2 – What IS the Permanent Fund? Lesson 3 – What is the Permanent Fund FOR? Lesson 1: How did Alaska get a Permanent Fund? Transitioning to an oil-based economy… 1968: Bonanza! 1957 – 1968…exploratory drilling Alaska. 1968 – Atlantic Richfield strikes oil in Prudhoe Bay. Recoverable oil reserves estimated at 9.6 BILLION barrels. 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” 1969 – 1975: How Alaska used its budget surplus The Legislature spent money on many new projects and programs such as the Student Loan Program, the Longevity Bonus Program and infrastructure projects. 1968-1976…getting the oil to market: building the Alaska Pipeline 1968 – 1971 Progress stalls as oil companies wait for land claims with Alaska Native people to be resolved before developing oil fields. 1971 – President Nixon signs Alaska Native Claims Settlement Act (ANCSA) 1973 – Congress passes TransAlaska Pipeline Authorization Act 1974 – 1976 Pipeline construction A second windfall was coming… What would Alaska do this time? 1976 Alaska voters approve a constitutional amendment establishing the Permanent Fund Representative Hugh Malone Governor Jay Hammond and the Legislature 1977 Permanent Fund receives its first deposit of constitutionally dedicated oil revenues; $734,000 Permanent Fund constitutional amendment 2 out of 3 voters said “Yes” to a Permanent Fund! 1977 - 1980 Alaskans debate: “How should Fund earnings be 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 out 1982 - 2006: Why we have a Permanent Fund… $6 State General Fund mineral revenues $5 Fund investment earnings that may be spent $3 $2 $1 20 24 20 16 20 08 20 00 19 92 19 84 $0 19 76 Billions $4 1980: Legislature creates the Alaska Permanent Fund Corporation to manage the Fund Juneau office building APFC Board of Trustees Finance group Investment group Lesson 2 – What IS the Permanent Fund? STOCKS BONDS REAL ESTATE Investing: trying to manage risk… Inflation The economy Principal Price of oil Interest rates Politics/elections Liquidity Investment management Credit Markets Corporate governance ? 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 16% 14% Inflation rate* 12% 10% 8% 6% 4% 2% 0% 78 80 82 84 86 * based on US Consumer Price Index 88 90 92 94 96 98 0 2 4 6 How inflation affects the Permanent Fund: total return – inflation = real return * based on US Consumer Price Index Money’s only value is what it can buy! Germany 1923/24: heating with money Lesson 3 - What is the Permanent Fund for? 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…