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Alaska's Permanent Fund - Alaska

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					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
           $4
Billions




           $3

           $2

           $1

           $0
             76




                    84




                                92




                                            00




                                                        08




                                                                    16




                                                                           24
           19




                  19




                              19




                                          20




                                                      20




                                                                  20




                                                                         20
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
 Credit
                                    management
  Markets

 Corporate
                        ?            Natural
                                     disasters
 governance
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      88    90   92   94   96   98   0   2   4   6

  * based on US Consumer Price Index
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…

				
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