Transcript Alaska Permanent Fund Dividends: Basic Income from “the People’s Portfolio” Voz Alternativa, Mexico City, 6 November 2007 Steve Colt Institute of Social and Economic Research University.

Alaska Permanent Fund Dividends:
Basic Income from
“the People’s Portfolio”
Voz Alternativa, Mexico City, 6 November 2007
Steve Colt
Institute of Social and Economic Research
University of Alaska Anchorage
Outline
Introduction to Alaska
History of the Alaska Permanent Fund and
the dividend program
Economic importance of the dividend
Looking ahead
Introduction to Alaska
Alaska population = 670,000
Source: U.S. Census, Alaska Dept. of Labor.
July 1, 2006 estimates.
Subsistence
Remains a Vital Part of the
Economy
Total subsistence harvests
about 25 million kilos
In some places,
people consume 250
kilos of wild foods per
person
Size of the Alaska Economy
year 2005
Gross state product $39 billion
Personal income
$25 billion
Employment
437,000
Retail sales
$7.4 billion
U.S. Bureau of Economic Analysis, U.S. Census
Sources of personal income
everything else:
about one-third
federal spending:
about one-third
petroleum and
petroleum $$:
about one-third
Petroleum
oil
production
oil
revenues
permanent
fund
dividends
rest of
economy
ISER analysis of sources of personal income, year 2000
Federal government spending
rest of
economy
civilian
military
ISER analysis of sources of personal income, year 2000
Everything else
personal
assets /
"mailbox
economy"
air cargo
tourism
timber
mining
fish
rest of
economy
ISER analysis of sources of personal income, year 2000
Resource booms have fueled
growth and migration
Salmon
Gold
WW2 / Military
Pulses of migration
shown in yellow
Pipeline
Oil money
History of Permanent Fund and
Dividend
1968
– Prudhoe Bay oilfield discovery: 9.6 billion barrels.
– Alaska population = 300,000
– State budget is very small ($100 million = $300 per
person)
Alaska constitution Article VIII:
– The legislature shall provide for the utilization,
development, and conservation of all natural
resources belonging to the State, including land and
waters, for the maximum benefit of its people.
Alaska oil is a one-time source
of
wealth
2,500,000
Oil Production 1969 - 2022
NPRA
Other NS
Northstar
2,000,000
Colville R
Barrels per Day
Badami
Duck Island
GPMcIntyre
1,500,000
Milne Pt
KRU.IPA+Sat
PBU.IPA+Sat
Cook Inlet
1,000,000
Prudhoe Bay
Kuparuk
500,000
0
1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 2019
Source: Alaska Department of Natural Resources Year
history...
1969
– Prudhoe Bay lease sale provides $900 million
in lease bonus payments to the State
Treasury.
– Economist Dr. Arlon Tussing proposes to give
the money directly to individuals
1970
– New revenues lead to many new state
programs – many feel money is wasted
– First bill to establish a Permanent Fund
introduced in the Legislature.
history...
1973
– Oil price increases from $3 to $16 per barrel
– Pipeline construction begins
1976
– Alaska Permanent Fund created by people of
Alaska (constitutional amendment)
Article 9: 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 [Effective February 21, 1977].
history...
1977
– Oil production begins and first deposits are
made into the Permanent Fund
– Four years of debate begins about whether
the Permanent Fund should be managed as a
public trust or as an economic development
bank.
– In 1980, the Fund is established as a public
trust -- to maximize cash income
History of Dividend
1976 – Dividends were mentioned by
some legislators when the fund was
created
1977 – Poll: people do not like dividends
– Only 15% of people strongly in favor
– 50% of people are strongly opposed
– People in rural Alaska are more in favor than
people in cities
history of dividend
1980
– Governor Jay Hammond is the main
supporter of dividends;
– First dividend law makes the size of
dividend depend on years of residency
– U.S. Supreme Court says “no!”
1982
– New dividend law passed with equal
annual dividends for everyone
– One-year residency requirement
– No changes since then!
Dividend formula
One-half of the average realized earnings
from the previous 5 years
Realized earnings to be calculated based
on “generally accepted accounting
principles”
See:
– http://www.apfc.org/fundlaw/Incomelaw.cfm
1
N
ov
20
0
7
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
Permanent Fund balance
(billions of dollars)
45
40
35
30
25
20
15
10
5
0
Fund wealth per person (dollars)
50,000
45,000
40,000
$180,000 for a family of four
35,000
30,000
25,000
20,000
15,000
10,000
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
5,000
0
Components of change
in fund balance (billions of dollars)
7
other change
6
dividends
5
special deposits oil revenue
4
required oil revenue
3
2
1
0
-1
-2
1 Nov 2007
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
-3
Annual dividend amounts
adjusted for inflation – year 2006 dollars
$2,500
$2,000
$1,500
$1,000
$500
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
$0
Dividend as a percentage
of per capita personal income
Average = 4% of per capita personal income
7%
6%
5%
4%
3%
2%
1%
06
20
04
20
02
20
00
20
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
19
82
0%
Remote Alaska is Different
Arctic
Northwest
Interior
Southwest
Southcentral
Southeast
Unemployment is higher
Alaska DOLWD
Monthly wages are lower
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Wade
Hampton
Bethel
YukonKoyukuk
Anchorage
Year 2005 average monthly wages in covered employment, Alaska DOLWD
Costs are much higher
Electricity from diesel:
25 – 50 cents per kWh
Gasoline:
$6.00 - $8.00 per gallon
Running water
– is not available in many
homes
Importance of dividend in remote
rural Alaska
Per capita income
can be $5,000 $8,000
For these families,
dividends = 20% –
40% of cash income
Dividends are used
as an input to
subsistence work
(fuel, firearms)
Alaska has low
inequality
Gini coefficients
(0 = complete equality
100 = complete inequality)
Mexico 54.6
Alaska 41 without
dividends
Alaska 38.0 with dividends
(based on household income)
Alaska estimated by author from US Census
American Community Survey 2004 – household
income
UN Human Development Report 2005 Chap 2 –
per capita income
Other forms of social income in
Alaska
Alaska Native corporations
– formed after 1971 land settlement
– received $1 billion (= $2.5 billion today)
– received 18 million hectares of land
– Have produced very small dividends
compared to Permanent Fund
– Many have created their own trust funds
similar to Alaska Permanent Fund
Other forms of social
income in Alaska
Community development quotas (“CDQ”)
– shares of the pollock fish catch were given by
the U.S. federal government to 65
communities near the ocean
– They can catch the fish or sell the rights
– In 2003, the value of these permits held by
the community groups was $250 million
– CDQ groups do not pay dividends
– http://www.dced.state.ak.us/bsc/CDQ/cdq.htm
Looking ahead:
Predictions are hard –
especially about the future
Dividend program will continue
everyone is treated equally
the money belongs to the
people, not the government
There is plenty of additional
oil money for “government,”
at the moment
Previous attempts to create
an education fund failed
John Locke
However, oil money will not last
forever
Government should provide:
– education
– health care
– public safety
Dividends do not accomplish this
There is no income tax in Alaska,
no VAT, no sales tax
Jean-Jacques Rousseau
What is the social contract?
More information
Alaska Permanent Fund Corporation
– www.apfc.org
Institute of Social and Economic
Research, University of Alaska
– www.iser.uaa.alaska.edu
Email
– [email protected]
Thank you for
listening!
www.iser.uaa.alaska.edu