Special offers on two books about the Alaska Permanent Fund

The Georgist News has special offers on two books that came out last year about the Alaska Permanent Fund (Alaska’s small basic income). Each book is reduced from $100 to $65. The books are:

Karl Widerquist and Michael W. Howard (eds.) 2012. Alaska’s Permanent Fund Dividend: Examining its Suitability as a Model, New York: Palgrave Macmillan

Karl Widerquist and Michael W. Howard (eds.) 2012. Exporting the Alaska Model: Adapting the Permanent Fund Dividend for Reform around the World, New York: Palgrave Macmillan

The special offer can be found online at:


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Smaller dividends should inspire a change to “percentage of market value” formula for calculating the Permanent Fund payout

This year Alaskans received a dividend of $878, not bad compared to all the other states, but this dividend is the smallest since 2005, and it is only the second time in more than 20 years that the dividend has been below $900 per person. Alaska’s Permanent Fund Dividend (PFD) needlessly fluctuates widely. This year’s dividend is 25 percent smaller than last year’s dividend of $1,174, and it is 57 percent smaller than the 2008 record-high dividend of $2,069 (not counting the one-time supplement of $1200 that was added to that year’s dividend).

The declining dividend does not mean that the PFD is in trouble. Actually the Alaska Permanent Fund (APF), which financed the PFD, is at near-record high levels. It closed the 2011-2012 fiscal year at 40.3 billion dollars. The dividend was low this year because the state uses a complex formula averaging the returns over a five-year period to determine yearly returns. The five-year average was chosen to smooth out fluctuations in market returns to create a more stable dividend, but—as Alaskans can easily see—a five-year average is not enough to do that job. Markets tend to have stable long-term trends, but they can have occasionally large yearly fluctuations (either up or down) that can dwarf a five-year average. The mid-2000s market boom, and the 2008-2009 market bust were just such fluctuations. Now, several years later with the boom returns falling out of the calculations but the decline still in, the 2008 market bust affects the dividend the more than it did at the time.

There’s a better, more stable way to calculate the dividend. It’s called percentage of market value (POMV). Most financial managers agree that an individual can afford to withdraw up to 4 percent of a well-invested diversified portfolio and still expect it to grow in real terms over time.

If Alaska used this rule to calculate the PFD, this year’s dividend would have been $2,380. It would have been a record-high dividend, because the APF closed the fiscal year at a record-high level. Suppose then there was a major sell-off in the markets and the fund declined by 25% to $30 billion. The dividend would decline by 25% as well, to $1,846. Suppose instead it rose by 25% to $50 billion. The dividend would rise by 25% as well, to $3,076. Because 25% is an unusually large fluctuation, we can expect this to be an unusually large change in the dividend. Most often it would change by less than 10% from year to year, and in most years it would increase.

Perhaps Alaskans should be more conservative. The goal of the fund is not just to payout as much as possible. It is also to save for the future. The more the APFC pays out in dividends now, the slower the APF and the PFD will grow over the long term. So, perhaps a POMV rule of 3% would be better—a little more cautious—than the 4% rule. If so, payouts this year would have been $1860. Payouts after a 25% decline to $30 billion would be $1,395. Payouts after a rise to $50 billion would be $2325, and Alaska could expect to larger reinvestments by the APFC to help the APF get to $50 billion much more quickly.

POMV just makes sense. Nobody likes the big fluctuations. No one wants their dividend to be less than half of what it was a few years ago. POMV stabilizes dividends, making it easier for Alaskans to plan, and it can be part of a conservative payout strategy that will keep the fund growing over time.

-Karl Widerquist, Doha, Qatar, November 2012

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This year’s dividend is the smallest since 2005

Alaska distributed its yearly Permanent Fund Dividend (PFD) on October 4, 2012. The amount was disappointing, only $878—down from last year’s dividend of $1,174 and the smallest dividend since 2005. The 2012 dividend was only the second dividend in the last 20 years to be below $900, and it is well below the all-time highest dividend of $2,069 in 2008 ($3269 including a one-time supplement the state added to the 2008 dividend).

The PFD is a sort of a yearly, variable basic income, given to all U.S. citizens (men, women, and children) who fill out a form showing that they meet the state’s residency requirement for eligibility. This year nearly 650,000 Alaskans received the dividend. It is financed by the Alaska Permanent Fund (APF), which is a sovereign wealth fund owned by the state and financed in turn by the accumulated savings from the state’s oil exports. The dividend varies considerably from year-to-year because the amount is calculated from a complex formula averaging the last five years of returns to the fund. The dividend is down this year because of the poor performance of international stock and bond markets over the last five years.

Even this year’s small dividend will come to $4,390 for a family of five, and the dividend makes a big difference in the lives on many Alaskans. The dividend is one reason Alaska is the most economically equal of all 50 states. According to Russ Slaten, “the oldest applicant was 107 years-old, and the youngest was born minutes before the qualification deadline on December 31 of last year.”

According to Jeff Richardson of the Fairbanks Daily News-Miner, Alaskan retailers have seen a smaller-than-usual bump in sales around dividend time this year because of both the smaller changes and in the higher cost of fuel oil. The smaller effect on retail sales might also be partly attributable to the increase in people donating all or part of their PFDs to charities through the state’s Pick-Click-Give program that allows people to direct some or all of their PFD to the charity of their choice in a few steps on the internet. This year, 23,000 Alaskans gave more than $2.2 million through the program, four times as much as they gave in the first year of the program (2009).

The PFD has largely escaped the demonization given to many programs that promote equality, probably because it provides tangible benefits all Alaskans, rich and poor alike. According to Jeanne Devon, “Even those who gripe about it in theory don’t want to actually give up their own Alaskan ‘entitlement.’ It is our oil, after all.”

The yearly fluctuations in the fund do not signal a long-term threat to the PFD. The fund has had a healthy grown trend since its inception, and it continues today. The bigger worry for the future of the Alaska Dividend is gradual decline in the state’s oil revenues. The amount of oil flowing through the Trans-Alaska Pipeline System is getting dangerously close to the minimum level needed to keep the pipeline system open. Most of the state’s operating budget comes from oil exports, and the state budget is not well prepared for the loss of oil revenue. Gradual decline (or a sudden drop) in oil exports would put enormous pressure on the state budget and might inspire the legislature to divert returns currently used to financed the PFD toward regular government spending.

For more recent stories on Alaska’s PFD, see the following stories:

“Alaskans to get $878 in yearly oil wealth payout”
By Rachel D’Oro Associated Press, September 18, 2012


“Smaller Alaska dividend check likely to disappoint … for good reason”
Carey Restino, Bristol Bay Times, Sep 20, 2012


“Dividend set: Alaskans shouldn’t forget fund’s purpose”
Fairbanks Daily News-Miner Editorial Sep 18, 2012


“2012 Permanent Fund Dividend is $878”
SIT News Ketchikan, Alaska, September 18, 2012


“Permanent Fund Dividend Lowest Since 2005”
Russ Slaten, Your Alaska Link, Sep 19, 2012


“With Alaska’s higher costs, dividends won’t go far”
Mark Thiessen, Associated Press, Sep 18, 2012


“PFDs still good for business, but not like the glory days”
Jeff Richardson, Fairbanks Daily News-Miner, Sep 19, 2012


“Happy Socialist Money Grab Day, Alaska!”
Jeanne Devon, the Mudflats, September 19, 2012


“By the numbers: Alaska Permanent Fund Dividend”
Eric Christopher Adams, The Alaska Dispatch, Sep 18, 2012


“Alaskans donate $2.2 million from PFDs using Pick.Click.Give.”
Alaska Dispatch, Oct 06, 2012


“Count the ways Alaskans spend their $878 Permanent Fund check”
Alaska Dispatch, Oct 05, 2012


“It’s time to cut state spending: The numbers show future has arrived”
Bradford Keithley, Fairbanks Daily News-Miner, Oct 07, 2012


PFD program generates record amount for Alaska nonprofits
Anchorage Daily News, October 5, 2012


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Dividend likely to shrink again this year but hope for a renewed boom is ever present

Alaska’s Permanent Fund Dividend (PFD) is volatile and uncertain reflecting the Alaskan economy, which—typical of resource-exporting regions—is subject to volatile commodity prices, fear that resource exports will soon run out, and hope that a new export boom could be about to begin. The dividend is likely to decline this year as more difficult news about the state’s finances comes out, but new drilling could bring the first increase in oil exports in years.

The PFD is the only existing basic income in the developed world. Each year it pays an equal amount in cash to all citizens who meet the residency requirement, but the amount varies each year. The PFD is funded by the returns to the Alaska Permanent Fund (APF), a pool of investments created out of savings from the state’s oil revenue. The APF accumulates investments each year as new savings are deposited into it, but its value fluctuates with the world economy. The Alaska Permanent Fund Corporation (APFC), the state-owned corporation that manages the fund, uses a complex formula to make the yearly dividend less volatile than the yearly returns to the fund, but the dividend still is rather volatile.

After reaching a high of $2,069 in 2008 ($3269 if the one-time energy rebate is added), returns over the past three years have been $1,305 in 2009, $1,281 in 2010, and $1,174 in 2011. According to a recent press release by the APFC, the dividend level is likely to decline a little more this year. APFC will designate $605 million for distribution as dividends this fall—nearly $200 million less than the $801 million it designated for dividend payments in 2011. Therefore the dividend might slip under $1000 for the first time since 2005. The exact amount of the dividend will be announced in a few weeks and dividends will be distributed in October.

The main reason for the decline is the poor performance of world stocks. Although the APF has recently moved some of its funds into real estate investments, which have been doing well, they have not done well enough to make up for poor stock performance. The APF finished its fiscal year on June 30th with a yearly return of 0.02%.

Some recent news has been troubling for the future of the dividend. As discussed in this column recently, Alaskan oil exports have been declining for 20 years, but oil revenue has so far been buoyed by rising oil prices. However, according to the Fairbanks News-Miner, the recent decline in oil prices has threatened the state’s budget. “To cover the state budget for the coming fiscal year, which begins July 1, oil prices must average at least $104 per barrel.” But oil prices have recently been as low as $100, a price that would put the state budget into deficit if it were to continue.

Reduced oil revenue does not immediately threaten dividends, but it will reduce new deposits into APF, which will have a negative effect on dividends over time. If the state finds itself in permanent deficit, it is constitutionally prohibited from spending the APF principal, but it has the authority to reduce or cancel the PFD and use APF returns for other purposes. Whether the state would have the political will to do so is uncertain. It would probably depend on whether popular opinion was more strongly against elimination of PFD or the reintroduction of state sales or income taxes.

Typical of a resource-exporting region, Alaskans live with the constant fear of lost resource revenue and with the constant hope that new sources of resource revenue will be found. Not long ago there was a great deal of talk about a new natural gas pipeline that might replace oil revenue when North Slope oil runs low. The recent decline in the price of natural gas has made such a pipeline less attractive in the near future.

The latest new hope in Alaska is for offshore oil drilling. According to Alex DeMarban of the Alaska Dispatch, Shell Oil is about to start exploratory drilling off the Alaska coast. Federal law makes offshore oil the property of the federal government rather than the various state governments. However, several states along the Gulf of Mexico have recently made an agreement with the federal government to share more than one-third of the royalties for oil drilled off their coasts. This agreement might be precedent setting. If Alaska can get a similar deal, offshore oil will prove lucrative for the state and for the PFD, but not as lucrative as on-shore oil has been.

For more on these issues see the following links:

Alex DeMarban “Will offshore oil development in Alaska’s Arctic make the state rich? Don’t count on it.” The Alaska Dispatch, July1, 2012:


The APFC’s press release on its performance for the 2012 fiscal year (Permanent Fund flat for Fiscal Year 2012) is online at:


“Volatile stock market hinders return for Permanent Fund”
KTOO News Department, August 2, 2012. Online at:


“Alaska Permanent Fund’s 2012 investments flat, PFD payout smaller”
Alaska Dispatch, Aug 2, 2012


Becky Bohrer, “Alaska Permanent Fund dividend likely to shrink this fall”
The Associated Press, Aug 02, 2012


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Fox News Praises the Alaska Model

Last February two conservative commentators, Bill O’Reilly and Lou Dobbs, from the Fox News Network, praised the Alaska Dividend as “a perfect Model” of what America should be doing with its resources. It is amazing that prominent conservatives can praise a policy that redistributes income from the wealthiest Americans to all Americans unconditionally—without means test or work requirement.

O’Reilly began by saying, “It is my contention that we, the people, own the gas and oil discovered in America. It’s our land, and the government administers it in our name.”

Later, Dobbs added (as O’Reily nodded and voiced agreement), “All of the vast energy reserves in this country belong to us, as you said. In Alaska there’s a perfect model for what we should do as a nation. We should have—what it’s called there is a Permanent Trust. Let’s call it the American Trust. And the oil companies, that pay about $10 billion per year in fees and royalties—have that money go into this trust fund, not to be touched by the Treasury department or any other federal agency, but simply for the investment on behalf of the American people (citizens). A couple things happen. One is, it reminds people whose oil this is, whose coal this is, and what the rights of an American citizen are. And it even puts a little money, a little dollar sign, next to what it’s worth to be a citizen. Have dividends disbursed and distributed every year. … [The other thing is] Peg [the royalties] to the price of gasoline … and that money go into that trust fund for the American people. I think you’d see a lot of people start to pay a little different attention to what people think and respect citizens a little more.”

It was a very good statement of what the Alaska model is for and how it ought to work.

But I doubt the two commentators realize how subversive their words were. If the government realized that the land belongs to all the people and truly began to administer it for everyone’s benefit, many changes would happen. If all the oil, coal, and natural gas of America belong to all Americans equally and unconditionally, so do all the gold, silver, bauxite, fish, timber, land, and groundwater. So do the atmosphere, the broadcast spectrum, and many other things worth an awful lot of money. If everybody who asserted private ownership of any of these things had to pay into the kind of public trust fund O’Reilly and Dobbs endorse, that fund would finance the most massive redistribution of wealth from rich to poor in the history of the United States (if not the world), and it could probably support a basic income large enough to permanently end poverty in America.
-Karl Widerquist, South Bend, Indiana, August 2012

Video of Bill O’Reilly and Lou Dobbs discussing the Alaska fund and dividend is online at: http://www.foxnews.com/on-air/oreilly/index.html#/v/1472237953001/government-

For more on the Alaska model, including cost estimates of the potential value of the natural resources the government gives away for free see the following two books:

Alaska’s Permanent Fund Dividend: Examining its Suitability as a Model, co-edited by Karl Widerquist and Michael W. Howard (Palgrave-MacMillan, 2012):


Exporting the Alaska Model: Adapting the Permanent Fund Dividend for Reform around the World, co-edited by Karl Widerquist and Michael W. Howard (Palgrave-MacMillan, 2012)


Or contact me: Karl Widerquist <Karl@widerquist.com>

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