1. Design and Experience David Gentry October 2008

2. 10 billion barrels of oil reserves confirmed in 1968 Alaska had significant social, economic and infrastructure needs $900 million lease payments made in 1969 Public concern: how easy it was to spend $900 million

3. Public hearings and expert advice over a five year period Permanent Fund approved by public vote in 1976 At least 25% of oil related revenue to be deposited in Permanent Fund

4. Keep government spending within the absorptive capacity of the economy Revenue above current needs of state government should be saved. Difficulty to reliably forecast future revenue and define current needs. Savings formula based on approximations. Savings should be perpetual – to benefit future generations Maximize cash returns from money saved. Benefits stem from earnings, not investment within the state. Earnings may be distributed directly to people or used to support the budget. Decision to be made annually in the budget law. Political leaders initially supported direct distributions (dividends) in order to build public support for saving.

5. $34 billion for 680,000 people Amounts available for distribution consist only of cash earnings (interest, dividends and realized capital gains) Earnings used: 1) inflation proof principal, 2) pay cost of administering the Permanent Fund and related programs, 3) balance available for public use Distribution of earnings in form of dividends; not used for budget support. Dividends are based on one half of 5 year earnings average divided by population. Dividends are the same for all persons, including young children. Income and sales taxes abolished in 1980. Government dependent on oil revenue and highly variable oil prices results in highly variable annual government revenue.

6. Management - investment Alaska Permanent Fund Corporation established to make long term investments using many types of asset classes Board of Directors appointed by the Governor Sets investment policy and executes it. Can invest only in cash generating assets. No geographic restrictions on investments. 32 employees – investment professionals supplemented by investment firms under contract All Board meetings are open to public and all financial information is available to the public Costs of the Corporation paid from the Permanent Fund

7. Management – Permanent Fund Dividend Program Permanent Fund Dividend Program administered by the Department of Revenue An application form must be completed each year for each recipient of a dividend. Must show identity and residence. Attempted fraud is a problem. The Division investigates fraud. Payments issued by the state treasury based on information provided by the Division. Costs of administering the Program paid from the Permanent Fund

8. Oversight Legislative branch orders audits and supervises audits Permanent Fund assets are included in the consolidated financial statements of the government. All deposits to and withdrawals from the Permanent Fund are authorized in the annual budget law

9. Dividend program is so popular it is difficult to reduce dividends to support the budget. Oil production volume is in decline, now at daily rate equal to one third its peak in 1988. Eventually, taxes must be restored or dividends reduced. Widespread agreement among Alaskans that public benefits stem from earnings, not investment in Alaska Investments have been professionally managed. The Alaska Permanent Fund Corporation has not been politicized. The Legislature has made occasional deposits of windfall revenues above amounts required

10. Proper administration of the Permanent Fund Dividend Program is important and expensive. Fraud must be contained. Savings to the Permanent Fund have proven to be anti- cyclical; dividends are slightly pro-cyclical.

11. Constitutional spending limit approved in 1982. Total expenditure of state resources limited by a formula based on growth of population and inflation. In practice, the limit has been considerably higher than planned budget expenditures. Budget Reserve Fund created in 1990 to smooth changes in annual expenditures as oil-related annual revenues are highly variable.