Permanent Funds

Contributors

Wena Teng is currently a student at Columbia University studying History and Political Economy. She is a research assistant for economic development and legal history. Most recently, she worked on legal for an international bank, policy for the White House, New York State Senate, and participatory organizing for the Urban Justice Center and New York City Civic Engagement Commission. 

Key things to know

• Permanent funds are one of five governmental fund types established by the Generally Accepted Accounting Principles (GAAP), the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC).

• Permanent Funds are classified as endowment funds for governments and non-profits; they may be used to generate and disburse money. 

• Permanent Funds account for resources like oil, timber, or fossil fuels which are legally restricted to the extent that earnings, not the principal, may be used for the benefit of the state or its citizenry. 

• In other words, permanent funds are used to generate payments permanently to maintain some financial obligation from using resources. Only the money earned from investments (the earnings) can be spent on dividends, not the original money put into the fund (the principal).

Case Study 

Alaska’s Permanent Fund Dividend

The Alaska Permanent Fund operates as a sovereign wealth fund and was established in 1976. 

It serves as a public trust meant to preserve and convert the State’s non-renewable oil and mineral wealth into a renewable financial resource for generations of Alaskans. Signed by Governor Jay Hammond on April 8, 1980, SB 161 established the Alaska Permanent Fund Corporation (APFC) as an independent state entity tasked with the management and investment of the Alaska Permanent Fund. 

A portion of oil and mining revenues are deposited annually into the fund which is then invested in a diversified portfolio, generating returns that contribute to the fund’s growth. Since the first payout in 1980, every individual who has been a resident for at least a year, has received their dividend payment as co-beneficiaries of the common good of Alaska’s mineral wealth.

As of November 2024, The Permanent Fund has grown to over $80 billion in total value, and annual payouts typically range from $1,000 to $2,000 per person every year. For the 2024 PFD, the Legislature allocated a total of $914,315,845 for distribution. The $1,702.00 amount includes the permanent fund dividend in the sum amount of $1,403.83 and a one-time energy relief payment of $298.17 added by the Legislature in 2023. Over 600,000 Alaskans have already been determined eligible for this year’s distribution. The Rate of Return as of November 30, 2024, was 4.12%, with an expected 8.35% over 5 years.

According to APFC, the Permanent Fund Value has generally increased since 1980 and the permanent fund total return has been generally positive each year. A report released in 2016 credits the PFDs for keeping 15,000–25,000 residents (2–3% of the state’s population) above the poverty line annually since 1990. Additionally, according to a survey of over 1,004 Alaskan voters, conducted by the Economic Security Project, “79 percent of Alaskans say the PFD is an important source of income for people in their community, with 85 percent saying it helps the Alaskan economy and 81 percent saying it improves their quality of life.”

Additionally, residents use their payments to meet their basic needs with “72% of Alaskans report saving their PFD for essentials, emergencies, paying off debt, or for future activities like retirement or education.” PFDs have also helped improve the quality of life for Alaskans as reported by 81% of survey responders. 

Conclusion

Permanent funds, exemplified by Alaska's program, demonstrate how the usage of resource wealth can be transformed into financial benefits for residents. These funds can effectively preserve wealth for future generations while meeting immediate community needs through direct payments that help reduce poverty and improve economic security.

Further readings

On Generally Accepted Accounting Principles (GAAP): 

• A U.S. Imperative: High-Quality, Globally Accepted Accounting Standards

On Alaska’s PFD

• An Alaskan’s Guide to the Permanent Fund

• What a New Survey from Alaska Can Teach Us about Public Support for Basic Income

• Investing for Alaska: Investing for the Long Run

• Alaska’s Permanent Fund Dividend: Examining Its Suitability as a Model

• Universal cash transfers and prescription utilization: Evidence from the Alaska permanent fund dividend

On Sovereign Wealth Funds

• Economics of Sovereign Wealth Funds Issues for Policymakers

• What is a Sovereign Wealth Fund?