Alaska’s Money Adventure: Exploring the Permanent Funds Path

Larry Persily and Cliff Groh delve into Alaska’s economic cornerstone, the Permanent Fund. They discuss its evolution, the dynamics of the Permanent Fund Dividend, and its broader impact. With Persily and Groh as guides, explore Alaska’s fiscal landscape and its implications for the future.
Words by Emily Hufford
Photography by: House Minority Press

In Alaska’s vast financial landscape, two key elements shape its economic future: the Permanent Fund and the Permanent Fund  Dividend. 

Established in 1976, the Permanent Fund serves as Alaska’s savings account for oil revenues, ensuring funds are allocated for essential needs such as schools and roads. 

In a bold move to harness its oil revenue for the benefit of its people, Alaska introduced the Permanent Fund Dividend in 1982, an annual payment distributed to all eligible residents of the state. The Permanent Fund serves as a significant savings account for a portion of Alaska’s oil revenue. It ensures funds are allocated for essential needs such as schools and roads. In contrast, the Permanent Fund Dividend is a program designed to distribute a portion of the Permanent Fund’s earnings directly to Alaska’s residents. 

This initiative, established in 1982, operates as a sort of bonus or gift to the public, sharing a portion of the state’s oil revenue with its citizens. The PFD is derived from the earnings generated by the Permanent Fund’s investments and is funded from the fund’s savings account. It is distributed annually to all eligible Alaska residents.

In Alaska’s financial scene, two notable figures play crucial roles. The first figure is Larry Persily, who splits his time between Anchorage and Juneau and brings with him a wealth of experience from his years in state government, including federal, state, and municipal service in oil and gas, taxes, and fiscal policy work. His insights into the Permanent Fund and Dividend are highly valued, making him an important voice for all Alaskans.

The second figure is Cliff Groh, a lifelong Alaskan who played a key part in creating the Permanent Fund Dividend in 1982 while working as a legislative aide. Elected as a State Representative in 2022, Groh continues to work for the state’s prosperity, focusing on economic policies that serve the interest of Alaskans.

To qualify for the Permanent Fund Dividend in Alaska, you need to meet certain residency requirements. Living in Alaska for a whole year before applying is necessary. Additionally, you must be present in Alaska for at least 180 days during the qualifying year to maintain eligibility for the dividend.

However, if you’ve been convicted of a felony or take steps indicating you’re no longer a resident of Alaska–such as registering to vote in another state–you can become ineligible to receive the dividend.

“Changes in the market can impact the value of the permanent fund. Like how stocks are going up and down every day. That’s the same with the Permanent Fund,” Persily noted.

Groh said that the Permanent Fund primarily invests its funds in various assets like stocks, real estate, and private equity, rather than keeping most of it in cash. He said the Fund’s investment strategy has evolved, moving away from bonds and similar investments. Groh stressed the importance of diversifying the Fund’s investments to reduce the risk of relying too much on one type of asset that might lose value while others remain stable or increase.

Persily pointed out that previously, the dividend amount was calculated annually using a formula tied to the Alaska Permanent Fund’s investment performance. However, in 2016, due to the state’s financial constraints, the governor and the legislature abandoned this formula. Instead, the dividend amount is now subject to political negotiations among legislators and the governor.

“Sadly, promises of a fat dividend have become a dominant and distracting political force in Alaska. People win elections by pledging to pay out a large dividend, even though the state cannot afford it, “ Persily said.

Groh said that the situation around determining the PFD is complicated. He said that the original formula, established in 1982, underwent slight modifications in the 1980s. However, significant changes occurred after 2014, as Alaska’s fiscal system faced challenges due to declining oil revenues. Persily echoed Groh’s concerns:

“What started as a program to share some of the state’s oil wealth directly with Alaskans has morphed into a political addiction for candidates who want to win their elections, regardless of the harm they cause.”

Groh outlined three major changes enacted by the Legislature: budget cuts, alterations to the PFD payment system, and the implementation of the Percent of Market Value (POMV) law in 2018. This law made it easier for the state to use the money earned from the Permanent Fund for important things like fixing roads, funding schools, and supporting law enforcement. Since 2016, the annual dividend amount has been determined either by the Governor’s veto or through negotiations between the Governor and the Legislature. 

“The dividend continues to have a purpose, but spending on the dividend should not overwhelm spending on schools, the university, or public safety.” Persily further articulated that the fund supports vital public services alongside dividends.

Some people mistakenly believe they have a constitutional right to receive a dividend in Alaska, when in fact, no such guarantee exists. Additionally, many are unaware of the substantial decline in oil revenues, which historically supported the state’s finances, and do not realize that over half of the budget relies on earnings from the Permanent Fund. Despite common assumptions of Alaska’s wealth due to its oil resources, there is a significant structural deficit that the state faces. Residents need to understand these misconceptions to appreciate the state’s financial challenges accurately.

Persily stressed the significance of the Permanent Fund for Alaska’s budget and public services. He said that a substantial portion of the state’s funds come from this source, primarily generated from oil revenue. This money plays a crucial role in funding essential services like schools and roads. 

According to Groh, The Percent of Market Value (POMV) regime adopted in 2018 has had a significant impact on our state’s finances. He notes that, as a result, more than half of the budget relies on the sustainable spending of Permanent Fund earnings. Through these insights, Groh underscores the pivotal role of the Permanent Fund in supporting Alaska’s financial stability and providing resources for critical public services.

Persily acknowledges ongoing discussions regarding potential changes or reforms for the Permanent Fund and Dividends future. On March 20, 2023, Representative Zack Fields, a Democrat from Anchorage, proposed capping the dividend at $1,000. This move aims to ensure a substantial portion of funds remains available for essential services, especially during periods of low oil prices. Meanwhile, differing opinions persist among legislators, with some advocating for larger dividends while others emphasize the need for smaller payouts to maintain the sustainability of the Fund.

Governor Mike Dunleavy was pushing for larger dividends for Alaskans, as reported by Alaska Public Media on March 16, 2022. This call for bigger payouts came on the heels of a substantial increase in the state’s revenue forecast, which had surged by billions of dollars. Dunleavy’s clear objective was to ensure that Alaskans received a more substantial share of the state’s wealth, reflecting his commitment to maximizing benefits for residents amidst Alaska’s improved financial outlook.

However, Persily emphasizes that nothing is finalized, highlighting the fluid nature of the situation.

Additionally, Groh mentioned that “Alaskans need to understand how much oil production has slowed down, and Alaskans must learn to adapt to those new realities.”

True North Magazine

True North is a publication of the University of Alaska Anchorage Department of Journalism and Public Communications. It has been published since 1995.