A Pennsylvania Permanent Fund?

Each year since 1982 every person who has been a resident of Alaska for the previous year and indicates an intention to remain gets a Permanent Fund Dividend check from the state. Everyone receives an equal share of the appropriation from the earnings of the Alaska Permanent Fund with parents responsible for the checks of their children.

With the development of the natural gas industry in Pennsylvania, people have asked me whether we can do something similar with proceeds from the Marcellus Shale. I did some research, and here is what I found:

Since the Trans Alaska Pipeline became operational in 1977, approximately 16.6 billion barrels of oil have flowed from Alaska to the west coast of the continental United States. As of December 2009, Alaska’s extractable oil reserve is estimated at more than 5 billion barrels of crude oil.

Additionally, natural gas reserves are estimated at more than 35 trillion cubic feet.

By the late 1970s, Alaskans recognized that, eventually, the state’s oil wells would run dry. True to their founders’ belief—that resources belonging to the state should be used to benefit Alaskans—the people wanted to ensure that future generations of Alaskans continued to benefit from the exploitation of its reserves, even after the wells ran dry.

Thus, the idea of the Permanent Fund was born.

The fund received its first deposit of constitutionally dedicated oil revenue of $734,000 in 1977. Under the Alaska Constitution, at least 25 percent of all mineral and oil revenues must be placed in the fund. The principal of the fund is used for income-producing investments, and cannot be spent unless approval to do so is given by a vote of the people of Alaska.

The Legislature determined that the best use of the fund was as an investment account. The Legislature also created a program called the Permanent Fund Dividend Program. Through this program, all Alaskans would share directly in the oil wealth given to the state of Alaska. The principal is the permanent part of the Permanent fund; it can be invested, but it can never be spent without a vote by the people of Alaska.

The principal of the fund comes from four sources: dedicated oil revenues, additional funds deposited by special legislative appropriation, income from the fund’s reserve that the Legislature transfers to principal for inflation proofing, and unrealized gains or losses, which are dependent on the market volatility on the value of the investments.

The income of the Alaska Permanent Fund is the money received from the investment of the principal and from the reinvestment of undistributed earnings. Income can be spent by the legislature or reinvested. In 1998, for the first time ever, the Fund earnings from investments exceeded the state oil revenues as the Fund reached $25 billion.

Alaska leases state-owned land to private firms who drill for an extract from the state-owned land. As part of their lease agreements, these firms must give Alaska a royalty fee which is 12.5 percent of the oil extracted by volume.

Alaska can either sell the oil itself or the private company can sell it and Alaska receives a monetary share that is determined utilizing net-back pricing based upon the selling price of oil on the west coast of the lower 48 states.

Income earned from the fund’s investments is accounted for in the earnings reserve account per statute.

On June 30 of each year, the Legislature appropriates funds from the account for dividends, inflation proofing and whatever other lawful purpose the Legislature may designate. All income in the earnings reserve is available for appropriation.

The PFD program has become deeply ingrained in the culture of Alaska. From 1982 through 2008, the Fund has paid out about $16.7 billion to Alaskans. In some areas in rural Alaska, the PFD now directly accounts for more than 10 percent of personal income.

While the Permanent Fund has been quite successful in Alaska, it is may be too early to tell whether it would work in Pennsylvania. One of the primary reasons that the PFD works so well in Alaska is that the state’s natural resources are vast and the state’s population is small.

While Pennsylvania also has vast natural resources, Pennsylvania’s population may be too big to allow any sort of real impact to be felt by individual Pennsylvanians.

By way of example, 628,499 people received a share of the Alaska Fund in 2009, for a total of $820,500,000 or $1305.00 each. Almost 13 million people live in Pennsylvania. Even if Pennsylvania were to be able to distribute the same dollar amount as Alaska—$820,500,000, (which it couldn’t for a number of years of time because it takes a significant period of time to grow any fund to that level)— each of Pennsylvania’s 12,734,905 people would receive $64.43.

In the fund’s early years, such as 1983, before the fund had a chance to grow, each of Alaska’s approximately 401,851 citizens received $331.29 or an estimated total of $133,129,217.79.

Today, each Pennsylvanian would receive the sum of about $10.45.

So is it legally possible to do a system like Alaska? Perhaps. Is it practical for Pennsylvania? Probably not.

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