As Alaska legislators work to build a balanced budget plan, they must carefully consider using a number of tools: budget reductions, consolidations, elimination of programs, new revenues, and the state's Permanent Fund earnings reserve. Debate over the options is healthy. It's important Alaskans understand the make-up of the Permanent Fund and the authorized uses of Alaska's largest savings account.

The Alaska Permanent Fund was created in 1976 by an amendment to the Alaska Constitution. It was established to ensure that Alaskans would get long-term benefits from the temporary bonanza that oil development would bring into the state. From the first deposit in February 1977, at least 25 percent of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments, and bonuses received by the state were placed into the fund. The Legislature created The Alaska Permanent Fund Dividend Program in 1980 and the first dividend checks went to qualified residents in 1982.

Since its inception, the Permanent Fund has grown to more than $26 billion as of April 30, and is considered one of the 100 largest investment funds in the world. If the fund were a business, it would rank in the top three percent of Fortune 500 Companies and would be one of the top 15 businesses in the country, in terms of net income. In fact, the fund has grown so large that with the decline in oil prices and production, fund earnings have become the state's largest source of income.

The Alaska Permanent Fund Corporation, made up of six trustees, manages the Permanent Fund. The law establishing the fund identifies a three-fold purpose:

1. The fund should provide a means of conserving a portion of the state's revenue from mineral resources to benefit all generations of Alaskans;
2. The fund's goal should be to maintain safety of principal while maximizing total return.
3. The fund should be used as a savings device managed to allow the maximum use of disposable income from the fund for purposes designated by law.

The Permanent Fund is made up of two distinct parts:

• Principal, sometimes referred to as the "corpus." The principal is the foundation of the fund-a permanent savings account. It is invested continuously, and cannot be spent without the vote of the people.
• Income/Earnings. The investment of the Permanent Fund generates income or "earnings". The income of the fund is used two ways. A portion of the earnings is paid out as dividends, which are calculated according to a formula in state statute. A portion is added to principal each year to protect the principal against the effects of inflation. Any amount remaining is saved in the Earnings Reserve-which this year amounts to almost $6 billion, including $2 billion in cash and $4 billion in unrealized gains (These gains can only be realized by cashing out the investment). By law, the earnings reserve portion of the fund can be used to pay the cost of operating state government.

Alaskans are fortunate to have the legacy of the Permanent Fund. Alaska's legislators, who have made a conscious effort to preserve and enhance the fund for future generations have bolstered that legacy. In an effort to help the Permanent Fund grow more quickly, legislators have reinvested $6.7 billion of Permanent Fund earnings into the corpus since 1981. Some Alaskans believe it is time to use the Permanent Fund earnings as one component of our balanced budget plan.

Feel free to contact me in the Juneau with your ideas as to the appropriate use of the Permanent Fund earnings.

Senator Drue Pearce

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