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5.1.12.wavThe second question was what to do with the profits the investments of the fund principle produced. As the constitutional amendment left this open, it is at the discretion of the state government. Governor Jay Hammond proposed returning these profits directly to the people of the state through a dividend. Hammond believed everyone should receive an equal share of the wealth generated from Alaska's resources. He thought that public resources belonged to the people and that individuals would spend money more wisely than the government. Dividends would distribute profits equally to everyone instead of primarily benefiting special interests and the politically influential.
There was originally strong opposition to Hammond's dividend proposal. Some economists worried it would divert resources into consumption and away from needed investment in public infrastructure. Many conservative legislators opposed the idea of giving away money. The final Senate vote in 1980 was close. The dividend bill actually failed 10-8 on the first vote but then finally passed 12-8. The passing of the bill was largely achieved through Hammond's threats to veto capital spending projects if it was not passed.
Jay Hammond
Governor 1974-1982
The original dividend bill gave each Alaskan one share for each year of residency in the state. So a 50 year resident would have 50 shares, and a new resident would have one share. After the U.S. Supreme Court struck down the law as unconstitutional (Zobel v. Wiliams, 1982), the legislature passed a new law in 1982 to create equal dividends for all residents.
According to the 1982 law, half of the average Permanent Fund earnings over the preceding five years are distributed as an annual Permanent Fund Dividend (PFD). What about the other half of fund earnings? Historically these have been returned to the Permanent Fund principle to further grow the fund and keep its value stable relative to inflation. So traditionally since 1982, about 50% of fund earnings go towards PFDs and 50% are returned to the Permanent Fund principle. Recent state budget shortfalls due to low oil prices have changed this practice. Starting in 2016, the majority of fund earnings have been used to make up for budget deficits.
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