Perspectives on Business and Economics, Vol. 40

2 account for about a $1.5B budget gap (15%) even after it takes a portion of its revenue from its savings, not just once, but for the foreseeable future? In response to the budget deficit, Alaska has been operating with a savings-financed budget, particularly utilizing the Constitutional Budget Reserve Fund (CBRF), to close out the budget gap (Groh, 2021). The CBRF was established in 1991 to ease problems from the variability of oil revenue due to market volatility. Deposits into the CBRF consist of settlements of back taxes and other revenues owed to the state. The legislature may appropriate funds from the CBRF to fund the operations of state government as well as close short-term deficits; even so, draws from the CBRF require a threefourths vote of each house of the legislature and must be returned to the fund later. As a result of continuous withdrawals without an offsetting inflow of cash, the CBRF has declined from $19B in 2014 to $2.7B in 2019 and is expected to be depleted by 2023 (Department of Revenue, 2021). Given that most of Alaska’s savings have been reduced to a low level, the state currently relies on the POMV draw from the PF to close out budget deficit challenges. As the CBRF comes to an end, it is important to recognize that, if the state fails to implement a solution, what happened to the CBRF also may happen to the PF earnings, as the state depends on the draw as a source of revenue. Proposed solutions to deal with these challenges include overspending PF earnings, implementing significant spending cuts, eliminating the PF dividend (PFD), reintroducing a statewide progressive income tax, and introducing a statewide sales tax. In this article, I explore the history of the PF and the economic impacts of the PFD on population groups where the dividend is considered a vital source of income. Furthermore, I explore a balanced approach between reallocation of the draw from the PF, a reduction in state spending, and new revenue streams as a potential, long-term solution. History of the Permanent Fund: 45 Years of Progress Oil production in Alaska began in 1968 on the North Slope of the state, increasing the flow of revenue into the state at an unexpected rate (Goldsmith, 2002). The Alaska PF was designed in 1976 to secure a part of the oil wealth by establishing a permanent and sustainable in- vestment portfolio that could be saved for times when oil production was no longer as high. The fund currently has $81B in savings, which is invested in bonds, stocks, real estate, and infrastructure. The PF has two parts, the Principal Account and the Earnings Reserve Account (ERA). The Principal Account is the savings account that can be spent only on income-producing investments, whereas the ERA serves as the checking account and can be used to support government services. It is utilized to distribute oil wealth dividends to eligible Alaskans through the PFD, created in 1980, to protect the intergenerational value of the fund against inflation and to support investment management and operations of the fund. Major contributions to the Principal Account come from mineral revenues, special appropriations initiated by the legislature from both the GF and the ERA, and inflation proofing. The ERA grows through the receipt of statutory net income, which is the result of investment activity, and excludes unrealized gains and losses (Alaska Permanent Fund Corporation, 2020). Withdrawals from the ERA are based on a POMV of the PF, a method designed to create a structure that ensures no more than a sustainable amount is drawn on an annual basis. The POMV draw is based on the average market value of the PF for the first five of the preceding six FYs, which is intended to create a smoothing effect over time. This formula provides a certainty of liability for managing the portfolio and a stable, predictable payout from year to year. The draw is subject to appropriation and is set in statute at 5.25% for FYs 2019–2021 and 5% from the FY 2022 onward (Alaska Permanent Fund Corporation, 2020). After the legislature enacted Senate Bill 26 (SB 26, passed in 2018), a portion of the draw from the PF earnings became unrestricted revenue beginning in FY 2019 (Alaska State Legislature, n.d.). In FY 2019, about $1.7B (63% of the total draw) was used to pay for government operations, and the remaining $1B was paid as dividends to residents. SB 26 diverged from the historical trend of treating POMV draws as restricted revenue to pay dividends according