In 1976, as the Alaska pipeline construction neared completion, Alaska voters approved a constitutional amendment to establish a dedicated fund: the Alaska Permanent Fund.
"At least 25 percent of all mineral lease rentals, royalties, royalty sales proceeds, federal mineral revenue-sharing payments and bonuses received by the state be placed in a permanent fund, the principal of which may only be used for income-producing investments."
The Fund is invested in a diversified portfolio of public and private asset classes. All investments, whether in Alaska or around the world, must be expected to produce income with an acceptable level of risk. The Fund is not invested in projects that are primarily focused on economic or social development.
The entire Fund is managed as a single investment pool, and is invested in a range of assets including stocks, bonds and real estate. However, for accounting purposes it is divided into two parts: principal (the non-spendable funds) and the earnings reserve (assigned funds). The Alaska Constitution says that the principal may not be spent. The earnings in the earnings reserve may be spent by the Legislature for any public purpose, including the Permanent Fund Dividend distribution. The earnings reserve contains both realized earnings from all of the investments, and unrealized gains on assets in the portion of the Fund that is accounted for in the earnings reserve.
What are realized earnings? Realized earnings are the income from bond interest, real estate rent payments and stock dividends as well as the net gain (or loss) from the sale of an investment that has changed in value.
Of the spending that has occurred from the Fund, most of it has been for dividends to qualified Alaska residents. The Permanent Fund Dividend Division (a separate entity from the APFC) operates the PFD program, which the Legislature established in 1980.
In 1980, the Legislature established the Alaska Permanent Fund Corporation to manage Fund investments.