How the Permanent Fund works
Money flows in from oil, grows through global investments, and a careful slice is drawn out each year. Here's the whole machine, piece by piece.
At a glance
How the money flows
From oil in the ground to the dividend in your hand — and the services we all share.
1. Where the money comes in
Alaska owns its oil and minerals. When companies extract them, they pay the state royalties. The constitution — Article IX, Section 15 — requires that at least 25% of those mineral royalties be deposited into the Permanent Fund instead of being spent.[1]
That deposit goes into the part of the Fund that can never be spent — the Principal. The very first deposit, in 1977, was just $734,000.[2] Today the Fund is worth tens of billions.
Why a constitutional rule?
Alaska's constitution normally bans "dedicated funds." Voters made a deliberate exception in 1976 so this money would be protected from ordinary budget pressure — it can't be raided without another vote of the people.[1]
2. Two accounts, two very different jobs
The Fund is split into two parts. They're invested together, but the law treats them completely differently.[3]
The Principal
Think of it as the savings account you promised never to touch. It holds the royalty deposits and inflation-proofing transfers. Spending it would require amending the constitution — so it just keeps growing and earning.
The Earnings Reserve (ERA)
Think of it as the checking account. It holds the realized profits the Fund earns from investing. The Legislature can spend from here — and this is where the annual draw and your dividend come from.
3. How it grows
The Fund doesn't sit in a vault. The Alaska Permanent Fund Corporation (APFC) — a quasi-independent state body created in 1980 — invests it across a globally diversified portfolio, targeting a long-run return of about inflation + 5%.[3]
Where the money is invested
Target asset allocation, FY2025 (set by the Board of Trustees).[4]
4. The yearly draw: the 5% POMV rule
How much can the state safely take out without shrinking the Fund? Since 2018, the answer is a rule called the Percent of Market Value, or POMV, created by Senate Bill 26.[5]
Each year the state may draw a set percentage of the Fund's average market value over the first five of the previous six years. Averaging over several years smooths out good and bad markets so the draw is steady and predictable.[3]
The rate was 5.25% for fiscal years 2019–2021 and 5% from FY2022 onward.[5] The goal: spend the earnings, protect the nest egg.
5. Where the draw goes — and inflation-proofing
Once money is drawn from the Earnings Reserve, the Legislature splits it between two purposes — and exactly how to split it is the central political fight of every recent session.
Your dividend (PFD)
A share goes back to residents as the annual Permanent Fund Dividend — the most visible, and most debated, use of the Fund.
State services
The rest helps run the government — schools, public safety, transportation. The Fund draw is now the state's largest source of unrestricted general-fund revenue.[3]
A hidden third job: inflation-proofing
To keep the Principal from quietly losing value to inflation, money must be moved back into it each year. But under today's structure this isn't automatic — the Legislature has to appropriate it from the Earnings Reserve. From FY2019–FY2024 that took roughly $11.3 billion.[6] When budgets are tight, inflation-proofing competes with the dividend and services. Read the full inflation-proofing explainer →
Who's in charge?
Day-to-day, the Fund is run by the Alaska Permanent Fund Corporation (APFC), created in 1980 to manage the money at arm's length from politics.[3]
APFC is governed by a Board of Trustees — a mix of public members appointed by the governor and state officials — which sets investment policy and approves the asset allocation, reviewed every year.[4] But the trustees don't decide the dividend or the size of the draw. Those are set by the Legislature each session, within the rules in statute and the constitution.
The whole machine, at a glance
| Step | What happens | Who controls it |
|---|---|---|
| 1 · In | ≥25% of oil & mineral royalties deposited | The constitution (voters) |
| 2 · Hold | Split into Principal (locked) and ERA (spendable) | Constitution + statute |
| 3 · Grow | Invested globally for long-term return | APFC Board of Trustees |
| 4 · Draw | ~5% of smoothed market value withdrawn (POMV) | Statute + Legislature |
| 5 · Spend | Split among dividend, services & inflation-proofing | The Legislature, each year |
Sources
- APFC, FAQ & History; Alaska Constitution, Article IX, Section 15 — ≥25% of mineral royalties dedicated (1976).
- APFC, History of the Alaska Permanent Fund — first deposit of $734,000 (1977).
- APFC, Fund Structure & Fund at a Glance — Principal vs. ERA, investment strategy, POMV smoothing, share of state revenue, APFC role.
- APFC, Diversification Framework — Asset Allocation — FY2025 target allocation; Board of Trustees approval.
- Alaska Legislature, Senate Bill 26 (2018); APFC Fund Structure — 5.25% (FY2019–2021) then 5% (FY2022+).
- Legislative analysis of inflation-proofing, FY2019–FY2024 (~$11.27B); see Constitutionalizing the POMV.