The story of the American state, which gives its inhabitants a thousand dollars a year

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Michael Downey

Alaska annually sends every person on whose territory a $ 1,000 check is posted via mail. Why?

Alaska's economy has been closely linked to natural resources, from fur and fishery trade to gold and oil mining. But dependence on oil as a source of income has put the state's economy at the mercy of global oil price fluctuations, increasing its need for a financial safety net.

When the oilfield of Prudhoe Bay was discovered, the state allocated part of the oil revenues to create a public savings fund. Since 1982, state residents receive annual dividends from the profits of the so-called Alaska Permanent Fund, a sovereign fund financed by oil revenues.

Dividends per year range from $ 331 to $ 2,072, an average of $ 1,000 a year. But did the permanent dividend distribution affect Alaska's economy? And how?

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Discover a field rich in oil

In 1867, the United States purchased Alaska from Russia for $ 7.2 million. Alaska was then a center of fur trade. But in 1896, gold was discovered along the Klondike River.

In the early 1960s, the tributaries of the economy, from fisheries and oil to defense spending, varied. The annual state budget at that time was only $ 100 million.

But the situation changed completely in 1968, when a vast oilfield with oil reserves of 13 billion barrels was discovered. The field is located in Prudhoe Bay in the northern slope of the state, more than 1,000 kilometers from Alaska's largest city of Anchorage.

"Oilfields are rarely discovered in the size of the Brodhoe Bay, and they are known in the oil field as the Elephant and the Giant Giant, which reflects how rare it is," says Cliff Gro, a former Alaska State Revenue Administration official and one of the Fund's most active supporters.

The field was soon profitable, with state revenues in 1969 of leasing the surrounding land to oil companies for $ 900 million.

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Following the discovery of the Prudhoe Bay oilfield and the construction of an oil pipeline through Alaska, it became clear that the state's economy would undergo a qualitative transformation.

Following the discovery of the Prudhoe Bay oilfield and the construction of an oil pipeline through Alaska, it became clear that the state's economy would undergo a qualitative transformation. But when rents were spent entirely on infrastructure and services, some residents did not feel much better in economic conditions. Guy Hammond, the elected governor in 1974, also realized that oil revenues would inevitably be cut off one day.

His administration went on to establish the Alaska Permanent Fund in 1976 to save money for future generations of Alaska residents. It was agreed that a quarter of state oil revenues would be placed in the public savings fund, which now stands at more than $ 65 billion.

"I wanted Alaska residents to feel that these resources belong to them, to encourage them to support sustainable methods of development and exclusion," says Hammond in his book The Governor's Proposal: How Alaska's Model Applies Oil Distribution to Population for Implementation in Iraq and Other Oil-Rich Countries. On unsustainable models ".

Distribution of the profits of the permanent fund

Six years later, the "permanent fund dividends" program, whereby part of the permanent fund's profits were distributed to the Alaska resident population for at least a year.

Proponents of the program argue that it motivates the population of the state to prevent private interests from dominating the fund, offering benefits to all, and serving as a social safety net to protect low-income people.

Grue describes the fund as "more effective than all alternative systems in terms of cost and return".

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Michael Downey

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In 1982, every person in Alaska received the necessary conditions to obtain a share of the fund's profits, $ 1,000

Hammond says giving citizens a share of the state's resources revenues will determine for themselves what they see as "not the government's view that they are in the best interest of the population".

Early insights

In 1982, every person in Alaska who met the requirements for a share of the fund's profits received $ 1,000 (equivalent to $ 2,670). Since then, dividends were calculated annually on the basis of the average income of the permanent taxable fund over The previous five years.

In 1984, the Institute for Social and Economic Research at the University of Alaska prepared a report on Alaska residents' feelings about the permanent fund. The report concluded that 60 percent of Alaska residents liked the idea, 29 percent had mixed feelings and 10 percent disapproved of it.

Alaska residents spent about 45 percent of their dividends on basic food, heating, clothing and rent, saving 20 percent of them, spending 20 percent on federal taxes, 5 percent paying off part of the debt, and 10 percent Luxury products such as flights.

The report concluded: "The permanent dividend program has become one of the most important reasons for the growth of disposable personal income (after taxes) since the beginning of the economic recovery in 1980"

Social safety net

According to a study conducted by the Institute for Social and Economic Research in 2016, the Fund's permanent dividend program contributed to poverty alleviation in Alaska, particularly among the indigenous population of Alaska. Official statistics indicate that the rates of poverty among indigenous peoples are higher than among non-indigenous populations Alaska, two and a half times.

The program also helps lift 15,000 to 25,000 Alaska citizens from extreme poverty each year.

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Michael Downey

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The Fund's permanent dividend is distributed in early October each year

"Many elderly people who have not planned for the future, or who have health problems, even though they are calculating for the future, see the beneficiaries of the fund's dividend program in dire need of money," says Becky Parker, executive director of the Anchorage Center for Elderly Activities. If he has the money, he will buy groceries or fuel for his car, or he may pay the monthly rent. "

The Fund's fixed dividend is distributed in early October each year, injecting funds into the state's economy and contributing to its recovery until November.

"These funds give us a six-week or a month-long payment," says Mike Gordon, former owner of Historic Chillicothe Charles, Inc.

Although the overall impact of the program is difficult to calculate, in 2018, the fund's over $ 1 billion in dividends were distributed to 90 percent of the 740,000 Alaskans.

Matthew Berman, professor of economics at the Center for Social and Economic Research, says the state's economy has the lowest share of the fund's profits. About one-fifth of it is spent on federal income taxes, and some are used to repay or save debt.

But the tangible impact of this program is that it is now an important part of the annual income of some of the poorest households.

"The poor four-member family, whose annual income is less than $ 30,000, will receive a share of $ 6,000 from the fund's profits, which represents 20 to 25 percent of its annual income," said Marcus Hartley, president of Alaska's Northern Economics.

What about opponents' opinion?

Opponents of the permanent dividend program see it as not in the interest of the state's economy.

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Michael Downey

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The population of Alaska now relies on the permanent dividends of the Fund distributed to them annually

"If they spend on salaries and wages for employees, like public sector employees, they will have a better impact on the economy as a whole," Hartley said. Because you will create new jobs for citizens who spend money in the state.

Others believe that the support of most Alaska residents for the dividend distribution program could reduce the chances of politicians wanting to change it in the election.

Wolfworth, a writer and historian from Alaska, says the state of Alaska, which does not impose income tax, is not spent on areas that drive growth and social and economic development, such as education.

"Because of this program, politicians will not dare to subject new goods and services to taxes," says Wolfworth, "and the multiplicity of diversities and diversities of oil revenues has reduced the share of government spending on education while increasing the value of dividends to the population, The desire of people to come to the state increased. "

What will happen in the future?

Alaska residents now rely on the permanent dividends that they are distributed annually, but in 2016, Governor Bill Walker reduced the profits by half to fill the budget deficit of millions of dollars due to lower oil prices.

"The government funded the budget deficit from the permanent fund's income reserve account, from which the fund's dividend was also disbursed," said Roger Marks, an Alaska state oil economist. "This means that the government has been forced to reduce the amount of dividends to finance public service expenditures."

While some Alaska residents supported Walker's position, he was opposed by many. In 2018, the two candidates promised the post of Governor of the State not to prejudice the permanent dividend of the Fund. Mike Dunliffe, the winner of the election, vowed to prevent them from being cut again, and that the money disbursed since 2016 for the population has supported a reduction in government spending and an increase in oil production in return.

However, the fall in oil prices led to the country entering a three-year recession. Despite price recovery, Alaska's oil production has fallen since its peak in 1988.

It is expected that the debate over the permanent dividend distribution program and how to optimize it will continue indefinitely.

You can read the original article on the BBC Capital page.