The Alaska Permanent Fund was established to provide each resident of the state with a small annual stipend drawn from oil and gas revenues. In principle, it would seem that fund should be able to lift some residents out of poverty, but that depends on the nature of poverty and on the amount of the stipend. The purpose of this essay is to determine the extent to which the Alaska Permanent Fund has lifted a significant number of residents of that state out of poverty.
The Alaska Permanent Fund was established in 1976 to receive 25% of the royalties from production of oil and gas for state purposes. The fund is an asset held by the state and invested in a stock portfolio with the aim of generating a financial return. Part of the revenue produced by the Fund is used to pay citizens an annual Permanent Fund Dividend.
All persons who have been residents of Alaska for at least one year are eligible to receive a dividend payment. This includes the Alaska Natives. The initial “citizens’ dividend” was $1,000 per person in 1982, but it fell to $331 in 1982, the all-time low, then rose through the 1980s and 1990s. The dividend reached an all-time high of $3,269.00 per person in 2008, when a one-time $1,200 special rebate was included ($2,069 plus $1,200). But generally, the fund has followed the stock market, paying out $1,964 in 2000, down to $846 in 2005, then rising to $2,069 in 2008, then falling to $1,281 in 2010. The average payout from 2000 to 2010 was around $1,425 per person or $5,700 for a family of four.
General Economic Conditions in Alaska
To judge the effect of the Alaska Permanent Fund on poverty in the state, it is first necessary to know something about the general economic conditions in the state. In Mississippi or Alabama or Kentucky, where average household income is around $40,00 per year, a citizens’ dividend of $5,700 would be a significant sum for families earning below half the median (under $20,000). But Alaskans generally have high incomes, averaging over $60,000 per household. In that case, the additional amount from the Fund payout would not matter as much in Alaska as it would in poorer states.
In many other ways, the average Alaskan is better off economically than Americans in other states. The official poverty rate in Alaska is 11.7%, compared to a 14.3% rate in the U.S. as a whole. The proportion of households with one full-time worker is higher in Alaska than in the U.S. generally (78% in Alaska, compared to 69% national average). The unemployment rate in Alaska is 7.5%, compared to a national average of 9.2%. These figures would seem to indicate that a person is less likely to be poor or out of work in Alaska than in the rest of the country.
Poverty in Alaska: Using a Different Scale
Poverty in Alaska is worse than the impression one gains by looking at the number of people above or below the official poverty line. In fact, that assessment is the official view: the federal government says that poverty in Alaska is worse than the federal government says it is.
That little conundrum can only be resolved by understanding that there are two different poverty assessments by the federal government: 1) the poverty threshold, which is used by the Census Bureau to judge how many people are officially poor, and 2) the poverty guidelines, which are used by federal agencies to determine if a poor person is eligible for special services.
So, for example, in most states, the poverty threshold for a family of four in 2010 was $22,314, but the poverty guidelines were $22,050. That is just a 1.2% difference, hardly worthy of notice.
But Alaska and Hawaii are different. In Alaska, the poverty guideline for a family of four is $27,570. It is $25,360 in Hawaii. That is because the cost of living in these two states is exceptionally high. As a result, in Alaska, it takes a 25% higher income to climb out of poverty than elsewhere in the U.S. It means the official (Census Bureau) “poverty rate” of Alaska is deceptively low. In practice, poverty in Alaska may be worse than in other parts of the country.
Poverty and the Permanent Fund
Based on the understanding that poverty in Alaska is exacerbated by the high costs of living, we can now get a first impression of the connection between poverty and the Permanent Fund. The difference between the poverty guidelines for a family of four in Alaska compared to the continental U.S. is $5,520. That is almost the same as the amount of the stipend received by four people from the Alaska Permanent Fund.
In other words, because the cost of living is higher in Alaska than in the continental United States, the stipend received by individuals from the Permanent Fund is just enough to keep people on the edge of poverty from falling in. That is not the same as lifting people out of poverty, but it is important nonetheless. You might say that Permanent Fund is a barrier that prevents the high cost of living from driving even more people into poverty.
Regional and Ethnic Poverty in Alaska
In addition to the high cost of living, Alaska has another unusual feature that creates poverty—its size. It is about 570 miles from the capital Juneau to Anchorage, the largest city. From Anchorage to Bethel in western Alaska is 400 miles. From Anchorage to Barrow on the Artic Ocean is 725 miles. In almost 600,000 square miles, there are only about 700,000 people—a smaller population than the city of San Francisco, which is on 49 square miles. Because of that low density, it is expensive to live in the more remote regions of the state. A cheap flight from Anchorage to Bethel is only slightly less than a cheap flight from Los Angeles to New York. That means people outside of the southern region of Alaska are far more isolated than anywhere else in the United States because the cost of transportation between population centers is so high.
Even within regions of the state, the costs of transportation between rural villages and towns is a barrier to normal interaction. For example, one family living in Nunam Iqua, a remote village in Wade-Hampton Borough in western Alaska, must travel 25 miles to the nearest grocery store in Emmonak, a trip that takes more than one hour by snowmobile. It costs them $50 in fuel to make the round trip. When they arrive, the prices they face are astronomical: $10 a gallon for milk, $3 a pound for apples, and $22 for a dozen eggs. In fact, most of the winter food for families in these remote areas is the food they have personally gathered and stored during the summer months. Heating bills can run as high as $1,500 a month in the winter.
Alaska Natives bear the brunt of poverty in Alaska. The boroughs (i.e., counties) with exceptionally high povety rates (16% or more) are all in western or central Alaska, and all are predominantly populated by Alaskan Natives. By the Census definition, 22% of Alaska Natives live below the poverty line, which means that 25-30% of that population is poor by the standard set by the poverty guidelines.
The unemployment rate of Alaska Natives is 19%, twice the national average. Again, that is in large part because of the high regional unemployment in western boroughs (Bethel, Nome, Northwest Arctic, Wade-Hampton) with large Alaskan Native populations. Because industries seek concentrated population centers, increasing employment opportunities in these remote regions is a major challenge.
Conclusion: Overcoming Poverty in Alaska
This brief survey of poverty in Alaska and its relation to the Permanent Fund has revealed three results.
First, payments to individuals from the Permanent Fund offset the high cost of living in Alaska and prevent poverty rates from being higher than they presently are. However, it would be an exaggeration to claim that those payments actively reduced poverty in Alaska.
Second, poverty in Alaska is primarily rural. Outside of cities, which are economically healthy, the rural population of Alaska is spread over a huge area. This raises the cost of transportation and lowers productivity. As are result, commercial activities other than resource extraction and processing are difficult to sustain. In short, low density interferes with economic development.
Third, Alaska Natives are the primarly victims of rural poverty. Their way of life, which is based in part on subsistence forms of food gathering, is necessarily rural, so there may be impediments to urbanization of this population. Although increase access to education may help some Alaska Natives raise their incomes by moving to cities and getting higher-paying jobs, that will not help the rural economies they come from. A different solution will be needed than education.
Although the current payments from the Permanent Fund are not sufficient to overcome the disparity between costs and incomes in rural areas, it should be remembered that the the Permanent Fund at present collects only 25% of the royalties from the production of oil and gas in the state. Of that, only a portion is distributed to individuals. By increasing both the proportion of royalties collected and the proportion that are granted directly to individuals, the state could make larger stipends available to individuals. Alternatively, some of the additional funds from increased state collection of royalties could be targeted to boroughs with the lowest population density, which are also the ones with the highest poverty rates. (One could also argue, on the basis of national security, that it is good to have a dispersed population, and that the federal government should similarly provide grants to counties with very low density.)
Therefore, even though the existing stipends from the Alaska Permanent Fund are not sufficient to lift Alaska Natives in low-density counties out of poverty, it would cost very little to increase the stipends to individuals in those remote areas. In this way, the basic principle of the citizen’s dividend could prove to be the key to ending widespread poverty in Alaska.