With a budget heavily dependent on revenue from oil production, Alaska is vulnerable to the global forces which determine oil price and supply and which the state can do little to influence or control.  Sharp swings in oil prices can create huge budget surpluses or can push the state into deficit, as we saw in the late 1980s when a worldwide oil glut forced prices down to $23 per barrel. The state uses its savings to help smooth out the problem of short-term oil revenue variability, putting money aside in years of excess revenue and drawing from those savings when we don’t have enough to pay the bills.

Currently, Alaska has just over $61 billion in savings, of which $21 billion can be used to help offset a fiscal gap.  This savings would fund three years of general fund spending at current levels should oil revenues dry up completely. With projected gradual declines in oil revenue the funds available in savings are anticipated to last through 2030.

Alaska has three types of savings accounts with different rules about how they can be used:

General Use Savings (undesignated)

The state can use the principal and the earnings of these accounts to help address budget shortfalls:

  • Constitutional Budget Reserve – The Constitutional Budget Reserve Fund (CBR) serves as the state’s main piggy bank to cover short-term deficits. This is the account into which all oil tax settlement revenues are deposited. Settlements occur when the state disputes how an oil company calculates its profits or production. Withdrawals from the fund require a 3/4 vote of the legislature and must later be repaid from the state’s general fund.  In FY 2010, the state finished paying the CBR back for loans made during the early 2000s, the last time there was a fiscal gap.
  • Statutory Budget Reserve– This fund is subject to appropriations by the legislature but offers another option to help address fiscal gaps, when they occur.
  • Permanent Fund Earnings Reserve– These are the earnings on the Permanent Fund principal that can be appropriated for any legal state activity. Typically funds from the earnings reserve are used to pay annual dividends to all Alaskans, to inflation proof the fund, and to operate the fund itself.  Earnings from the Permanent Fund are not used to pay for general government operations, though there is nothing in the law that would prohibit their use.

Designated Savings

Designated savings accounts are funds the state has set up to pay for specific activities.  For example, the Public Education Fund is used to assist in the operations of public schools across the state, and the Power Cost Equalization endowment subsidizes electricity in rural Alaska.

Permanent Fund

Alaska’s Permanent Fund was established in 1976 as a way to make the benefits of developing the state’s non-renewable mineral resources more permanent by setting aside a 25 percent share of royalties and other proceeds in a fund the legislature could not touch. Earnings on the investment of the fund are available to benefit current and future generations of Alaskans, but the principal of the Permanent Fund cannot be spent without a constitutional amendment approved by Alaska voters.  The Permanent Fund is managed by a semi-independent, state-owned corporation, further insulating it from direct political control.