We have written previously about Sovereign Wealth Funds (SWFs). They are usually owned by countries such as China, Singapore, Norway and the United Arab Emirates. Recently the US has been going to these countries to bail out its failed banks. The recent bail-out of Fannie Mae and Freddie Mac was undertaken so as not to displease its investors many of whom were foreign central banks, China being the largest investor. How ironic that we have to go to China, a communist country, to bail out American capitalism! Little known is the fact that, although the US as a whole has what amounts to a Sovereign Debt Fund, a national debt in the neighborhood of $10 trillion, four US states have sovereign wealth funds - Alaska, Alabama, New Mexico and Wyoming, that is if you want to consider the states as sovereign entities. The most prominent of these is Alaska which is getting ready to give each Alaskan citizen the sum of $3269.00 just for being an Alaskan citizen! These payouts occur on a yearly basis.
Now this begs the question "why does not the US as a whole have a SWF?" The short answer is that far from being a wealthy nation, the US is the world's largest debtor. The long answer has to do with the fact that not only does the US virtually give its assets such as oil away to the oil companies, it gives them tax breaks and subsidies too! Other countries such as Norway derive a 50% profit on every barrel of oil produced which goes right into the SWF.
The Alaska Permanent Fund has an asset value of $35 billion. The mission of the APF is to maximize the value of Alaska's Permanent Fund through prudent long-term investment and protection of principal to produce income to benefit all generations of Alaskans. The US as a whole only has tax payer liabilities but no SWF to "benefit all generations of US citizens." Instead we argue about how to pass on taxpayer liabilities to future generations. The recent taxpayer bailout of Freddie Mac and Fannie Mae has only added trillions more to the US national debt which is to say taxpayer liabilities most likely deferred (in an act of total cowardice) to future generations. The Bush administration wants its wars and they want them now without paying for them. However, Alaska and a few other states (unlike California which can't balance its budget) have prudently set aside funds for the benefit of future generations thus driving a rift between the state which has a "save and invest" philosophy and the federal government which has a "borrow and spend" philosophy. The following is from the APF website.
Why did Alaskans create the Fund?
During construction of the Trans-Alaska Pipeline in the 1970's, oil companies flooded state coffers with money paid for leases to explore and secure drilling rights. The Legislature spent all $900 million of that initial lease money within a few years. Alaskans realized that they were about to receive a great deal more money from oil when the pipeline was complete. They wished to better safeguard the robust income forthcoming from the pipeline, but the state constitution did not allow for dedicated funds. So Alaskans voted in 1976 to amend the constitution to put at least 25% of the oil money into a dedicated fund: the Permanent Fund. This would save money for future generations, which would no longer have oil as a source of income. In 1976 Governor Hammond proposed a constitutional amendment to create the Fund. The 9th Alaska Legislature modified the governor's legislation and placed it as a ballot proposition in the 1976 General Election. It passed by a margin of two to one.
What is the purpose of the Permanent Fund?
The 1976 state law establishing the Permanent Fund (AS 37.13), states that the Fund was created:
- to provide a means of conserving a portion of the state's revenue from mineral resources to benefit all generations of Alaskans
- to maintain safety of principal while maximizing total return
- to be a savings device managed to allow maximum use of disposable income for purposes designated by law
And this is from the law establishing the APF:
Section 15. Alaska Permanent Fund.
At least twenty-five percent of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments and bonuses received by the State shall be placed in a permanent fund, the principal of which shall be used only for those income-producing investments specifically designated by law as eligible for permanent fund investments. All income from the permanent fund shall be deposited in the general fund unless otherwise provided by law [Effective February 21, 1977].
So Alaskans haven't just given away their natural resources to the oil companies. Similar to Norway they've taken a percentage of all oil profits extracted from their state. What about all the drilling that goes on in Texas and Louisiana? Evidently, all those profits go into oil company coffers with nothing going to the citizens of those states. Such a deal for the oil companies, and then US taxpayers give them even more. But Alaska, since it entered the union much later than other states, was in a unique position:
The United States is one of the few nations in the world in which petroleum and other subsurface resources may be privately owned. The history of oil and gas development in most of the nation is a history of struggles among private owners over the development and disposition of petroleum (Lovejoy and Homan, 1975; McDonald,1971). Two factors made Alaska an exception to this rule when it entered the union in 1959. First, the federal government awarded the new state a 102-million-acre land entitlement, including subsurface rights, to be selected from unreserved public domain. Second, the 1953 Submerged Lands Act settling intergovernmental disputes over offshore resources had recently awarded coastal states offshore mineral rights within three miles of land. Alaska's long coastline entitled the state to a vast nearshore estate. The geology was fortuitous, rewarding the state handsomely with oil and gas resources on both onshore and offshore entitlements.
Unlike the US which just gives its oil leases away to the oil companies, Alaskans drove a bargain in return for which they obtain royalties on Alaskan oil production. Alaska relies on oil for about 80 percent of its revenue and has no sales or income tax. Alaska state government is mandated to invest 25% of its oil revenue into the APF while the other 75% of oil royalty revenue is dispersed to other government funds to finance education, infrastructure and social services. Alaska imposes a tax of approximately 5% on oil companies. This produces a lot of money but is nowhere near the 50% that Norway gets from the extraction of its oil. Although Alaska benefits from oil production the oil companies are still getting away with murder. And they and their lobbyists are in the business of reducing the royalties they have to pay to Alaska even more. Their goal, of course, is to pay Alaska absolutely nothing which would bring it into par with the other oil producing states.
The latest deal nets the citizens of the US just 14 cents a barrel when a barrel of oll is selling for well over $100. As suspected, the Bush administration's Department of the Interior is in cahoots with the oil companies and is shortchanging American citizens - in fact selling out the interests of US citizens to private interests.
Earlier this month, Royal Dutch Shell, coming off the most rapacious quarter in its history with a 60% increase in earnings to $8.47 billion, spurred on in large measure by OPEC-inflated crude oil prices, announced that it had successfully obtained the drilling rights to 275 lease blocks in the Chukchi Sea offshore northwest Alaska. These new lease holdings, together with Shell's lease holdings in the Beaufort Sea moved David Lawrence, Shell's Executive Vice President Exploration to triumphantly exclaim they have the "potential of becoming a new heartland for Shell." And there, in a nutshell you have it. What was once the national patrimony of all Americans is now becoming the new 'heartland' for Royal Dutch Shell. To give you a sense of the giveaway, the Minerals Management Service, the federal agency responsible for the auction covering 29.7 million acres has estimated that the area contains 15 billion barrels of "conventionally recoverable" oil and 77 trillion cubic feet of conventionally recoverable gas. Shell, as the high bidder, is proudly proclaiming it is paying $2.1 billion for the leases. Leases that appear certain to be in the most prolific areas of the Chuckchi Sea. That amounts to a grand cost of 14 cents a barrel permitting access to the potential of some 15 billion barrels of a commodity now selling near $100/bbl.
The Minerals Management Service has been recently in the news because of corruption. It seems they were getting too close with the oil companies, having sex with oil company employees, accepting gifts etc. It's the same old story. Party hearty while selling out the American taxpayers to corporate interests. What can you expect when the Bush administration has replaced professional employees with partisan hacks dedicated to serving the interests of the corporations it's supposed to regulate or negotiate with?
American citizens should be outraged about the Bush administration's sellout to Big Oil not only of US oil leases but of foreign involvements like the war in Iraq whose chief purpose is to protect oil company interests. It seems Saddam Hussein's main crime was not using chemical weapons (which the US sold him) on his own citizens but national-izing Iraq's oil production and kicking Exxon Mobil, BP and Shell Oil out of Iraq a few decades ago. Thanks to Bush-Cheney they've regained a foothold in the Iraqi oilfields. It remains to be seen whether they will be successful in profiting from oil production there, but what we do know is that about $1 trillion has been added to US taxpayer liabilities thanks to Bush-Cheney efforts, and over 4000 Americans and hundreds of thousands of Iraqis have died there to protect oil corporate interests. This is not to mention the tens of thousands of Iraqis and Americans who have been wounded and the millions of Iraqis displaced. Now they want to fight Russia over oil in the Caucasus. It might be better to just cool it in that part of the world and tend to our knitting here at home, take a page out of Alaska's book and initiate a US Sovereign Wealth Fund whose purpose would be to lease US assets such as natural gas on favorable terms with the goal being to "provide for the welfare of future generations of US citizens."
