Feature6 – ResourceRevenue
Alaska vs Alberta Resource Funds (Early 2000) In a Nutshell, or How Alberta Came to Need More Resource Revenue
The Alaska Permanent Fund reinvests a portion of its earnings back into principal so as to provide inflation proofing for the Fund. From its inception until 1997, the Alberta Heritage Fund did not follow this practice. During much of this period inflation was very high, resulting in substantial erosion of Heritage Fund purchasing power over time. Also, the Heritage Fund was capped at $12 billion in 1987, but its real worth now is much less. In contrast, the Alaska Fund has not only kept its purchasing power, it has increased dramatically in value due to the continued allocations of oil and gas royalties into the Fund.
The different strategies are clearly apparent by looking at the growth of the two funds from inception to the present. The Alberta Heritage Fund grew rapidly for the first decade but has stalled at approximately $C12 billion in absolute value since 1987, with real value having been eroded by inflation. Meanwhile the Alaska Permanent Fund has continued to grow; its value as at early 2000 is well over $US27 billion (Alaska Permanent Fund Website). Apart from the exchange rate, the fundamental point is that the Alaska Permanent Fund has grown significantly in the last 15 years, and the Alberta Heritage Fund has not. the different management approaches of the two Funds have meant widely varying results. Earnings were taken fully by the Alberta government into general revenues, and inflation proofing was not being done. Presumably, of course, these monies were improving the ongoing standard of living of the province’s citizens. However, it is difficult to determine the impact on other areas of the economy that the additional funds have provided in Alberta, or would have provided in Alaska if it had used a similar strategy.
(by allan a warrack and russell r keddie, Faculty of Business, University of Alberta, Edmonton. From Alberta Heritage Fund vs. Alaska Permanent Fund: A Comparative Analysis. See http://www.commonwealthnorth.org/fund07/Warrack_Alberatafund_vs_APF.pdf)
