Editor’s note: This article is part one of a four-part series that The National Interest is running on sovereign-wealth funds. Check back with the author for more.
Unknown to the general American public is that there are twenty-one domestic sovereign wealth funds in the United States of America. While there are twenty-one domestic sovereign wealth funds, only twenty states have a domestic sovereign wealth fund as Texas has two. The great majority of states that have a domestic sovereign wealth fund are solidly Republican states, which primarily go to funding their education systems as well as financing their state government operations. This explains why these states can afford to have low state income taxes, or no state income taxes at all. The following are the top five domestic sovereign wealth funds in the United States.
The Alaska Permanent Fund
The largest and best known of the sovereign wealth funds (SWFs) in the United States is the Alaska Permanent Fund (APF). The APF is managed by the Alaskan Permanent Fund Corporation (APFC). The fund was founded in 1976 by Governor Jay Hammond and from February 1976 to April 1980, the APF was managed by the Department of Revenue Treasury Division. In April of 1980, the Alaskan Legislature created the APFC to manage the Permanent Fund. The fund itself is divided into two distinct funds. The Principal Fund is non-spendable and must be allocated funds on an annual basis to maintain its value after inflation proofing. The Earnings Reserve Account is the amount of money available for consumption and for the issuance of the Permanent Fund Dividend (PFD). The fund has grown from $734,000 in 1977 to a valuation of $77.8 billion as of April 2021. The PFD was $1,600 in 2018, $1,606 in 2019, and $992 in 2020—which was disbursed on July 1, 2020, due to the Covid-19 pandemic rather than its normal disbursement date in October. The dividend is distributed to every eligible Alaskan citizen, regardless of age, on a yearly basis. This link shows how the citizens of Alaska benefit from the Alaska Permanent Fund Dividend.
On October 3, 2019, it was announced that the APFC had created the Alaska Future Fund (AFF). The AFF has been capitalized at $100 million from the APFC Earnings Reserve. Barings, one of the world’s leading financial services firms, has been tapped by the APFC to head the AFF investments. The AFF’s mission statement says that it:
…seeks to identify and support private funds and private market businesses/projects that are either based in Alaska, have investment operations in Alaska or have a current bona fide plan to operate in Alaska. The Alaska Future Fund will invest in businesses and projects that support core sectors of the Alaskan economy, including, but not limited to, real assets, natural resources, transportation, and infrastructure, to grow the Alaskan economy and foster the next generation of private market opportunities in the state of Alaska…
The Alaska Permanent Fund is ranked number eighteen on the Sovereign Wealth Fund Institute Index.
The Texas Permanent School Fund
The Texas Permanent School Fund (PSF), the first sovereign wealth fund in the world, was created in 1854 by an act of the Texas Legislature. First called the “Special School Fund,” the PSF was created to finance the state’s public school system. The PSF was principally endowed with $2 million that the state government of Texas had received from the U.S. federal government in return for surrendering its claims to territory in what are now parts of New Mexico, Colorado, and Oklahoma. The fund was augmented by an additional land grant of millions of acres of land that were then sold, and the proceeds deposited into the PSF. Only earnings from investments of the PSF can be spent.
The fund is managed by the elected State Board of Education and administered by the Texas Education Agency (TEA), however, the Texas Land Office from 2001 has been responsible for the investments of the PSF funds.
The Texas Permanent University Fund
The Texas Public University Fund (PUF) was founded in 1876 by the Texas state legislature and was originally funded with land grants authorized by the state legislature. The PUF had a valuation of $36.2 billion as of May 31, 2020. Dividends from the PUF only go to the Texas A&M University System and the University of Texas System.
In 1883, the Texas and Pacific Railroad returned 1 million acres of land to the Texas state government under the belief that the land was practically worthless. This land was then deeded over to the PUF. Initially what little revenue that the PUF gained from its land grants came from grazing fees. Prior to 1923, the PUF was underfunded but that all changed in May of 1923 when the first oil well on PUF land in Regan County became a major source of income for the PUF. The PUF has since become one of the best-funded education funds in the United States. There have been numerous lawsuits ever since on how to share the bounty of these funds, and the Texas State Supreme Court has at times had to step in to maintain order between the Austin portion of the PUF and the University of Texas System. Unlike the Texas Permanent Fund, the charter for the PUF forbids the sale of any lands contained in the PUF charter. The PUF is ranked twenty-fourth in the Sovereign Wealth Institute index
New Mexico State Investment Council Investment Funds
The New Mexico Permanent Fund (commonly known as the State Investment Council) began with the entry of New Mexico as a territory of the United States. After New Mexico joined the Union, the Land Grant Permanent Fund (LGPF) was established in accordance with the Ferguson Act of 1893. The initial land grant for the fund was from the public lands given to New Mexico in 1893. Additional lands were given to the Fund in 1912 when New Mexico became a state. It was in 1957 that the LGPF became the State Investment Council (SIC). The creation of the SIC was accompanied by an amendment to the state constitution that gave added protection to the fund from interference from the state legislature. The SIC has been the object of several different changes to allow it to evolve with the change of economics nationally and worldwide. Besides the SIC, there are three other Permanent Funds in the state of New Mexico. They are The Severance Tax Fund, The Tobacco Settlement Permanent Fund, and the Water Trust Fund.
All told, New Mexico State Investment Council Permanent Funds as of 2020 had a valuation of $30 billion. 75 percent of the funds go to the funding of the school system of New Mexico. The other 25 percent goes to other state obligations. This sovereign wealth fund is ranked thirty-first on the Sovereign Wealth Fund Institute index.
The Permanent Wyoming Mineral Trust Fund
The Permanent Wyoming Mineral Trust Fund (PWMTF) began life as a severance tax in 1969. Passed by Wyoming’s state legislature by a narrow margin, the tax was set at a 1 percent severance tax. In 1974, the Wyoming legislature wanted to increase the tax, but the state’s governor, Stan Hathaway, threatened to veto the tax unless a provision was put in place that part of the money was set aside in a permanent mineral fund. After years of hard work by the governor along with Senator Dick Jones, a constitutional amendment was put to the citizens of Wyoming on November 5, 1974. The ballot initiative passed by a wide margin and the constitutional amendment became effective on January 1, 1975. The severance tax was fixed initially at 2 percent and was kept at that level from 1975 until 1988. In 1988, the tax was lowered to 1.5 percent with .05 percent being diverted to the state’s savings account. Later on, the tax amount was raised to 2.5 percent in 2005. In 2016, 1 percent of the fund’s revenue was diverted to Wyoming’s operating budget to address a shortfall in state government operations. The PWMTF has been recognized by the Peterson Institute for International Economics as one of the most transparent sovereign wealth funds in the world. The valuation of the PWMTF as of June 30, 2020, was $7.96 billion. The PWMTF is currently ranked forty-seventh in the Sovereign Wealth Institute index.
Richard E. Caroll is a retired economist and has been published in Real Clear Defense, International Policy Digest, and Foreign Policy News. He is a regular contributor to The National Interest.