Alaska’s Crisis of Leadership

“The last two decades plus of governors and legislators have ignored the reality of a coming unsustainable state fiscal policy. And, even if we were to charitably credit the long line of politicians with having good intentions (i.e. note the many now considering retirement ‘while the getting is good’), we remind ourselves in the same breath that roads to hell and insolvency are both paved with good intent.”

Since the early 1990s the University of Alaska – Anchorage’s Institute of Social and Economic Research has been advising state leaders to bring spending in line with a declining Prudhoe Bay revenue stream.

Throughout the last fifteen years, we at Northern Gas Pipelines have added our editorial voice to ISER’s more scientific, economic analyses.  And with every passing year, ISER’s pleas for fiscal sanity have grown stronger.

The urgency of those pleas for wise leadership is exacerbated by Alaska’s 90 percent operating budget reliance on oil revenue. Furthermore, the pipeline transporting that North Slope oil is only about one-fourth full, compared to its 2.1 million barrel per day heyday in the early 1980s.

Underlining the urgency for sane action are credit downgrades that rating agencies have imposed on Alaska (i.e. also Alberta) and you have the beginning of an economic death spiral characterized by: rising cost of borrowed money, rising cost of government operating budgets, declining production, and a not-so-temporary low oil price environment.

The last two decades plus of governors and legislators have ignored the reality of a coming unsustainable state fiscal policy. And, even if we were to charitably credit the long line of politicians with having good intentions (i.e. note the many now considering retirement “while the getting is good”), we remind ourselves in the same breath that roads to hell and insolvency are both paved with good intent.

Consequently, spending in the 49th state has continued to balloon, generally pleasing constituent beneficiaries while supporting incumbent reelections. And with every new or expanded entitlement program, Alaska has become a more attractive mecca for migrants seeking benefits as the strength of pioneering wealth producers is compromised by a mounting burden of bureaucratic overseers, regulations, political hostility, and unpredictable tax policies.

Add to those private sector inhibiting factors a Governor named Bill Walker who has ignored the public will and legislative diplomacy by (i.e. almost) unilaterally instituting several unpopular initiatives in a deficit spending environment, including expansion of Medicaid; recalculating a formula by which Permanent Fund earnings are made available as citizen dividends and funding for government operations;  and, threatening petroleum investors — the state’s most important investors — with higher taxes and even with a legally questionably lease expropriation.

In short, the Governor has sent signals that, contrary to his pre-election promises, he is focused on preserving state agency bureaucracies at the expense of the private sector.

Now, due to Alaska’s unsustainable fiscal policies, the state is on its last economic legs.  What does that mean?

• The state’s budget for an area 20% the size of the United States populated by fewer than a million citizens operates at a $3-4 billion deficit.
• Its Constitution has put a ring fence around Alaska’s over $50 billion Permanent Fund principle, requiring citizen support and a legislative super majority to access.
• The number of state employees is realistically unrestrained and their accumulating benefits meet or exceed private standards
• The governor has postponed payments to oil & gas investors for earned tax credits enacted by the legislature to encourage exploration and development and the future stream of state income.
• State revenue has continued to decline since the summer of 2014 (i.e. though companies like ConocoPhillips have continued, until now, investing in new or expanded projects); and, oil & gas investor/companies have begun to both leave the state and divest themselves of oil & gas assets.
• Meanwhile, note that the state depends on the oil industry for the majority of state operations and non-federal capital spending.  The implication here is that the roads, bridges, parks, airports, port facilities, schools and countless social services would dry up and blow away, or freeze up, without the oil industry’s continuing interest and investment in America’s only Arctic state.
• The result of insufficient oil support of the state’s operations and infrastructure would be the crippling of Alaska’s world class commercial fishing industry, tourism and cruise ship industry, outdoor industries, etc.  GCI communications is heavily dependent on a stable to growing population demanding telecommunications — both paid and “free landlines and cell phones” (i.e. subsidized by paying customers’ universal service fees).  The company is determined to protect the bureaucracy and its welfare customer base by advocating its own solution to state solvency.  Similarly, the Rasmuson Foundation, is supporting a recommendation for preserving the economy while a multitude of other interest groups pressure decision makers for money, not for limiting spending.  Actually, there are a few organizations advocating the “right sizing of state government and making Alaska’s budget sustainable,” including: Alaska Miners Association, Alaska State Chamber of Commerce, Alaska Support Industry Alliance, Resource Development Council for Alaska.  Together, these likely represent the majority of employed Alaskans.

The time is nigh for new leadership and new ideas to turn crisis into opportunity.