1-26-16 Alaska’s Fiscal Crisis Takes Center Stage, Spotlights Blazing, Audience Cheers and Jeers!

Alaska's Fiscal Crisis Takes Center Stage

See Alaska Headlamp today for more on government spending….

Juneau Empire by James Brooks.  John Tichotsky, chief economist for the Tax Division of the Alaska Department of Revenue, told legislators that global oil production outpaced demand by almost 2 million barrels per day in 2015….

by

Dave Harbour

​(Note to readers: Please help us assure the accuracy of these archives.  Let us know of any factual additions/corrections needed in any of our news or editorial material and we will initiate immediate changes!)

Yes, we know what center stage is.  For an actor, it is the coveted place of maximum visibility.  It is the forefront, the center of the audience's attention.  

We can approach a real stage in a theater–like the character in the photo.  Or, we can appear in virtual center stages of life: on a basket ball court, in a pulpit, before a political body or in our daily jobs and personal lives.

Today, we think of the virtual stage upon which our political decision makers now begin the 2016 legislative performance.  We particularly focus on the fiscal challenge they face.  Like theater critics, the voting audience analyzes how they have acted and how they are now performing in the bright spotlight of Alaska's center stage.

Late last year, Alaskan leaders gathered in the spotlight of a legislative special session.

With best intentions, they fiddled with spending money they don't really have on equity (i.e. risk) ownership of an unproven gas pipeline/LNG concept that could not come to their financial rescue for ten years, if then.  

For the past three years, they fiddled with the idea of using precious, public funds to bring expensive North Slope or Cook Inlet gas/LNG to Fairbanks when consumer interest in converting from fuel oil in our current low oil-cost environment, is low.  (i.e. the Interior Energy Project, IEP)

Meanwhile, center stage, the fiscal future of the state is in flames while political actors fiddle back stage with issues that are virtually unimportant compared to the conflagration poised to consume them and their constituents: an unsustainable state budget.

The truth hurts us all, but recognizing truth is the first step toward recovery and future success.  The truth is that Alaskans have done a poor job of converting the incredible wealth allotted to them by virtue of their geographical location–into sustainable prosperity.

Imagine this situation.  

Say it is 1977.  The 800 mile Trans Alaska Pipeline System has just begun transporting Alaska's black gold to market.  The state operating budget, compared to today's nearly $5 billion, is about $350 million. (Fiscal Crisis References Here) 

You are in charge of managing Alaska's projected wealth calculated to be in the scores if not hundreds of billions of dollars.

Some are calling for restraint because, after all, force majure, the end or beginning of an oil embargo and a thousand other factors could affect that single, monopolizing, undiversified income stream of life-sustaining oil.  

Others are crying for you to "Spend it while we have it" (Note).

What are you going to do?

You poll your constituents:

Question One: Check One Option.

• __"Should we continue to operate a moderate government to serve our existing citizens, and save the overwhelming majority of income for later … and reasonably tax industry solely for the reasonable needs of the state?"
• "Or, __ should we continue to raise taxes until Big Oil cries "Uncle!", and spend it while we've got it?"

Question Two: Check One Option.

• __ "Should we create a modest budget designed to primarily benefit Alaska's current citizens and their offspring — that generally increases no faster than population and inflation?"
• Or, ___ "Should we continue to raise industry taxes and spend as much as possible on grants, infrastructure, education, subsidies and programs that also has the effect of attracting waves of new immigrants seeking the benefits of the wealth?"

Question Three: Check One Option

• ___ "Should Alaska's operating budget (i.e. and municipal and education budgets), on a per capita basis, be generally in the median of per capita Lower 48 spending — perhaps with an adjustment for higher Alaska transportation and wage costs?"
• Or, ___ "Should Alaska develop its budget with more regard to funds available than with regard to the level of per capita spending?"

Question Four: Check One Option

• Should Alaska have a competitive oil tax system — not higher than the median oil and gas tax level paid in other oil producing states and democracies — that remains generally constant with a bias toward providing increased tax revenue as our stable tax environment attracts more investment and production?"
• Or, ___ "Should Alaska disregard its competitive position with respect to other oil producing states, neighboring provinces, other world democracies and investor interests and tax as much as we can to fund the needs solely as defined by annual gatherings of legislators?"

Question 5: Check All Preferred Options

• ___ Forty Years from now, in 2017, Alaska should have … the highest per capita state spending in the nation; and
• ___ Alaska should have the highest per capita debt of all states; and
• ___ Alaska should create the highest number of partly government supported non-profit organizations in the United States; and
• ___ Alaska should have one of the highest oil and gas tax structures in the free world; and
• ___ Alaska's oil tax history should have been highlighted with exorbitant tax hikes and even with retroactive taxation; and
• ___ Alaska's PERS/TERS unfunded liability should be about 20 or 30 times more than our WHOLE 1977 budget; and
• ___ We should be incurring a 2017 budget​ deficit ten times the size of our complete 1977 budget at a time when the Trans Alaska Pipeline System (TAPS) produces 85% of the operating budget, is 3/4 empty and oil prices are 3/4 lower than they were when the 2015-16 budget was created?
• ___ We should continue funding state, municipal and education budgets — with relatively minor cuts — after virtually doubling them over the last decade. (i.e. because while everyone knows you can spend yourself into prosperity, you cannot possibly cut yourself into sustainability.)

Well, that is all water under the bridge, though it is useful to review past decision making.  

We can agree some degree of government operating and capital spending was undoubtedly good over the years.

But, if past decisions did not lead to good solutions, in general, they should not be repeated.  If past decisions resulted in economic strength and a sustainable way of life, perhaps those principles could be revisited.

Today, no one believes that the past tax and spend decisions have led to an overall favorable outlook, today.

If that be true, perhaps a different approach, different values, different decisions are in order.  (See definition of 'insanity', above, right column.)

If the actors at Alaska's center stage will in the current legislative session produce decisions leading to a sustainable economy, perhaps a grateful audience of constituents will rise in ovation, inviting the players to provide an encore.  

At least, Alaskans can work and pray toward such an outcome.

*     *     *

Epilogue

Let us state very clearly here and now: "Raising natural resource taxes will not help sustain Alaska's economy.  It may help to temporarily "balance" a failing budget for a year or two but, in fact, increasing industry costs will excite the decline of investment, further endangering economic sustainability."

Alaska's Fiscal Crisis References

Plan4Alaska

​Alaska's Future

2002 fiscal crisis predictions 

Institute of Social and Economic Research

Alaska Citizen’s Guide to the Budget (ISER)

Commonwealth North

Alaska Common Ground

Institute of the North

Anchorage Economic Development Corporation

Fairbanks Chamber of Commerce

Our Alaska

Alaskanomics (Northrim Bank)

Three-Legged Stool (First National Bank of Alaska)

Alaska Oil and Gas Association

Alaska State Chamber of Commerce

Alaskans for a Sustainable Budget

Note: over the years, Alaskans developed a fairly provincial, myopic way of looking at world competition.  Instead of positioning themselves for a day in which production might be lower or the value of production lower, they instead argued for maximum industry taxation and a robust spending program.  During these years, it was sometimes difficult to distinguish liberal from conservative lawmakers.  Because there was so much taxation and so many dollars, it was hard for members of either party to say "no" to members of the other party.  Gridlock was avoided, basically, by unanimous agreement to spend every available dollar on a mind boggling array of programs and projects.  In order to justify the high level of industry taxation and spending over the years, advocates of these policies accrued public support by demonizing the oil industry and appealing to the greed of citizen beneficiaries of programs and projects.  Following are some of the rather silly, anti-investor slogans and themes we have observed over the last 4-5 decades on the Alaska political stage:

"It's our oil!"

"Canada's Gas, My Ass"

"My Way Is The Highway"