Alaska Dispatch News columnist Charles Wohlforth wrote a nice, thoughtful opinion piece for the paper recently, headlined “Alaska’s economy hasn’t hit bottom yet. But you can see it from here.”
The problem WC sees is that none of the issues that drove Alaska’s economy into its current recession have been addressed.
Fundamentally, the worst problem is the price of crude oil, which is too low to generate much income for the State of Alaska. In fact, it’s too low to economically justify drilling and development on the North Slope. Worse, there are no more Prudhoe Bays, although there is a lot of wishful thinking. Nor is there any reason to think that the price of crude oil is going to rise very much any time soon. Fracking changed everything. If demand for crude oil continues to decline, crude oil prices may never recover. If you think WC is overstating the sense of gloom on the North Slope, get in touch with WC and he can make you a heckuva deal on a very nearly new man camp.
The next reason to be an Eeyore is the consequence of the Alaska Legislature’s ongoing decision to kick the economic can down the road. Five years ago, Alaska was in the enviable position of having converted a nonrenewable resource – crude oil – into a renewable resource – permanent funds, that pay dividends. But the Alaska Legislature has frittered almost all of the Constitutional Budget Reserve away and threatens to do the same to the Alaska Permanent Fund. The earnings from those funds are lost because of the decision – or non-decision – by the Legislature to spend the principal down.
Another reason to be an Eeyore is the damage to the State’s credit rating. The failure by the Legislature to address the revenue shortfall has caused credit rating agencies to downgrade Alaska’s credit rating. making it more expensive for the State of Alaska to borrow money. With the big permanent reserves spent, the only source of funds for capital improvements is borrowing. But borrowing money will now cost Alaska a lot more interest, making it harder to keep up with deferred maintenance, let alone new capital improvements. And if the result is further damage to Alaska’s aging infrastructure, it makes Alaska’s financial crisis that much worse.
Still another reason to be pessimistic is that the Alaska Legislature, instead of addressing what is a revenue crisis, has treated it as a spending crisis. And made drastic cuts in state spending. Unfortunately, the burden of those cuts has fallen disproportionately on Alaska’s youth. The public school system and the University of Alaska have both been seriously damaged. That will bite the State of Alaska in the butt in the middle- and long-term. The amounts of money spent on education is a pretty reliable predictor for the strength of a state’s economy. Compare California and Mississippi, as an example.
The final reason WC is an Eeyore about Alaska’s economy is the Alaska Senate. There is a handful of state senators for whom revenue measures – including a reasonable state income tax – are anathema. Never mind that a state income tax makes all kinds of sense for all kinds of reasons. To the zealots in control of the state senate the idea of a state income tax violates their view of the world, and they will not consider it. WC uses the word “anathema” in its strictest sense: heresy. And the thing about a claim of heresy is that you cannot change the minds of the claimants. It is inherent in their world view. The Republicans regard an income tax as heresy and refuse to consider it. And in a badly gerrymandered state like Alaska, the chances of removing those zealots are low.
There are doubtless readers who will regard WC as simply a jackass. But the five reasons WC thinks Wohlforth is whistling as he walks past the graveyard are pretty hard to dispute. Which makes WC an Eeyore.