Flattening the curve without flattening the economy

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SENIOR CONTRIBUTOR
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By WIN GRUENING

In the space of a few short months, our world has been abruptly upended. On March 11, the World Health Organization officially declared the coronavirus (Covid-19) a worldwide pandemic due to its “alarming levels of spread and severity” as well as “alarming levels of inaction.”

It will be some time before we know if Americans will remember this 3-11 event in the same way as 9- 11.

If there ever were a time for all Alaskans to come together, this is it. We did it after 9-11 and after earthquakes struck Alaska. We can do it again.

It’s clear now this virus is far more dangerous than the ordinary flu. In the weeks and months ahead, we must rely on medical professionals at the local, state and national level to guide us so that, whatever the outcome, the threat to life and health will be minimized.

In the meantime, we also need to deal with the unprecedented economic damage, the effects of which in Alaska will be immediate, severe, and extensive.

Experts are now calling for dramatically lower crude prices as major OPEC and non-OPEC producers failed to reach an agreement to support the oil market as global demand plummeted.

With Alaska North Slope oil prices below $30/barrel, our state legislature is faced with the daunting prospect of crafting a “hold-the-line” budget that won’t balance even if Alaskans’ PFD is slashed to zero.

The coronavirus crisis has equally ominous implications for other parts of Alaska’s economy.

Our state’s seafood and mining sectors will be impacted. Major markets for much of their production include China and other parts of Asia whose economies are being severely disrupted by Covid-19.

But the most immediate effect will be concentrated in the visitor industry.

According to a recent Alaska Department of Commerce report, the visitor industry accounts for over 50,000 jobs and $2.8 billion in direct spending. Alaska hosted over 2.2 million visitors in 2019 – with 60% tied to the cruise industry.

The widely publicized outbreaks on two cruise ships have forced most cruise companies to call a halt to all vessel sailings for 60 days. Canada has banned all cruise ship dockings until at least July 1. Cruise reservation cancellations, even before these announcements, were building daily. Health officials have advised Americans to forgo travel altogether – particularly cruise and air travel.

Essentially, 40% of the cruise season in Alaska has been cancelled. Even if Covid-19 infections begin leveling off in the next several months, it’s not clear when, or if, cruises will resume this year.

Most businesses in Alaska dependent on visitors have already hired employees and purchased their supplies. Some have taken out loans or committed capital to expanding operations in the expectation of a record-breaking season.

It’s not just lodges, gift stores, fishing charters, flightseeing, whale-watching, bus and helicopter tours that will be affected. Airlines, brew pubs, restaurants, hotels, taxis, grocery stores and many other businesses that we count on year-round will also be impacted. Some businesses may not survive. Many have reduced employee work schedules and/or sent out layoff notices. In some cases, business owners are wondering if it makes sense to open at all.

While our communities can expect some assistance from state and federal sources, it won’t be enough.

Predictably, some are advocating implementation of new taxes or increasing existing ones. In the face of a severe economic recession, this is a terrible idea. Before any revenue measures are considered, cutbacks must be discussed.

Since Alaska has begun shutting down many non-essential businesses, even in the absence of coronavirus community spread, it’s even more important that corresponding steps be taken within government, selected non-profits and NGO’s.

As this crisis plays out this year, many of our state and community resources will remain unused or under-utilized. Except for health and safety requirements, state and city leaders must consider hiring and salary freezes, furloughs and service cutbacks. Non-essential expenditures should be postponed so that budget dollars are preserved or diverted to higher priority uses.

The economic burden of flattening the coronavirus curve shouldn’t be shouldered solely by private businesses. Equity demands it should be shared by everyone.

Win Gruening retired as the senior vice president in charge of business banking for Key Bank in 2012. He was born and raised in Juneau and graduated from the U.S. Air Force Academy in 1970. He is active in community affairs as a 30-plus year member of Juneau Downtown Rotary Club and has been involved in various local and statewide organizations.

17 COMMENTS

  1. Tourists spend most of their travel budget on cruise fees, airline tickets, and travel packages. What we see of it is a sprinkling of trinket buying, a little dining locally, and some taxi fares. Docking and landing fees (which aren’t that much anyway) end up going to government coffers.
    I don’t see all this “billions” flowing into Alaska every season. I see the vast majority of it going into the pockets of outside interests – right along with the “fishing industry billions” which mostly goes to Seattle and other foreign interests.
    We have two hundred years of stranded gas but no power plants generating cheap electricity to attract clean industry. Instead, our government is willing to enter into a deal with the Chinese devil, by underwriting all the risk and none of the control over a gas-line, putting our PF at great risk of becoming another Chinese takeover.

    • Correction, our former governor was “willing to enter into a deal with the Chinese devil, by underwriting all the risk and none of the control over a gas-line, putting our PF at great risk of becoming another Chinese takeover.” Our current government is not in favor of such an asinine deal.

    • Many governments have had to sign over Chinese-financed and built infrastructure projects to satisfy their debt to China. That dynamic is a major piece of their One Belt, One Road initiative to become the dominant World Power.

  2. Win Gruening, most of what you say is emotional junk…another story…No mention of the fact that China tried to hide the problem and has destroyed all data on the critical outcomes.. We are not beaten by this but will get on with what we have to do… Once we get past the worst and problem areas of this, I hope the President will do the right thing with the world powers to bring attention to China, Russia, North Korea and like actors that contributed to this recession of the world and the world wide sickness instigated and created from their biological labs. Stop trying to out do the Governor, the President and other officials.

    • I thought his comments on government cutting back significantly and sharing in the sacrifice that the private sector is bearing to be spot on. If there was ever a chance to bring government spending back under control, this is it. When your spending doubles over the last fifteen years, a period when inflation grew by less than 30%, you have a spending problem. Something the Governor has said numerous times.

      • “Predictably, some are advocating implementation of new taxes or increasing existing ones. In the face of a severe economic recession, this is a terrible idea. Before any revenue measures are considered, cutbacks must be discussed.”
        Win’s right, in part. When half the population isn’t working, that’s not the time to impose taxes. The time to impose taxes is when the cup is full, not empty, but decades of mismanagement by the Republican controlled state government, when money was lavishly spread about instead of saved for the inevitable economic downturn (Really? Did you think oil would always be $140/barrel?) have left us with a cup that isn’t anywhere near half full.
        This isn’t the time to consider cutbacks. We need people to have money to spend, not cut backs to drive them into poverty. The federal government realizes that, and they are doing something about it, but a one time fix like a $1000 check from the IRS or a so-called catch-up PFD will only work for a very, very short time. Better than nothing, but not a real solution to the problem. The real solution is to find a way to keep people afloat until they can get back on their feet again, and I don’t know how the Repubs are going to be able to do that, since they haven’t behaved responsibly for the past twenty years and don’t show signs of knowing where to start, other than the failed mantra of “cutbacks must be discussed.”

        • I’m old and my memory is getting faulty, but I seem to remember the times the GOP tried to reduce government spending and the Dem’s fought it.
          I also seem to remember the times the Dem’s attempted to reduce government spending, and the GOP fought it.
          All this partisanship isn’t helping.

  4. The legislature needs to give back, what they STOLE from Alaskans.

    It would go along way to ease minds and build the sort of confidence we will need when we climb out of our hidey holes and restart this economy…

    ..and besides..

    It doesn’t belong to them.

  5. The reality is that the private sector and the “Third Sector,” those enterprises that rely on government spending such as public construction, have always shouldered the burden of Alaska’s “boom and bust” economy. The public sector, and especially State government, has never really taken a haircut.

    I wasn’t high enough for decision-making in early administration of Gov. Steve Cowper as they began the “wet clean-up” of the mid-Eighties price crash, but I was high up enough to do a lot of staff work for the decision-makers and pretty well know what was going on. The Administration was catching Hell from the business community and the trades unions over the decimation of the Capital Budget; it had been slashed to federal match money and nothing more. Despite all the hue and cry from the public employee unions about how terrible life for State employees was in those days, there were very few layoffs; the Trades and Crafts guys who did the State side of public construction took some losses, but most layoffs in that period were nothing more than constructive discharges; State managers manipulating the budget to eliminate a position to get rid of somebody they were too incompetent or too chicken to discharge for cause.

    The reason for the reduction in State spending since Palin’s glory days has again been slashing the Capital Budget to federal match levels. Unfortunately, we really miss Uncle Ted, because federal spending ain’t what it used to be other than for the military and, for now, Medicaid. The reason we’re seeing staffing reductions in State government isn’t because we aren’t spending more money, but rather because State employees have given themselves some pretty fancy raises in the last decade. Back in the Walker Administration, they were whining about having fewer prosecutors; they weren’t lost because of budget cuts. They were lost because of pay raises causing them to have to leave positions unfilled. It takes about a 3% personal services increase every year to pay for step increases just to maintain the status quo. Any legislatively conferred or union negotiated general increases are on top of that 3 percent.

    Life is likely to get grim in the private sector this year. Then it’s going to take some years to claw out of it. There are three significant stakeholders in the Operating Budget side of State government; the public employee union racket, the education racket, and the healthcare racket. They own the Legislature and they’re going to keep theirs no matter what happens to anyone else.

  6. “There are three significant stakeholders in the Operating Budget side of State government; the public employee union racket, the education racket, and the healthcare racket. They own the Legislature and they’re going to keep theirs no matter what happens to anyone else.” Art Chance/
    2020

    There are three significant stakeholders in State government; the oil companies, the oil companies, and the oil companies. They own the Legislature and they’re going to keep theirs no matter what happens to anyone else.

    Until the oil runs out.

    That bright light at the end of the tunnel is not the blazing glory of a future with oil companies, it’s the glare of daylight and the real world, and, coming with it, the revelation that the magic savior, Oil, has forsaken us and there is nothing waiting to replace it.

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