ALASKA, THIS IS AN EXISTENTIAL THREAT

We are in a recession.

There – we acknowledged the grenade on the table.  Now, to explain:

In the best of all possible worlds, Alaska is going to lose 10,000 to 15,000 jobs over the next 24 months, according to credible analysts.  Some say that could go as high as 30,000. The Chicken Littles are saying 40,000.

Housing values in the Railbelt are collapsing already, starting at the top of the market, but the domino effect is well underway; houses in the $300,000 range now sit vacant, dandelions and grass grow tall in the yards as the moving season hits midterm, and prices have started their march downward toward October, when the chill will hit.

Buyers are holding off. Everyone knows this is a time of great uncertainty in Southcentral Alaska. Why jump in the water now?

Freight carriers have a unique perspective: Some are reporting that their southbound barges are filled with containers of household goods – the most they can remember. Northbound barges are two-thirds full, a departure from just three years ago when the barges were packed with sundry and building materials.

Unlike 1986, Alaska is not riding a wave of national economic failure. The nation’s economy is a walk in the park compared to what we’re facing in our state. Today, we are riding the collapse of the price of oil, Alaska’s economic bread and butter. With a decrease in oil prices comes a loss of 25 percent of our gross state product.

Lawmakers are stuck with a budget they can’t trim because there are just enough recalcitrant members who believe every item and service is essential, and we have a governor who must dance with the big spending Democrats who brought him to the party.

The Democratic refusniks demanded a ransom, and the bipartisan majority had to give in for the second year in a row because there are just not enough conservatives to hold fast against the spendthrifts. The budget, also imperfect as it is, sits squarely on the desk of the governor, gathering dust by the week, and only he can cut it further. No one expects he has such courage.

Watching our state’s every move are Moody’s and Standard and Poor, and they have their fingers on the trigger when it comes to our bond rating. Once that goes, no small business owner in the state will be able to get a decent loan to build a warehouse or fund a capital improvement, because the banks will know the spiral is out of their control. Lenders will be much more risk averse when it comes to home loans.

The problem is an Alaska-sized dilemma because, while we are fiddling, we have various savings in and around the Permanent Fund that could be used to give our state a chance at survival. Earnings Reserve. Constitutional Budget Reserve. We just don’t manage our whole portfolio very well and it doesn’t work as hard for Alaska’s budget as well as it could.

PART OF THE SOLUTION

Senate Bill 128 is not perfect. Some Alaskans don’t like it because cuts to government were not deep enough. They’re right – the cuts were not what we expected.

Others don’t like it because we’re still giving tax credits to oil companies. They’re right – we are still giving a few credits, and let’s hope the drillers and explorers don’t all leave at once now that we’ve reduced the incentives.

A few are saying that Alaskans shouldn’t have to give up $1,000 of their current $2,000 Permanent Fund dividend because it’s too much to ask of the average person.

That may be true, and yet so is this: The $1,000 we give up from our dividend is chump change compared to what we’re about to lose in the equity of our homes and businesses.

It’s heresy to say it, but the Permanent Fund dividend has made welfare cripples out of the most staunch libertarians we know — otherwise thoughtful patriots who now demand they get their checks for work they didn’t actually perform. And yes, to be clear, we agree with them that the state budget needs to come down more.

The Legislature, however, has already submitted its budget to the governor and there is no going back. Small government Republicans and their bipartisan majority were able to cut $1.2 billion over the last two years, and that was all they could get through.

Cut more? Yes, legislators need to cut more next year and we voters need to give them a solid conservative majority this fall that will allow those tough decisions. This election cycle is everything to our future.

Now, the funding mechanism must be put in place – SB 128 takes care of most of the problem, without implementing an income tax. Most conservatives can live with that. What we can’t live with is a haircut on our Permanent Fund dividends, plus a host of new taxes that would cost us thousands more of income we actually did earn.

THE GRENADE AWAITS

The clock has essentially run out. Either we put the Permanent Fund into play to spin off earnings for state government now, or we lose the option entirely. Even if SB 128 isn’t a permanent fix, it would keep our ship from hitting Bligh Reef for maybe five or six more years, while government adjusts to the new reality, and maybe by 2018 we can get a grownup back in the Governor’s Office to help.

What happens next in the private sector economy? People who own homes and have jobs are about to get hit hard as the private sector collapses in this recession already underway. In the end, many will leave the state as they did in the late ’80s, and they’ll not have a Permanent Fund check to complain about. Those who stay will rebuild the economy piece by piece, hopefully wiser than before.

The grenade is on the table. It was placed there largely by Democrats who refuse to bring down the size and scope of government, who held the budget hostage. It was placed there by a governor who has no political will to face down his Democratic dance partners. But it’s there nonetheless, and we have to deal with it.

Will the House of Representatives members have the courage to make SB 128 work for Alaska?

Or will they pull the pin out of the grenade on the Alaska economy by saying no?