By ART CHANCE
It’s Raining
Those of us who’ve been in Alaska longer than the day before yesterday remember when the Permanent Fund was cast as a “Rainy Day Fund.”
What informed most of the political discussion about establishing the Permanent Fund was a simple question: “What happened to the $960 million?” Back in the 1960s, the State budget was barely over $100 million a year. Then one day we chartered a jet to take a check(s) for $960 million to New York. That was what Alaska got paid for the Prudhoe Bay oil leases.
Most Alaskans don’t realize what a truly scruffy place Alaska was back then. Our economy was mostly based on washing each other’s clothes and working on Federal projects. Alaska had some lawyers, doctors, and merchants, but the drivers of the Alaska economy were the guys wearing Carhartts and Helly Hansens.
Back then Anchorage was bigger, but Juneau was much richer, (still is actually). The money wasn’t made from government but rather from gold. Juneau had the government because it had the gold, and was probably the richest city in the world during the height of Alaska-Juneau Mine production.
After the Prudhoe Bay leases, The New Yorker sent some reporters to Alaska and they concluded that, “the people who built Anchorage, Alaska should never be allowed to build anything ever again.” A lot of the stuff the Noo Yawk snobs complained about is still here.
Then came the pipeline boom. I was one of the long-haired, bearded guys wearing Levi shrink-to-fits who invaded Alaska looking to get by and high; Alaska was a very druggy place in the mid-Seventies. And we got rich! When the oil began to flow, we became the “blue-eyed Arabs.” We had fabulous dreams of domed capital cities and huge Soviet-style hydroelectric dams. Everybody who knew a legislator had some project he or she wanted funded. A lot got funded; almost all failed.
We had a helluva party in the early eighties; if you didn’t have a Porsche in the parking lot and a gold coke spoon on a chain around your neck, you were a nobody.
And then it all ended. What nobody in Alaska considered was that U.S. policy was to flood the market with Alaska oil, along with British and Norwegian North Sea oil, to collapse the OPEC oil price paradigm. The strategy succeeded, and the price of oil collapsed in the mid-eighties.
We went from $billion capital budgets to a few million to meet the federal match requirements in a year or so.
I won’t tell you stories of what it was like to deal with that because the world has changed, but we’re once again dealing with US policy collapsing the price of oil.
So, here we are again; the price of oil is lower in real dollars than it was in the mid-80s and early- 90s. We’re barely above the cost of production and transportation, and Alaska has almost no oil revenue. The first of the big producers, BP, has abandoned us and left us to the scavenger producers.
The brutal fact we must face is that the Trans-Alaska Pipeline is at or below the limit of economic viability. What most Alaskans don’t seem to grasp is that when that pipeline is no longer viable and gets shut down because there is no money to be made from the oil, the pipeline as a matter of law has to be disassembled, removed, and the right of way restored. At that moment, Alaska returns to the economy of 1967, but with a whole lot less federal defense spending.
Right now, the unions and the healthcare industry own the Legislature. I dealt with this conundrum in the 1980s. What we had to decide was whether we should lay off a lot of State employees so the money could be sent into the economy or whether we kept them working so we didn’t add more foreclosed houses and repossessed cars to the faltering economy.
I don’t know that we got it right by preserving the State workforce and making them able to make their mortgage payments and car payments. Actually the only things that got us through it were the economic boost of the Exxon Valdez clean-up followed by the Gulf War, which ticked oil prices up significantly.
Right now, we have a perfect storm. The price of oil is swirling in the drain because of the price war between the US, Russia, and Saudi Arabia. Added to the price war is the fact that oil product demand is in the toilet because of trade and travel restrictions.
Then, we have all the port closures that have ended our tourism industry added to the Canadian government’s restrictions on travel through Canada to Alaska.
We only have an economy based on washing each other’s clothes. In short, Alaska is broke and bankrupt.
Now with all due respect to my “pay the full Permanent Fund dividend” friends, and my ideas and yours aren’t mutually exclusive, we have to change our ideas about the fund; the rainy day is here. The whole idea of the fund and the dividend was to be able to build it so there would be enough money in it for this day.
I could take a sharp pencil to an organizational chart and cut the State government by at least 30 percent and no citizen would lose any government service.
That said, the 30 percent I would cut pays a rent or mortgage, makes a car payment, and does all the things that support a consumer economy. So when I make that cut I take one helluva chunk out of the consumer economy. These are people who patronize your favorite restaurant, your mechanic, your grocery store, your clothing store. If I take them out of the economy, I take them out of the economy that you’re a part of, too.
It is a delicate balance. If you sit on the 10th Floor of the SOB in Juneau or the 3rd Floor of the Capitol, the only people who have more power over the Alaska economy than you are in Washington, DC and in boardrooms in London, Riyadh, and Houston.
The rainy day we anticipated in the 1970s is here. I went through it in the 1980s and 90s; we could have avoided most of the serious economic consequences of those times if we’d used the Permanent Fund as it was intended to be used. Back then I likened it to the farmer who lived in poverty to pass his land on to his kids who sold it to become millionaires.
I’m not defending the legislators who are whoring for their sponsors, but the real issue is that we have the rainy day the people of 40 or 50 years ago anticipated and we need the State government and the Permanent Fund to protect us from the rain.
Art Chance is a retired Director of Labor Relations for the State of Alaska, formerly of Juneau and now living in Anchorage. He is the author of the book, “Red on Blue, Establishing a Republican Governance,” available at Amazon.
