Rainy Day Fund exists and it's raining, already - Must Read Alaska
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Saturday, June 6, 2020
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Rainy Day Fund exists and it’s raining, already

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.

Art Chance
Art Chance

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.

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  • Art Chance provides his usual in-sight, but this time not the answers. He says we wouldn’t notice a 30% cut in the size of Gov’t as far as services go, but he is reluctant to propose it. His expertise is in fact in government.

    He is not taking on the current crisis brought on by the virus and the government shutdown of business in the private sector. Zink has said that the virus could peak at the end of April to sometime in July… That gives us no certainty whatsoever. What is certain is that somewhere around 71,000 Alaskans have been laid off. Businesses who were supposed to get loans to stay afloat (guaranteed by the SoA) are not getting them.

    I get the feeling that too many who have “made it” are not really concerned about what happens to either the businesses or the People laid off in the private sector. If the State shut them down then the State is responsible. If they cannot, then they need to get out of the way…The virus is not going to disappear in time…

    • My reluctance in having the State intervene in the private economy other than by some capital spending is that I know how corruptible the State government is. Even capital spending will only go to an exclusive club of union contractors and an exclusive club of union labor, but at least they’ll put money into the economy. If the State gets into the guaranteed loans business, it only takes a few checks to legislators and those loans become grants, or, worse, grants to some but not others. I also know how poorly the State monitors and audits programs. Loans that were made to keep line employees working will wind up paying for “shareholder meetings” in Palm Springs, and nobody will do a thing about it. Most State programs are riven with fraud, waste, and abuse and nobody does anything about it; nobody even looks for it. When Dianne Corso and I were the directors of the divisions of Personnel and Labor Relations we did a major restructuring of our divisions relationship with the operating departments to stop some corrupt processes and earned the everlasting enmity of the departments’ Administrative Services Directors who were the high priests of the States’ “work around the law” culture and of looking the other way. On the Personnel side the restructuring began eroding when Dianne retired and collapsed when her immediate successor retired. My centralization of Labor Relations survived my retirement by maybe a week. The congenital ‘crats; the people who survive in appointed positions through administration after administration got where they are by knowing how to game the system and they like the system just the way it is. You’ll note that Governor Dunleavy’s initiative to have the Commissioner of Administration take on the fraud, waste, and abuse has made zero progress.

      • Absolutely the unions have the state by the b*lls, and the lack of oversight in grant programs is atrocious. I watched it first hand. Some were small potatoes, but those add up.
        .
        I’m still cracking up about the golden coke spoon necklace. Truth! Remember that old bumper sticker?, “Lord, please give us another oil boom, we promise we won’t piss this one away”. Maybe that one will be resurrected again.

  • The whole reason for the permanent fund was because the FIRST $900 million for oil leases was squandered/pilfered within 5 years. Gone without a trace. “They” said back then it was enough to fund our school’s forever, then POOF it was gone. So fast forward to the next $900 million lease payment and Hammond and other leaders with integrity and wisdom said we could stop that from happening again by investing it, and through enshrining the principal in an account that couldn’t be spent by the legislature, but only the dividend, and that was to be divided between the general fund and the PFD paid out yearly to the citizens, we would stimulate the economy and have a “rainy day account”, for when things got tough. But that account was NEVER intended to be robbed from the PFD nor from the principal nest egg.

  • I suspect that matters have progressed beyond the point of no return, where no individual nor group can do anything, not even to mitigate the worst of the meltdown.
    “Humpty Dumpty sat on a wall,
    Humpty Dumpty had a great fall.
    All the king’s horses and all the king’s men
    Couldn’t put Humpty together again.”
    If the meltdown approximates the 80’s then we may lose over half of the PF itself, not just the spendable part. Only way to save it would be to immediately convert much of it to cash or gold.
    Then sacrifice everyone’s oxen. Don’t spend a cent on “saving” any part of Alaska’s economy. Let the meltdown be total, scorched earth.
    Then when the meltdown reaches bottom, start reinvesting the fund during a rising economy. Then we will have maybe a 50 billion nest egg, a right-sized government, and all the capitol project white elephants will have been torn down and not needing any upkeep. There will be no more 700k per year pretend jobs, no bridges to nowhere, and hopefully most of the carpetbaggers will have found somewhere else to pump dry.
    The one’s left will be mostly real Alaskans, who will once again be able to vote in real people who care about Alaska first.

  • There’s wisdom in your words, yet the sheep herder knows what’s best , bah bah bah. All the sheep need fangs , all the sheep need “herd immunity” from the herdsman’s book of lies and the stench that follows them.

  • I’m a small business owner in the Interior and have had a very difficult time in keeping the business afloat. Can’t go into the villages due to the lock-down and people stay indoors, so no one comes to my place of business. I’ve applied for the loan through the SBA but no word yet … I look outside and I agree with Art … it’s raining!
    I believe in my heart of hearts, that Gov Dunleavy will lift the stay-indoor orders sooner rather than later. He should call a special session and get the Legislature focused on getting relief to Alaskans by releasing the PFD early. Use that money for what it was intended for … to help Alaskans!

  • Art,
    Good read as always, a recounting of the grim litany.
    I too remember the “Old Alaska”. My family came to Alaska around 1900 ostensibly to build infrastructure from the coast into the interior. My Grandfather and Great Uncle were born and raised in Valdez. Grandfather went to college “outside” and earned a degree as a mining Engineer while Great Uncle bought a Roadhouse along the Richardson and operated it until his death. My wife’s family immigrated from Norway and fished the rich waters of Southeast. Alaska had an economy then based solely upon resource extraction. Sure, the Defense Boom brought jobs, for awhile, but aside from a wonderful road through Canada it left only a few airports and interesting structures atop mountains and desolate tundra places. Where do we go from here?

    First off, I will suggest that nothing has changed since my families arrival. Alaska is still a rich storehouse of natural resources it only needs a better way of getting it’s resources to market. Think of the Haul Road, built largely in just one season from Fairbanks to Prudhoe. Those of us who were employed on that project remember the 84 hour weeks it took to get it done. The Oil Pipeline was dependent upon that road. Without such infrastructure oil wealth would never have happened.

    How many job producing mines are on hold today because we as a State squandered our Oil Wealth Grubstake on non-essential State Employees instead of building pathways to our future? Is it too late to reverse this insanity?

    I will take exception to your description of Alaska before oil, having been conceived and born in Spenard… we were happy, well except when the dogs would pack up in March.

    • I too remember when the Glenn was two lanes past Merrill Field, and the only big, modern buildings were the Cook and the Westward and the McKay Building, which looked like something out of the Soviet Union, and there was an actual retail center downtown. I, too, loved it back then, but I recognized how undeveloped it was.

      The insider clique figured out that the way to make big bucks was talking about building those pathways. If you actually build them, the six figure job for somebody whose only skill is knowing who to know goes away.

  • Art,
    I appreciate your insight, wisdom and your willingness to share your thoughts. The ‘rainy day’ is indeed here for Alaska, especially. I say a good look at where Alaska is and where we’re headed as a cohesive entity should open every ones’ eyes and thoughts, regardless of political, philosophical, or ‘moral’ position or connection. To not have those eyes opened to a sustainable reality is to doom Alaska to a ‘retardation’ of growth, not an increase, with little or no growth/income, that will, most likely, impact generations of Alaskans. Already over the precipice of ‘negative cash flow’, we must absolutely reduce state spending to a survivable, sustainable amount, regularly derived from current events and projected future financial impact, whether negative or positive. Seems that should be the duty of elected representatives. The best interest of Country, State and Citizens. Isn’t that what America and Alaska are all about?

  • The money is being sat on by the house majority like it was the golden egg. They can’t be blasted off of it.

  • Art, your problem is………..you are too damn responsible and logical in your reasoning. How the hell did you last all of those years working for state government?

    • I’m really good at what I do; even people who hate me have to put up with me..

      • Thank you my friend for the wonderful entertainment for today. When I’m scrolling down my email and see your name on an article, I always settle back for the equivalent of dessert.

        • Thank you for the kind words.

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