Hard facts of Alaska's economic situation
Myth vs Truth
Not a day goes by without Alaska’s fiscal problems making the news. Whether cuts to public services, talk of new revenues, or a downgrade of the state’s creditworthiness, it’s hard to escape the numbers. So it’s good that Alaskans and our elected leaders are talking about the state’s fiscal problems.
It would also be good if everyone could separate the myths from the facts.
Myth. Higher oil prices and/or more production will arrive in time to save us.
Fact. Oil prices would have to almost quadruple to fill the budget gap, or production would have to more than triple. Today’s global oil market is in no shape to save Alaska.
Myth. Oil production from federal offshore leases, the Arctic National Wildlife Refuge and National Petroleum Reserve-Alaska can save us in time.
Fact. Even if a company produced oil on a federal lease, the royalty distribution would be up to the federal government, not the state. And the state would receive no production taxes from leases in federal waters.
Myth. If we just increased oil taxes, the problem would be solved.
Fact. At today’s oil prices there isn’t much profit to tax, and nowhere near enough to make a sizable dent in the state fiscal gap. Doubling oil tax revenues this year might cover 10 percent of the fiscal gap — at best.
Myth. If we just raised taxes on mining, fishing and timber, we’d be OK.
Fact. Tax revenues from those industries would have to jump more than 5,000 percent to close the general fund gap.
Myth. The LNG project will save us.
Fact. If the project goes ahead, and depending on market conditions and after paying back lenders and operations and maintenance costs, the general fund might pocket $1 billion to $1.5 billion a year by 2025. That’s far short of today’s fiscal gap and far too far away to help today.
Myth. A statewide lottery could raise a lot of money.
Fact. Looking at Wyoming, similar to Alaska in population, the Alaska Department of Revenue estimates we could raise maybe $15 million a year. There just aren’t that many people here to buy tickets.
Myth. The 24-year-old Constitutional Budget Reserve Fund will last long enough for something else to rescue Alaska.
Fact. At current revenue and expenditure projections, and assuming additional reasonable cuts in public services, the reserve fund could be gone by 2018. If we take steps this year to close much of the fiscal gap, the fund could last for years as a shock absorber for low oil prices.
Myth. The Permanent Fund can help protect public services and still pay out an annual dividend to all Alaskans.
Fact. If we manage our investments wisely, if we trim the dividend to a sustainable level, and if we withdraw for needed public services and resist the temptation to withdraw for our wishes and wants, the Permanent Fund dividend can continue for generations.
The truth is it’s going to take multiple pieces to put together a long-term fiscal plan. Every Alaskan and every industry needs to contribute. Those are facts.
Diane Kaplan is the Rasmuson Foundation CEO.