Nathaniel Herz, Dermot Cole: Alaska Dispatch News

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Scott Goldsmith, ISER, April 23, 2015

The state government’s assets could generate enough earnings in fiscal year 2016 to pay the Permanent Fund dividend, boost the size of the Permanent Fund, and cut the expected General Fund deficit from $3.3 billion to just over $1 billion—which would still be a big fiscal challenge but much more manageable. That’s the finding of a new analysis by Scott Goldsmith, professor emeritus of economics at ISER.

Those state assets consist of money in the Permanent Fund and other accounts as well as the value of state-owned petroleum still in the ground. Dr. Goldsmith estimates that after first paying the dividend and adding to the Permanent Fund, the state could put $2.2 billion in remaining earnings in the General Fund, which pays for public services. 

Right now the state uses only current petroleum revenues and smaller sources to cover General Fund spending—but those revenues are expected to fall $3.3 billion short of the estimated $5.5 billion in spending next year. Dr. Goldsmith finds that if the state’s broader assets were carefully managed and annual General Fund spending was gradually reduced to about $4.5 billion, part of the asset earnings could be used every year, without risking the value of the assets themselves.

A grant from Northrim Bank funded this research. ISER publications are solely the work of individual authors and should be attributed to them, not to ISER, the University of Alaska Anchorage, or the research sponsors.

Read the analysis, The Path to a Fiscal Future: Use Earnings from All our Assets (PDF, 661.6KB). If you have questions, get in touch with Scott Goldsmith at osgoldsmith@alaska.edu or call 907-786-7720.

Alaska Dispatch News: Alex DeMarban: March 26, 2015

Saying he’s personally troubled by the lack of a broad discussion about Alaska’s fiscal crisis, the head of a prominent think tank wants to see a statewide conference involving Alaskans and leaders discussing budget reductions and new ways of generating revenues, including through taxes or the Permanent Fund’s earnings.

So far, the solution to the state’s massive deficit has centered primarily on emergency cuts by the administration and the Legislature. Some say that’s a necessary first step before the state begins looking for new taxes.

But with the deficit still expected to be about $3.5 billion, more cuts will surely have to be made. And if the status quo continues – with low oil prices and limited oil production – the state could plow through its savings in three years. That means it’s critical to start having the tough sit-down with Alaskans about the depth of the cuts that are needed and hard choices that must be made to protect the state, said Gunnar Knapp, director of the Institute of Social and Economic Research.

“What are we going to do about this enormous seismic fiscal shift?” said Knapp.

He said he’s personally discouraged because there’s “no realistic discussion” about how to raise revenues, and “furthermore we’re told it’s off the table,” he said.

“It’s such an uninformed discussion it drives me nuts,” he said.

Others agree that a fiscal conversation with Alaskans needs to happen as soon as possible. That includes Gov. Bill Walker, said his press secretary, Grace Jang.

“It’s definitely something that’s a huge priority of the governor’s,” she said. “As soon as this legislative session is over, the administration will take up those discussions, if not sooner.”

Sen. Anna MacKinnon, co-chair of the Senate Finance Committee, said she’s thinking about options for getting the message out. One possibility involves taking her committee on the road so entire communities can weigh in. Whatever path is pursued, making sure it’s inexpensive will be crucial.

“There are variety of options out there, but the more Alaskans are involved in a conversation about our future, the better,” she said.

Knapp said the state’s looming fiscal cliff doesn’t seem to be getting much traction with everyday Alaskans, perhaps because they feel the problem is temporary and, just as in the past, an increase in oil prices will bail the state out of trouble.

Read the rest of the article here.

Alaska’s financial dilemma: The state dependence on oil begins

Dermot Cole March 15, 2015 Alaska Dispatch News

Veteran Alaska Dispatch News reporter Dermot Cole has written extensively about state spending and the Permanent Fund from his base in Fairbanks. Now, in this three-part series, he examines how we got to this point and what we can do to move forward.

First of three parts

A chartered United Airlines DC-8 lifted off from Anchorage International Airport on the most bizarre run to the bank Alaskans have ever seen.

The jet took off at 7:05 p.m. Sept. 10, 1969, for a nonstop flight to New York.

The cargo? Checks valued at about $180 million, more than $1 billion in today’s dollars, written by the world’s major oil companies that day for the right to look for oil on the North Slope.

In that distant time before Internet banking — a decade after statehood and seven weeks after Neil Armstrong walked on the moon — the bankers delivered the checks to New York the next morning, allowing the state to start collecting $41,000 a day in interest.

Since that first windfall, supplemented within days by the rest of the $900 million from the big 1969 North Slope lease sale, the state’s fortunes have risen and fallen with the cycles of the world oil market.

The pattern of spikes and crashes has played out many times through the decades, with a predictable response each time from Alaska — euphoria when oil prices rose and cries for cutbacks and fervent promises to become frugal when oil prices collapsed.

Alaska, still more dependent on oil than any other state, has been stunned in recent months by a revenue collapse, at a loss about what we should do next.

Read more here.

Alex DeMarban, October 5, 2014, Alaska Dispatch News

With Alaska’s annual budget deficit at more than $1 billion and growing, and the state’s income dwindling, fiscal sages and scholars gathered at an all-day forum Saturday to explore ideas for balancing the budget and staving off a brutal economic crash.

Solutions included ideas that would reduce the annual Permanent Fund dividend to help pay for state services, two days after this year’s $1,884 checks appeared in Alaskans’ bank accounts.

Alaska still has plenty of money, thanks to years of healthy oil production, but it’s disappearing quickly as oil production continues its recent decline. For the fiscal fix that will one day be needed, the state’s $50 billion Alaska Permanent Fund — used mainly to cut those annual checks — presents an obvious income source. Alaska can also count more than $10 billion in savings accounts beyond the Permanent Fund.

But a big question is how to draw from the constitutionally protected Permanent Fund when families rely on the popular dividend checks to pay the bills.

“We don’t have a financial problem, we have a political problem,” said Larry Persily, a former deputy commissioner of the state Department of Revenue and one of the panelists at “Alaska’s Fiscal Future,” a forum organized by Alaska Common Ground and the Institute of Social and Economic Research.

Read more here.

Posted by KTUU, October 4th

Days after hundreds of thousands of Alaskans enjoyed a cash windfall to the tune of $1,884, the future of the Permanent Fund dividend is being debated.

On Saturday afternoon, a panel of experts gathered at the Wilda Marston Theater in Anchorage to discuss the future of the more than $51 billion rainy day fund and its role in government spending.

“If you want to get my Permanent Fund dividend then you’re going to have to pry it out of my cold dead hand,” said John Havelock, University of Alaska Anchorage professor.

UAA Professor Scott Goldsmith says the constitutionally protected Permanent Fund is secure and growing annually, but the dividend, which is based on the earnings from the fund, could be used to one day pay for government services.

Goldsmith says the situation is caused by declining petroleum revenue and production, which means the state will look to other sources of cash to pay for education, troopers and other services.

Despite the decline in production, some experts say Alaska remains in good financial shape.

“Oil production has been declining for the past 25 years,” said Goldsmith.  “The Permanent Fund has grown and the size of the dividend has grown and that’s because the Permanent Fund dividend depends on the size and earnings of the Permanent Fund, not only current petroleum revenues.”

Havelock says Alaska still has about $9 billion in fiscal reserve funds, but says if a solution isn’t found within the next five years the state’s future could be in question. Hopefully, he says, there will be no need to tap the Fund earnings which would reduce dividend checks.

“The Permanent Fund represents the fact that the resource belongs to the people,” said Havelock.  “If they need to get revenue then they should tax it to get that revenue back, but they should just be taking away the dividend which is like taking away a person’s personal property.”

Read more here.

Suzanna Caldwell, Alaska Dispatch News September 13, 2014

In November, Alaskans will decide whether the state will become the third in the nation to legalize the recreational use of marijuana. It’s controversial in that the drug is still illegal at the federal level, but also because it will essentially create a new industry — or at least a newly legitimate industry — in the state.

Consideration of legalization puts Alaska at the forefront of the movement to allow recreational marijuana sales, following Washington and Colorado. Oregon voters also will consider a similar measure and are set to vote on the same day Alaskans will.

Alaska is known for its live-and-let-live mentality and libertarian attitudes. So far, Alaska is the only state to endorse the private use of marijuana in the home, adding shades of gray to a legal area that is already far from black and white. Put those together, and it makes sense that Alaska would be one of the first states to look at whether or not the drug should be legalized.

However, the road to legalization is a complicated one. Those in favor of the initiative are quick to say that marijuana prohibition has failed and that it’s time for the state to take back the black market and stop unnecessarily criminalizing people. Those against it say Alaska’s drug policy is working and that legalization will only proliferate the drug, cause increased use — especially among youth — and be a burden on public health.

Questions go beyond whether you’re a heavy toker or staunch abstainer. Besides figuring out how to deal with public safety and health are the larger questions about how to create an entire industry from scratch. Much can be learned from what’s happening in Washington and Colorado, but there are unique issues only Alaska will face.

Below is a primer on what we know and don’t know about the proposed law, drawing on legal history, precedents being set in other states and our own reporting, including a handy timeline that outlines major events in Alaska marijuana history. Expect this to be updated as we continue our reporting on what this measure could mean for Alaskans.

Read the rest here

Suzanna Caldwell, Alaska Dispatch News, July 31, 2014

In the almost 20 years Alaska Common Ground chair Cliff Groh has been involved in the organization, he has spent a lot of time organizing, participating and moderating debates.

So when it came time to find an Alaskan willing to argue against Ballot Measure 3, an initiative that could increase Alaska’s minimum wage, he was surprised to find it was a challenge to come up with participants.

“It’s usually not this hard,” Groh said.

Part of that is timing — it’s still early for the initiative, which will be voted on in November — but the topic is also far from controversial. So far, no formal group has organized to oppose the measure. A poll conducted by the Alaska House Majority Caucus in March found that 69 percent of respondents supported a minimum wage increase. Even the Republican-led House of Representatives passed a substantially similar measure during this year’s session, though the bill never made it through the Senate.

After scouring the business community, Groh said the organization couldn’t come up with anyone who would agree to participate in a debate. Luckily Groh found himself at a “party” of economists — the International Association of Energy Economists — earlier this year and was able, through a little networking, to find Kyle Hampton, an assistant professor of economics at the University of Alaska Anchorage and director of the UAA Center for Economic Education.

Hampton took on Ed Flanagan, former Department of Labor commissioner and current co-sponsor of the measure that would increase Alaska’s minimum wage. The initiative would increase the minimum wage from $7.75 per hour to $8.75 an hour in 2015, then increase it another dollar in 2016, after which it would be adjusted annually for inflation. If the federal minimum wage increases to an amount over those figures (which is likely, given the current push by the White House to raise it to $10.10) the minimum wage would be one dollar over the federal minimum.

Hampton argued in front of a crowd of about 75 people at Anchorage’s Z.J. Loussac Public Library Wilda Marston Theater that the minimum wage is mostly an arbitrary figure that doesn’t necessarily lift people out of poverty. He suggests that the wage increases offer a short-term solution to a long-term problem of poverty.

Read full article here.

Alex DeMarban, Alaska Dispatch, July 24, 2014

Before a packed audience in Anchorage on Wednesday night, two sides sparring over the oil-production tax cut agreed on some issues, including that investment and jobs increased under the former tax system. But the teams disagreed strongly on whether the tax cut will pay for itself.

In one corner were Sen. Bill Wielechowksi and economist Gregg Erickson, arguing in favor of repealing the cut. In opposition were Brad Keithley and petroleum economist Roger Marks.

With less than four weeks until voters choose between the two tax systems, more than 250 spectators crowded into the Wilda Marston Theatre at Loussac Library. Dozens more were turned away because of space constraints in the theater, where it was standing room only.

Organized primarily by Alaska Common Ground, the debate was the first in a weekly series of forums focusing on the four ballot measures Alaska voters will consider this year.

This debate was different from previous tax cut debates, with panelists asking the questions instead of a moderator, leading to more back-and-forth and sometimes pointed exchanges. Meantime, the audience — generally older and cheering loudest for repeal arguments — submitted more than 50 questions, only a few of which could be addressed before time ran out.

Erickson, often jabbing at his opponents for private work they’d done for the oil industry, said the “spin doctors” at the Parnell administration — or maybe it was the oil companies — made a brilliant move when they dubbed the tax cut the More Alaska Production Act after its passage in 2013.

Erickson said tax breaks increase the chance of investment in the oil patch, which increases the chance more oil will be produced. But the real issue is not more production, he said. It’s whether the tax cuts will pay off for Alaska.

Paperwork he distributed at the meeting claimed the tax cut would be a huge loss for the state, costing $20 for every $1 in return. Later, relying on state figures, he said that if the More Alaska Production Act had been in place since 2007, instead of the former system known as Alaska’s Clear and Equitable Share, the state would have taken in $8.5 billion less in revenue.

Wielechowski said under the tax cut that became effective this year, production that is considered “new oil” — which gets bigger tax breaks than the “old oil” produced in the large legacy fields — will be a net loss for the state, with production-tax revenue smaller than the credits paid out. The state’s own figures show a 45 percent drop in oil production in 10 years, to about 285,000 barrels per day from about 500,000 today. In a matter of years under the More Alaska Production Act, the state will be broke, he said.

But Keithley and Marks said state figures aren’t taking into account production that will come on line now that the progressivity feature that hiked taxes on oil producers as crude prices rose — and led to sharply falling production — is gone. They argued that only a small increase in production is needed for the More Alaska Production Act to pay for itself.

Marks, a former state employee who helped write past oil tax laws, said that under certain conditions, only 30,000 to 40,000 barrels per day of new production would be needed for the tax cut to pay off.  That’s a fraction of the 4 billion barrels of proven oil reserves on the North Slope.

Keithley said the former tax regime led to more jobs and investment, but not results. The state spent hundreds of millions dollars a year subsidizing small companies’ unsuccessful exploration efforts. Meanwhile, taxes rose on BP, ConocoPhillips and Exxon Mobil Corp., the companies most likely to increase production.

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