Not a Good Time to Go Soft on Spending, Alaska

Brian McNicoll
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Posted: Jun 14, 2017 12:01 AM
Not a Good Time to Go Soft on Spending, Alaska

Take a tiger out of the wild, provide him a few steaks and a nice “habitat area,” and soon he is not the hunter he used to be.

Take a state born on fierce independence and self-reliance and get its state government mainlining on oil money, and that state also soon won’t have the survival skills that made it great.

 Welcome to Alaska 2017.

Democrats took control of the state House of Representatives in the last election, and their approach seems to be to ensnare as many of their fellow citizens in dependency as possible and to fund that dependency by sticking it to the oil companies.

Alaska already is the most government-dependent state in the union. It has a higher percentage of its population on welfare, reduced-price school lunches and aid for fuel and other purchases. Per capita government spending in Alaska totaled $15,470 in 2014, nearly three times the national average of $5,457. The state has gotten sloppy as its budgets have grown rich…it delivered the same services for 12 percent less in 2006.  

And the state budget continues to grow – from $7.8 billion in 2007 to $11.4 billion today. That’s a 46 percent jump in a state whose population grew just 8.5 percent in a country where inflation over that time was just 19 percent. Its deficit has climbed from $3.2 billion last year to $4 billion this year – a 25 percent hike in one year.

Now, the liberal extremists who have taken over the Alaska House of Representatives are at it again. They want to close that $4 billion gap by restructuring the tax code and adding millions of dollars in taxes and regulations on the energy sector.

The House and Republican-controlled Senate have approved separate budgets for the state this year, and a conference committee, working with Gov. Bill Walker, an independent who has worked hard to bring the sides together on a compromise plan.

Time is short. Conferees have finalized the budget for only two of the 20 departments in Alaska’s government – the Alaska Department of Administration and the Alaska Department of Commerce, Community and Economic Development – and the state government will shut down July 1 unless a budget is agreed upon.  

The debates have been contentious. The Department of Administration budget couldn’t be finalized until lawmakers agreed not to call for outsourcing DMV licensing and administrative services to a private company. The Department of Commerce, Community and Economic Development was held up until, among other things, a $450,000 cut was made to the travel budget of the economic development staff.

If Alaska wants to be an economic tiger again, it needs to make the hard choices on state spending now. It needs to get off the top of the dependency indices and get its residents back to work.

The energy industry has jobs to offer – it already directly accounts for a third of the jobs and 90 percent of the state revenue in Alaska. And recent discoveries promise to keep the oil pumping for decades – if it can be done properly and profitably.  

But energy exploration is a huge investment and thus depends on certainty and continuity in state policy. And Alaska has changed its tax structure six times in the last 12 years. The most recent change seemed to be producing the desired outcomes, as long as state spending did not continue to skyrocket.  

But as soon as Democrats got into power and started boosting budgets for out-of-town trips and the like, the state began looking again for more revenue rather than reasonable limits on spending.

Moreover, the oil and gas market has changed.

A decade ago, America still depended on foreign sources for 60 percent of its energy needs. That meant Alaskan oil always would be part of the mix at international market prices, and production always would be economically worthwhile.

But America and the rest of the world suddenly find themselves awash with energy. Oil, once $120 per barrel, is now in the mid-$40s and unlikely to climb much for a considerable period of time.

Oil exploration in Alaska is extremely expensive. There’s the harsh weather, the limited labor pool that drives up wages and, increasingly, a regulation-minded state government that wants to increase expenses still further.

The solution of the Democrats in the Alaska House to these challenges is to pass a budget legislation that calls for a direct tax hike of $130 million by 2019 and $450 million by 2034 and regulations that would enable the state to micromanage oil and gas projects in ways lawmakers won’t even yet specify and that experts say will drive up the cost of producing oil in Alaska by $7 per barrel.  

Money has come so easily to Alaska through its various taxes on energy that lawmakers have lost their ability to hunt for efficiencies. But things have changed. The energy industry finally has a choice of whether to explore and expand in Alaska. This is not the time to make that choice more difficult.