Mr. September, and state of the State

Happy Wife is far, far away (red star)…

… to attend a 2-day professional conference. Just now I got a text from her. She’s enduring a talk on targeted therapy in lung cancer and hopes I’m enjoying something more interesting. I texted back and said “Your latte’s getting cold.” I added a sad-faced emoji.

In fact I’m holding up well. It’s the weekend, a fine day outside, I’m into my second coffee and the dog is resting near my feet. Speaking of whom – he was recently voted Dog of The Month at his Doggie Day care. He goes there twice a week. Now when I arrive to pick him up I announce I’m here to pick up Mr. September. So far the stardom doesn’t seem to have gone to his head. For our part the award included three free days of care, a one hundred dollar value. I know, right – expensive! Our strategy is to get him good and tired twice a week (M-Th), which seems to work most of the time. Sometimes, though, it’s like he’s slept all day, because he has an alarming amount of energy left when he gets home. The Day Care has supervised quiet time twice daily where the toys are put away, the lights lowered, and the dogs are commanded to rest. (Think Kindergarten sans the half pint of milk). And supposedly they actually do. How the staff manages this with twenty dogs or more I don’t know. We struggle with getting one dog to lay down and chill. My suspicion is Mr. September sometimes oversleeps and, consequently, comes home well-rested. On these nights he enjoys leaping onto the couch with us with his favorite ball in mouth causing precious volumes of martini to go splashing everywhere.

You look at our state up there and you may think, my, what a grand place to live. In many respects it is, certainly the ones that matter to us the most. Yet trouble is knocking at the door. The government is facing a huge budget deficit, about 4.0 billion – yes, billion – and seems, so far (and not unexpectedly), rather inept when it comes to identifying acceptable solutions to fix it. The problem has one real cause – the low price of oil, currently about ~$45/barrel. Actually, I might mention a second cause, the government’s improvidence, which is an affliction of all governments so far as I know, so less an acute cause and more an ongoing systemic problem.

Although… once upon a time the Alaska government, contrary to its usual thriftless nature, did acknowledge it was a good idea to save for the future. I’m getting to that.

Taxes, of course, are on the table for discussion. Most Alaskans reel at the thought of an income tax. Especially those with an income. (Those without an income seem disproportionately in favor of it). Alaskans would prefer the lion’s share of government continue to be paid for by oil and gas revenues (taxes, fees, royalties, etc.), but at $45/barrel that option is no longer on the table. Never mind the (known) volume of oil on the North Slope continues to decline steadily. So even at a higher price the state would be dealing with budget woes, albeit less dire than what it’s facing today. Revenues from a state income tax would help the current budget crisis, but alone would be far too little to solve it. There’s only about 700 thousand people who live here, fewer who would be subject to an income tax. After subtracting the cost of the bureaucracy needed to administer an income tax (collection, enforcement, reporting, etc.), the government would likely see far fewer net dollars flowing into its coffers than expected.

The other option to pay for government is to use the State’s savings plan I alluded to earlier, the Alaska Permanent Fund (APF). At least until the price of oil goes back up, and surely it will (please tell me it will). There’s about $50 billion – yes, billion – in the APF, and the reason it was setup way back when (’72 if memory serves) was for this very reason – to pay for government when the oil runs out. I say simply amend the mission statement for the fund to include: “Or when the price of oil gets suddenly and perilously low.” Viola! Problem solved. Okay, easier said than done, maybe, but it seems an obvious solution (it does to me), and probably the only real solution. Unfortunately, tapping the APF to pay for government right now has been widely regarded like a fart in church. Some of the reasons for this are:

  1. Every eligible citizen in Alaska gets a check once a year from the government just for living here. It’s called the Dividend program. The amount of the Dividend is based on the interest earned annually on the APF. Use the APF to pay for government and people fear the amount of free money will shrink, or disappear entirely. (The concern is justified. Already the government has put on the table a proposal to limit the amount of free money people would get each year, even suspending the program entirely until oil goes back up (please tell me it will) ).
  2. The governor alone cannot authorize principal in the APF be withdrawn to pay for government, or limit or suspend the Dividend program. I don’t know if either or both of these is true. There are statutes and constitutional provisions regulating the management of and disbursements from the APF. It’s a hot topic of debate in Juneau right now; legal interpretations of the rules vary. Suffice it to say the controversy has fueled skepticism statewide that the government can or should be dipping into the People’s Piggy Bank®.
  3. Leave the APF alone – make Big Oil pay for government! This is less a reason and more an alternative. One more and more people in their shared contempt for Big Oil are rallying around. Nevermind that without Big Oil, life in Alaska, as we know it, doesn’t exist. Despite a very low price of oil (and thinner margins for Big Oil) many people still think the industry at large rakes in far too much money, doesn’t pay its fare share of taxes, revenues, windfall, etc., and thus their impression is that there is far more ill-gotten profit to be squeezed out these Robber Barons and redirected to government coffers. (I have an opinion on this, which I’ll leave for another post).

So, if it’s no to taxes and no to tapping the APF, what options are left? None so far as I can see. The loudest conservative voices say cut government spending. While I agree that’s prudent, it should be an ongoing goal of the government, not something expected to save us from going over the fiscal cliff. Besides, I heard somewhere we could cut government spending by 90% and it wouldn’t be nearly enough to overcome the deficit. That’s how important oil revenue is up here.

I’m not a Doomsayer generally speaking. I first moved to Alaska when the price of oil was very low and the State was in financial trouble at least as bad as it is now, maybe worse. That was 27 years ago. The problem eventually resolved and good times were ours again. But even I am becoming skeptical this time. The Party May Really Be Over.