Community and business leaders are pessimistic that Gov. Frank Murkowski and the state Legislature will make real progress toward a long-range state financial plan.
Alaska is outspending its recurring revenues by several hundred million dollars a year and there is enough money left in state reserve accounts for two more years of status quo.
But if currently high oil prices were to drop, the deficit will quickly balloon, leaving the state with only more year to exhaust the Constitutional Budget Reserve.
The consensus of Alaska leaders speaking at a Dec. 13 forum on the state's finances is that doing nothing is a recipe for the taking of Permanent Fund earnings for the budget, and at worst an economic recession like Alaska experienced in the mid-1980s.
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Several speaking at the forum said new revenue from a natural gas pipeline is at least a decade away, if the project happens at all. If the state does nothing to enact new revenues from somewhere, legislators will be forced to use Permanent Fund earnings to cover the deficit and perhaps appropriate any money left for a small dividend, several said.
Doing nothing is the worst outcome, a sure-fire scenario for tapping the fund's earnings, said Marc Langland, president of Northrim Bank. "I think that's where we're headed," was his gloomy assessment.
Langland complimented Rep. Mike Hawker, R-Anchorage, for his work in getting a percentage-of-value approach for managing Permanent Fund earnings through the Legislature in place of a complex, outmoded system now used. Hawker is co-chair of the House Ways and Means Committee, which has been holding hearings this fall on the proposal.
If that plan is adopted, some legislators are proposing splitting the Fund earnings between dividends and public services. "This will have the least impact on the economy," Langland said.
Joe Griffith, general manager of Chugach Electric Association, worries that mismanagement of the fiscal issue will bring on a recession like that of 1986-87, when Anchorage lost 35,000 people.
"The state administration is telling us that things aren't that bad, but if the price of oil drops a dollar or two the situation could change in a hurry," Griffith said.
Alaska has $60 billion in total assets including the Permanent Fund. "We're not poor. We just have a problem in organizing our assets," Griffith said.
University of Alaska economics professor Scott Goldsmith, who heads the university's Institute of Social and Economic Research, told the forum that Alaskans are lulled into a sense of security by slow but steady growth in employment.
"Compared to the rest of the U.S., we look pretty good," he said. But Alaska's economy has fragile underpinnings. Most growth in recent years is due to the "Ted, Bob and Al" factors, Goldsmith said, meaning U.S. Sen. Ted Stevens bringing home federal money; Permanent Fund director Bob Storer's management of the fund and the dividend payout; and Federal Reserve chairman Al Greenspan, who in keeping interest rates low set off a small boom in housing construction and refinancings in Alaska.
Those factors could change in a hurry, Goldsmith told the forum. Interest rates could rise, the dividend payout could decrease, and Stevens will give up his chairmanship of the Senate Appropriations Committee next year.
A recent study by ISER showed that when that happens, Alaska could lose some of the approximately $7 billion in federal spending in the state. "We estimate that $400 million to $2 billion is at risk," when Stevens turns his seat over to another senator, Goldsmith said.
A sudden drop in government spending sparked the mid-1980s recession, although it was state spending then, not federal, he said. "The private sector lost 10 percent of its jobs and home values dropped 20 percent to 50 percent. We all took a hit," Goldsmith said.
Alaska could easily face "the perfect storm," a convergence of losing federal dollars, a depleted budget reserve fund and an unexpected drop in oil prices, Goldsmith warned.
Lee Gorsuch, chancellor of the University of Alaska Anchorage, told the forum that as time passes the state is limiting its options by using up assets like the Constitutional Budget Reserve. Gorsuch said he doesn't see how the fiscal gap can be dealt with without use of fund earnings and new taxes.
"The truth of the matter is that we're on a course of liquidation of assets, and that will leave us naked if there is a decrease in oil prices," Gorsuch said. The political aversion to taxes is setting up a case where the fund will be invaded sometime.
"The fund is vulnerable to creditors who will come after us if we fail to fulfill our obligations," he said.
The problem is already discouraging business development, he told the forum. "Alaska is dead last among the states in startups of technology companies, and investment by the oil and gas industry is low," Gorsuch said.
An irony is that most private citizens, when they get the information and sit down in small groups, can solve this problem. "But something is awry in our political system because the government can't seem to solve it," Gorsuch said.
What is "awry" is that politicians just want to get reelected and won't exercise leadership, said Andy Halcro, an Anchorage businessman and a former legislator. Lack of leadership in Juneau begins with Gov. Frank Murkowski, who refuses to recognize the seriousness of the fiscal dilemma, Halcro told the forum.
"I run a small business with 100 employees, and I need to plan investments to grow my business. For business people stability is everything, and the longer the state waits to get its act together, the longer I have to wait to plan my investments," he said.
Halcro said the public may not have engaged the issue yet but the business community has. Eighteen organizations recently signed a letter to the governor asking him to develop a fiscal plan using fund earnings and a broad-based tax, he said, but Murkowski rejected the advice.
"A fiscal plan is not about growing government, it's about paying for what we have. No business in the world would continue paying out a billion dollars in dividends while losing $400 million a year," Halcro said.
"We really need leadership in Juneau, but it's nonexistent," Halcro said. Politicians continue to duck the issue, Halcro said. "It's all about getting reelected," he said.
Cynicism about politicians is deeply felt among voters, pollster Jean Craciun told the Common Ground forum. In exit polls, voters tell Craciun they just don't believe politicians anymore, she told the Common Ground forum.
People are confused by different sets of numbers put before them, and by the partisan rhetoric that surrounds the issue. If data were presented by a nonpartisan, unaffiliated group like the League of Women Voters it would be more believable to voters, Craciun said.
"The public does not believe we have a crisis because we keep solving the problem. They're willing to support a solution, but at the grass-roots level they're not convinced," Craciun said. As time goes on, however, the public will begin to believe the problem in real. "The business community is already feeling it," she said.
When pressed to decide on choices for new revenues, Craciun said polls show 43 percent of voters would favor a state sales tax with the remainder split about evenly in favor of Permanent Fund earnings or a state income tax.
However, in focus groups of 15 to 20 people support for an income tax usually grows after some discussion, she said.
