Last week, Gov. Bill Walker made a swing through Kenai to pitch his administration’s plan for a long awaited, much anticipated liquefied natural gas project.
Also this past week, Congress passed a tax code overhaul that includes a long awaited provision to open a portion of the Arctic National Wildlife Refuge to oil exploration.
That’s a big week for Alaska. If either of those opportunities come to fruition — and there’s much work to be done to make that happen — Alaska will be on the verge of an economic boom perhaps bigger than the Trans-Alaska Pipeline in its heyday.
According to U.S. Geological Survey estimates, the coastal plain of ANWR could hold 10 billion barrels of oil — enough to keep the pipeline flowing for years to come.
Likewise, the proposed LNG project — with its terminus and liquefaction plant to be located in Nikiski — has the potential to bring natural gas to world markets for the next century.
Again, this is fantastic news for Alaska, where we’ve been waiting for decades for the next big thing. Both opportunities qualify, and they couldn’t come at a better time as the crash in oil prices has left the state coping with multi-billion dollar deficits for the past few years, blowing through $14 billion in savings along the way.
With that in mind, we’d like to pose this question: What have we learned from Alaska’s previous economic booms that we can apply going forward.
Certainly, we’ll have to be prepared for the influx of people that comes with a booming economy, and all the issues that come along with that. We’ll also need to mitigate the impacts of oil exploration and infrastructure development on the environment — we Alaskans do value our wild spaces — and our communities.
But what can we do to ensure that the benefits of a potential boom will be used to secure prosperity for future generations of Alaskans?
The smartest thing Alaskans did the first time around was to establish the Alaska Permanent Fund, which is now worth in the neighborhood of $62 billion. The Permanent Fund has long been billed as the state’s rainy day account, yet as the current debate over use of its earnings demonstrates, we’ve never had a good definition of what constitutes rain. Indeed, a sovereign wealth fund has much more potential than simply paying dividends to residents; for an example, just look to the proposed LNG deal, which would be financed in large part by China Investment Corp., China’s version of the Permanent Fund.
Investment in mega-projects might not be the right use of the Alaska Permanent Fund, but what we do need to have is a better plan for when the boom ends. Alaska’s current recession caught many by surprise, and we didn’t have a contingency plan in place to deal with such a large and ongoing shortfall. We’ve been fortunate to have had a healthy savings account, but that is now used up, and we still don’t have a back-up plan.
Certainly, there is economic value in paying out dividends to Alaskans each year. And as a resource state, Alaska will continue to be impacted by the volatility of the market. But wouldn’t Alaskans be better served by a plan that would smooth out some of those economic downturns? Whether it’s a percent of market value draw on Permanent Fund earnings, or some other mechanism, a contingency plan that eliminates the angst and uncertainty — not to mention, deep cuts to state services — would seem to be a better option.
Short of that, the Legislature will at the very least need to ensure the state’s savings accounts are replenished, as it did several years ago when oil prices spiked. Because if there’s one thing we’ve learned, you never know when that rainy day might come.