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Cold, dark and dying

 

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The abandoned Buckner Building in Whittier, AK/Wikimedia Commons, Gabor Eszes

December in Alaska is always a grim time of year buoyed only temporarily by holiday cheer. The shortening of the days is impossible to avoid. Nine-to-5ers can go from home to office cubicle and back again without ever seeing the light of day.

The sun didn’t rise until 9:57 a.m. today in the state’s largest city, and it was 10:35 a.m. before it peeked over the Alaska Range mountains for its brief visit to Fairbanks in the Interior. It was gone by 2:49 p.m. there, and  Anchorage was little better off.The day ended at 3:45 p.m., and so began the long night.Seasoned veterans of the north know this is a time to struggle through, but it is worse this year than most with winter temperatures plunging into depths not seen for a while, and the boom-bust cycle of the 49th state spiraling down into another big bust.

November ended in Fairbanks with a low of 31 degrees below zero, the lowest temperature in a record 624 days.  It was down to minus-33 today, and the Fairbanks Daily News-Miner was warning the mercury in the thermometer could keep falling toward minus-40.

Throw a cup of boiling water into the air at that temperature and the drops freeze so fast they cause what appears to be an explosion of snow. Somewhere in Alaska, someone was sure to be entertaining himself or herself this way to try to break the winter gloom in a state where the reality of depressed global oil prices is finally sinking in.

The country’s once richest state, the state with a treasury still stuffed with more than 50 billion in oil-tax dollars, is in trouble. Serious trouble.

Recession

Alaska jobs are disappearing. School enrollment is falling. The real estate market has softened. Out-migration is starting.

This is what a bust looks like in the north.

It started in Fairbanks last winter. It has been creeping south toward Alaska’s urban core ever since. By October, it was obvious the economy in the Anchorage and Matanuska-Susitna Valley, an area home to 60 percent or more of the state population,  was in trouble even if no one was saying so.

The obvious is now out in the open.

The Alaska Department of Labor on Friday released the job numbers for the first half of 2016 showing a 1.2 percent decline in jobs in January accelerating into a 2.5 percent decline by June. Since then most, economists believe the downward trend only continued with a few guessing it might have picked up even more.

Optimism is in short supply. State government is running a deficit of more than $3.5 billion. The oil patch, which generally provides the best paying jobs in the state, is still downsizing.

Tourism remains a healthy Alaska industry, and fisheries are doing OK. But both go into hibernation in winter, and significant numbers of people head south to enjoy the cold, dark season in Seattle or other warmer locales.

The migration has a rich tradition. The first snows to cap the mountains in the state are called “termination dust.” The gold miners considered this the signal to leave. Only a little has changed over the years.

“A lot of us older farts are sticking around enjoying our pensions instead of moving on for greener pastures,” said former state lawmaker Scott Ogan. “I saw this coming and built a tourism business in Seldovia.”

Life on oil

Since becoming a state in 1959, Alaska has been defined by two distinct periods: Oil and before oil.

Before oil, Alaska population grew slowly but steadily fueled largely by federal government spending and natural resource exploration. From slightly more than 200,000 people at Statehood, it increased to about 350,000 at the start of the 1970s.

Pipeline construction in the mid-1970s quickly pushed the population past 400,000, where it temporarily plateaued.Then came oil wealth, an increase in state government spending, and another boom.

By the mid-80s, the population was near 550,000. But oil prices tanked, and the numbers of Alaskans fell before a slow but steady population increase that lasted from the start of the 1990s into the 2010s even as oil production slowed.

Only a few years ago, the growth stalled. Some have been waiting for an economic collapse ever since.

“I’m surprised is has been deferred this long,” Ogan said. “The (oil) tax credits pumped a lot of life into the (North) Slope when it should have been dead a couple of years ago. Alaska still has a bright future if the governor does not kill the goose that lays the golden egg. He’s trying.”

The Alaska Dispatch News on Sunday reported that the relationship between the Gov. Bill Walker and Exxon-Mobil, one of the state’s prime energy producers, is not good.  This wasn’t exactly a state secret.

Before being elected governor as an independent, Walker headed the Alaska Gasline Port Authority cobbled together by the Fairbanks North Star Borough and the City of Valdez, Walker’s old home town, to build a multi-billion dollar gas pipeline from the Slope to tidewater.

Walker holds Exxon, in part, responsible for the failure of that project. He tells a wonderful story about going to Houston to meet Exxon executives to talk about Alaska gas sales. He expected them to entertain him in an office high in the 44-story Exxon tower.

Instead, he says, they pushed the down button on the elevator and took him to the basement. Walker took it personally and has not forgotten even though employees of other oil companies that have met with Exxon say it is not unusual to meet in the building’s lower conference room.

The state is now leading a state gasline project once headed by Exxon. The governor is paying a Texan gas man more than a half million dollars per year to ramrod the project, which the governor fears the oil companies – Exxon, BP and ConocoPhillips – may be trying to thwart.

Many believe the economics of the day have rendered the project temporarily impossible.

“$65 Billion Alaska LNG Project Crashes and Burns” is how Forbes.com described the state takeover of the project on which Exxon wanted to slow work to give markets a time to improve.

With the governor mad at the oil companies over gas and the state strapped for cash, some fear a push for new oil taxes. That, they caution, could stop attempts to develop new oil fields reported discovered by Dallas-based Caelus Energy and Denver-based Armstrong Oil and Gas.

If those fields are truly the size suggested, and if they were brought into production,  they could keep the TransAlaska Pipeline System flowing for years, but Armstrong’s Bill Armstrong has warned the Alaska Legislature that new taxes on oil could stall planned developments. 

Downsizing, right-sizing or bailing

Gregg Erickson, once the senior economist for the state of Alaska, saw this coming a long, long time ago. As have some other economists, he observed that the 49th state could shrink back to where it once was and be fine.

The now 75-year-old Erickson has since departed for Bend, Ore., though he maintains an office in the capital city of Juneau.

Sans oil wealth, he contends, Alaska can support a relatively small population on income, business and other taxes that kept the state, and a tiny state government, running from Statehood until the mid-1970s oil boom.

Alaska now has no income tax, and the idea of reinstating that tax is hugely unpopular. Much the same can be said for other new taxes. Some lawmakers and the governor have backed using some portion of the dividend Alaskans receive each year as their share of the earnings on the oi-tax-fueled Permanent Fund to support state government, but that has run into a firestorm of opposition.

The governor this year cut the dividend to a little over $1,000 and held about an equal amount in the state treasury. It is still sitting there. A state legislator and two former state lawmakers have sued to free the funds. They lost in Superior Court, but the case is now headed to the Alaska Supreme Court.

The governor said he needs the money to shore up the state budget, but he can’t spend it without the Legislature’s approval. Getting that is iffy. Some legislators are proposing new legislation to disperse the money. And a recall campaign against the governor started.

It’s a mess, and the state’s financial problems aren’t getting any better despite hopes oil prices might finally begin to tick upward.Some have talked about trying to grow business in the 49th state to solve the problem, but that is a net loser.

With business taxes low and income-taxes non-existent, attracting new people to the state become a net loss.

“Without real reforms to programs that attract losers here, they will always be sucking the blood out of the system”said the blunt-talking Ogan. “Bottom line, tough times ahead.”

And tough times already here for some. These were the Labor reported job losses:

  • 2,364 people in the oil and gas industry
  • 1,536 people in the business and professional sector
  • 1,440 people in construction.
  • And 1,199 people in state government

Overall losses totalled more than 5,000 jobs, or more than five times the number of jobs President-elect Donald Trump saved at Carrier , an air-conditioning manufacture, in Indiana.

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12 replies »

  1. Times are changing and so must we. Perhaps a little humility is in order now. Soon enough we will be pleading to that Uncle Sam who we so bad-mouthed when we thought we didn’t need his money any longer. I am waiting to hear the responce from the “Rust Belt” congressmen and senators when our congressional delegation asks for “little something” in a federal appropriation yet has to admit that we are still handing out cash every year to every Alaskan man, woman, and child for doing nothing but having been here and having consumed oxygen within the last period of eligibility. It might be something like: “Why don’t you go out in the hallway and see if my office door hinges work from the other side of the door…..”

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  2. The difference between this economic crash and previous crashes is that this will likely be a slow motion crash. Slow motion because of the $55 billion in the Permanent Fund. Someway, somehow the Permanent Fund will be tapped. And in a way, that is a “good thing” … because once the rate of withdrawal from the Permanent Fund is established after a few years, a trend can be drawn into the future to predict when the Fund balance will be zero. Alaskans will then have an “exit date” to plan for. If the exit date is 15 years out … then people will be able to decide ahead of time if they want to bail out of AK, or stick around and go back in time 100 years.

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  3. I have lived through. Couple of these… 1971 things fell dramatically after we got Cook Inlet on line… 1989 when oil dropped to $8.00 a barrel.. and now… the difference is that then we had great potential for the future… Today the potential in all areas is very bleak… Honker down Brothers and Sisters, Honker down… we are in for a long slow slide…. As my Father in law use to say….
    It’s a race to the bottom….

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    • John: I’ve lived through one, too, and got here when it was pretty grim (1973). But you’re right. There was an optimism then, a belief in a better future, and a state that sort of hummed with energy. We seem to have lost that somewhere. We need some new, young leaders to bring it back. Have you seen any?

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  4. I’ve heard different things on the job losses, particularly related to State employee job losses. Can you help clear this up – do those 1,199 state government jobs cited above reference positions that have been unfilled and closed, attrition, or pink slips? Or some combination?

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    • my understanding, Ben, is that it is all of the above. there have been a few people pink slipped, but a lot of the decrease appears to have come from the hiring freeze and the elimination of some open positions.

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      • Also, it makes the state look good when they cut a summer fishing counting job and can say “We cut a job!”. When in reality only one quarter of an FTE (full time equivalent) was cut. In other words, in FTE terms the 1199 state jobs loss total is quite inflated.

        On the private sector side, many that lose work don’t go out and file for unemployment benefits. And because of this the state does not have the data to be aware of these job losses. So private sector losses are likely more than stated above.

        End result, loss of state jobs overstated and loss of private sector jobs understated … the end result is probably close to the 5000 total, as of June. When the state does these numbers for the end of December, they should be higher.

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