Altered state

News analysis

Possibly nothing underlines the troubled state of the Alaska economy more than a new YouTube political advertisement produced for the campaign of incumbent governor Bill Walker.

In the ad, a young commercial fisherman thanks Walker for expanding the state’s Medicaid program so she can obtain government-funded health insurance. Commercial fishing is the state’s third largest industry.

Medicaid is a form of state-federal health insurance that pays to provide free or low-cost medical benefits for the poor, children, pregnant women, seniors, and people with disabilities.

Medicaid spending in Alaska now accounts for 11.6 percent of the state budget, according to Ballotpedia.org – a non-partisan, non-profit, public-policy website. It counts 184,081 recipients in Alaska – about a quarter of the state’s population – on which government spends $12,061 per person per year.

“Medicaid Expansion made it possible for us to fish without fear…” says the Walker Mallott for Alaska campaign.

A loss-plus industry?

Even before commercial fishermen went on Medicaid, commercial fishing was an industry costing the state more to manage than it produces in tax revenue, according to the University of Alaska’s Institute of Social and Economic Research (ISER).

The industry does provide some vital revenue for a small number of port communities, and provides seasonal income for about 8,000 fishermen and 25,000 people involved in processing fish, according to the Alaska Department of Labor.

Most of the processing income flows to non-residents, according to Labor statistics, but from a state revenue standpoint, that is a good thing. Non-residents who come to Alaska to work don’t demand the same sorts of costly services – primarily for education, and health and social services – as those who take up residence in the state.

The state has a continuing financial problem because the demand for services exceeds the revenue available to pay for them, and the state’s revenue stream is thin. Various oil-industry taxes now account for about 70 percent of state revenue.

Next in line is revenue from tobacco taxes, fuel taxes, mining licenses, and alcohol taxes. Various seafood taxes contribute about 6 percent of state revenue, according to the Department of Revenue, but a lot of that gets kicked back to fishermen for seafood marketing or to pay for commercial salmon hatcheries.

As a result, the state loses money on fishing. How much varies year to year. The costs of prosecuting commercial fisheries and enforcing the rules so fishermen don’t over-harvest are largely fixed, but the amount of revenue changes as a percentage of the salmon catch.

The ISER study was based on a three-year period from 2012 to 2014 when Alaska salmon harvests averaged 188 million fish. The 2018 harvested is expected to end up just shy of 114 million, or about 60 percent the average in the ISER study.

State revenues will drop accordingly. The state collects fish taxes on halibut, crab, shellfish and others species, but salmon are the big revenue driver due to their massive numbers.

Once good as gold

“Fisheries are closely linked to Alaska’s history. While some derided acquisition of the territory from Russia as ‘Seward’s icebox,’ others knew that icebox was packed with fish,” writes the Alaska Historical Society’s Robert W. King. “Industry pioneers built the first salmon canneries in Klawock and Sitka in 1878 and they quickly spread along the coast to Bristol Bay. As the industry grew, canned salmon provided jobs and the territory with over 80 percent of its tax revenues.”

Fisheries was the oil of territorial days. But fisheries suffered a serious decline beginning in the 1950s and continuing into the 1970s. Salmon harvests plummeted from 70 to 90 million fish per year under federal management to a low of approximately 30 million in 1973 under state management.

An Alaska Department of Fish and Game history blames cold waters in the North Pacific Ocean that led to poor marine survival and a foreign, offshore fishing fleet.

“In the late 1930s, the Japanese had begun fishing salmon in international waters near Bristol Bay. After World War II, negotiations between the U.S., Canada, and Japan resulted in the International North Pacific Fisheries Convention (INPFC) and the establishment of a tripartite commission to deal with research and management of salmon harvested on the high seas,” the history notes. “(But) the international fisheries expanded after 1960 and remained unmanaged except through treaty negotiations” with Russian and Korean offshore fleets than joining the harvest.

All of that came to an end in 1976 with passage of the Magnuson-Stevens Fisheries Conservation Management Act which pushed a newly formed U.S. “exclusive economic zone” out 200 miles from the U.S. coast. 

Even before Congress dealt with the offshore harvest problem, however, Alaskans acted to deal with inshore harvest problems. State voters in 1972 approved an amendment to the Alaska Constitution that allowed the state to restrict access into the commercial fisheries.

The so-called “limited entry” program that followed was intended to solve the problem of too many fishermen competing for too few fish with the end result that none of them made much money.

“Resident professional fishermen (defined as those Alaskans who derive all or most of their income from commercial fishing) seem to be in general agreement on two counts: first, that there are too many fishermen, and second, that part-time or vacationing fishermen (especially teachers, as well as the sportsmen making occasional forays during the commercial fishing season) should be excluded,” a 1972 ISER report said.

“However, it also seems to be the case that resident professionals disagree among themselves on whether non-resident professionals should be permitted. For the resident fishermen of Bristol Bay there is little difference between vacationers from Anchorage and professional fishermen from the ‘outside;’ both cut into the catch that otherwise would be harvested by Bristol Bay residents.

“In the Gulf of Alaska area, a leader of Cordova fishermen opposed entry restrictions on professional fishermen, whether resident or non-resident, but wanted part-time fishermen excluded. About 200, or 40 per cent, of the Cordova Aquatic Marketing Association’s membership is composed of non-residents.”

Federal constraints

The limited entry act as eventually written ignored the issue of residents and non-residents given that the U.S. Constitution prohibits states from interfering with interstate commerce.

Commercial fishermen – no matter their residency – were scored on their history in various fisheries and given permits that became their property to sell or buy. Limited entry froze the number of commercial fishermen at the same time the number of fish began to increase thanks in part to the end of the foreign, offshore fisheries; a warming climate; and improved state management.

As a result, state salmon fisheries saw a boom.

The value of salmon to Alaska fishermen peaked at $742 million in 1988 ($1.6 billion today when corrected for inflation) on a harvest of 99 million fish. Things have gone largely downhill since then.

The 225 million salmon caught last year – the third highest catch on record – were worth but $679 million.

Alaska salmon steadily decreased in value as farmed salmon took over the marketplace. Hoping to head that off, the state banned salmon aquaculture in 1990. The ban did nothing to slow the growth of the farming industry, but might have helped free Norwegian businessmen from additional North American competition.

Norway is now the world leader in salmon production, and the Alaska Permanent Fund – recognizing the value in farmed fish – has about $8 million invested in various salmon farming operations. 

Meanwhile, Alaska fishermen and communities once dependent on fishing, continue to struggle, and the governor’s campaign celebrates how commercial fishermen can now qualify for Medicaid.

And that might be, sadly, a good thing given how poorly many commercial fishermen are doing.

The 451 commercial drift gillnet fishermen who worked Cook Inlet last year earned, on average, $28,192, according to the state’s Commercial Fishery Entry Commission. The 518 active commercial setnetters earned even less – $23,991 on average. 

And nobody earned anything close to that in a 2018 season that was a disaster for most everyone.

A couple earning $26,627 per year or less qualifies for Medicaid, according to Benefits.gov. So the average setnetter and a spouse living on Inlet fishing income last year would have qualified.

The income level for a family of three rises to $33,516, so even the smallest, average family of gillnetters living on Inlet fishing income would qualify.

Even worse

The McDowell Group, a consultancy, reports the Alaska seafood processing industry employed 24,863 people in 2016 who earned $438 million. That’s an average of $17,661 per person.

An income of $17,661 corrected for inflation in 2018 would equal $18,796. The individual income limit for Medicaid is now $19,737. The average worker in the seafood industry would appear to now qualify for Medicaid.

Alaskans should probably be happy that McDowell reports fewer than a third of the people now employed in seafood processing are Alaska residents. They might move elsewhere to claim their Medicaid and take the costs with them.

When it comes to skippers and crews, fewer qualify for Medicaid. The average income there is over $60,000, according to the McDowell report, but how many of the fishermen earning that much live in Alaska is unclear.

According to the report, only 38 percent of the nearly $1.7 billion paid to Alaska fishermen for salmon, bottomfish and shellfish in 2016 ended up in the pockets of Alaska fishermen.  Over $1 billion of those earnings went south.

A lot of Alaska fish is caught out-of-sight, over-the-horizon, off the coast and back hauled to Seattle. Fishing boats 99-feet long and longer, many of which are based in the Pacific Northwest, accounted for about $1.1 billion of the Alaska fisheries revenue, according to McDowell.

Given the numbers from the commercial fishery and the state’s hard-to-tax number two industry – tourism – it’s unclear how the state can begin to make the economy work if oil prices again slide.

But fishermen are happy.

“Fishing has provided for my family my entire life,” says the young woman in the Walker ad. “It has put three people through college…(But) basically, the day I graduated I lost my health insurance. Having to meet health care expenses on top of student loans was really daunting…Medicaid extension was super important for me.

“I thought that the Permanent Fund Dividend decision was essential…Now 44,000 Alaskans have health insurance, and young people are able to plan a future here in Alaska.”

But if this is the way it works – if the state is built on subsidized industries that can’t support themselves in the competitive marketplace of today – what kind of future do those young people have?