Alaskans Reluctantly Face Drop in Oil Boom
JUNEAU, ALASKA — WITH the super-giant Prudhoe Bay oil field past its production peak, no huge new oil developments on the horizon, and oil prices slumping, Alaska's long, free oil ride is nearing an end.
Daily oil production that fuels the state treasury peaked at 2.1 million barrels in 1988. It is expected to drop to half that by the year 2000, forcing reevaluations by the state government.
"At one time we were filthy rich. Now we're just rich," said House Speaker Ben Grussendorf, a Sitka Democrat, just after the Alaska House of Representatives passed, last week, a $2.37 billion operating budget for fiscal year 1993.
The budget includes boosted user fees and a gasoline tax hiked from the nation's lowest rate to the United States average. It draws on reserve funds, and cuts popular programs and agencies across the board.
Trimming some $138 million from the budget Gov. Walter Hickel introduced and erasing a looming deficit estimated at $300 million to $1 billion was grueling and draining, House members said.
"It was the hardest budget that I've ever worked on. It was the first time that I've ever heard of that a governor's proposed budget has been reduced," said Anchorage Republican Ramona Barnes, a finance committee member. Still, she added, "The cuts were easy this year compared to what you'll get from now on, because from now on you'll have to eliminate whole programs."
Legislators and some business leaders have even begun to mention the once-unmentionable: the return of the state personal income tax that was repealed in 1980, a year when oil wealth appeared endless to many Alaskans.
A bill that would bring back the state income tax - a bill that no one at the state capitol here expects to survive in an election year - has gotten a surprisingly warm reception.
Fairbanks Democrat Niilo Koponen, who has championed the return of the income tax for six years, said intelligent Alaskans know that the 1980 repeal was a mistake.
A proud "Alaskan Before Statehood," Mr. Koponen said he remembers the days when Alaskans paid state income taxes without complaints and budget limits forced certain tasks to be left undone, such as winter snowplowing on the sparse highway network.
But that was before the North Slope oil boom, which sent the first oil down the trans-Alaska pipeline in 1977 and brought to Alaska a population explosion and building binge.
Now, no other US state government is so dependent on oil. Eighty-five percent of Alaska's operating budget comes from royalties, taxes, and fees from oil. A $1-per-barrel change in Alaska North Slope crude prices means about $150 million a year in revenues to the state treasury. Fishing tops oil
While the oil industry is said to lag behind fishing and, some say, tourism in total private employment here, state government spending is critical to the economy and the maintenance of a life style that could not be provided through the private sector in this sparsely populated region.
And no other state is so generous to its residents. The average Alaskan pays a few hundred dollars a year in all local and state fees and taxes, while receiving $6,000 a year in direct state government benefits, according to the Institute of Social and Economic Research at the University of Alaska (Anchorage).
Alaskans pay no state income tax or sales tax. They pay the nation's lowest gasoline tax and are entitled to dividends from the state's $12 billion trust fund, created with oil wealth to prepare for a post-Prudhoe era. Last year, Alaska Permanent Fund dividends of $931.34 were mailed to some 514,000 residents.
All Alaskans 65 and older are entitled to a "Longevity Bonus" of $250 a month.
In Alaska, Ms. Barnes said, a needy parent with one child can receive $950 a month in Aid to Families with Dependent Children; in Wisconsin, site of the Lower 48's most generous AFDC program, a parent with two children receives less than $500 a month, she said.
The benefits have drawn an influx of Lower 48 immigrants and created a core of protective constituencies, lawmakers said.
Scott Goldsmith, an Institute of Social and Economic Research economist who has warned for years of the state's looming fiscal gap, says a personal income tax and repeal of the Permanent Fund dividend program are inevitable.
So are sweeping changes in formula programs that pass on about half the state's operating budget to local entities and school districts, he said.
"There's no way we can make it to the year 2000 without some pretty significant structural changes," Mr. Goldsmith said. Popular support slim
But winning popular support is not easy, as lapel buttons here bearing the slogan "Free Rides Die Hard" attest.
"When you lead a group of people to think they can get something for nothing, they come to expect it, whether it's a dividend or welfare," Barnes said.
The House budget has been attacked from the left and the right. House members are gloomy about chances their cuts and fee hikes will survive in the state Senate.
Day-care workers with hundreds of toddlers staged a sit-in recently outside the state capitol to protest child-care cuts; university students in Anchorage and Fairbanks and on rural campuses have staged two weeks of rallies and walkouts to protest higher-education cuts.
Development boosters and other conservatives, meanwhile, are furious over the prospect of hiked user fees and taxes that economists say are overdue.
Past attempts to diversify the economy have been largely disastrous. Many Alaskans cling to hopes that oil from the Arctic National Wildlife Refuge (ANWR) will solve the fiscal dilemma. But the chances for that development, opposed by environmentalists, blocked by Congress and stymied by low oil prices, are dim.
Goldsmith said Alaskans' faith in ANWR as an economic savior is misplaced. The land and mineral rights, he points out, are owned by the federal government, unlike the North Slope, which is mostly state-owned. The federal government is likely to take the lion's share of ANWR royalties.
"People are still looking for a single thing or event that would take the place of Prudhoe Bay oil," Goldsmith said. "We have a history of booms and living boom-to-boom. It does, I think, take people's attention away from issues that need answers."