Good luck, Gov. Walker.
Bill Walker became Alaska’s governor last week.
Throughout the gubernatorial campaign, he repeated his concern for Alaska’s financial status.
The state, which depends on the oil industry for about 90 percent of its unrestricted revenue, has had declining production for some time. Recent governors — until Gov. Sean Parnell, who Walker narrowly defeated in the November election — passed the financial problem along to the next governor and to the next governor. Parnell convinced the Legislature to pass a new oil-tax structure bill. Then he assured voters when an attempt to repeal it surfaced to stay with the structure.
The state’s revenue situation has become more bleak in recent months. A year ago, a barrel of oil sold for $105; today it’s $68. The state’s budget breaks even at$117 per barrel.
Whether Parnell’s tax structure will survive the Walker administration’s review remains to be seen. Undoubtedly, it’s a key topic of conversation, or should be. Parnell and other supporters of the structure maintained the state has already seen new production as a result.
But, under that structure, Alaska also returns revenue to the industry to encourage new production.
And, the price of oil, as mentioned, has declined significantly — even as recently from this past summer’s $108 per barrel
Gov. Walker must act, and he has choices which will be less than popular. While Alaskans will want the finances brought under control, most still want their own particular projects and services. However, when revenue declines so must spending.
One of the biggest expenses in a budget is personnel. Given that unions endorsed Walker, it will be interesting at the least to watch how they and the new administration deal with the inevitable reduction in jobs. Walker said he would cut 16 percent out of the operating budget. He has walked that back a bit. But, the fact remains, jobs are vulnerable with the state’s current financial status.
It would be preferred if the cuts could be through attrition. But, while that is being staff sensitive, it also is slower and more costly. Plus, the attrition likely wouldn’t occur with the positions it needs to.
The loss of jobs also would affect communities. State employees work in cities from Ketchikan to Barrow. Those staff workers pay for services and buy groceries and other goods in these communities. Their jobs help support businesses and government services.
Fewer people buying goods translates into less community sales tax, increasing the financial concerns of communities. With less revenue, the communities must look at increasing taxes and fees and/or reducing spending — i.e. jobs? That’s a double whammy for the communities when both state and local jobs begin to disappear.
Plus, unless the jobless leave the state or find other employment here, the number and total cost of unemployment checks increases.
Some communities and the state have reserves — rainy day accounts and, specifically in the case of the state, the Alaska Permanent Fund. But reserves don’t replace revenue for the long term. Nor do they grow when they are being drawn down. Spending them increases an entity’s precarious situation.
The next consideration is increased revenue. If governments don’t have enough revenue from industry, then they turn to taxes and fees — both of which increase the drag on an economy. But, without industry and new development, the likelihood of one or both increases dramatically. Gov. Walker said during the gubernatorial campaign he didn’t favor an income tax. Check that possibility off the list of ways to rein in the state’s finances.
Gov. Walker has inherited a significant challenge, given the facts above and the fact that many Republicans in the Legislature supported Parnell’s, not Walker’s, election — most notably House Speaker Mike Chenault.
But during the campaign, Walker ached to take it on. He knew what he thought wouldn’t work. Let’s hope he also knows what will.
He has Alaska, business and lifetime experience. He also has prospects for Alaska’s Arctic, the development of which could improve communities’ economics as far south as Ketchikan.
Ketchikan and southern Southeast’s mining also will contribute to the state’s economic well-being. Plus, the state can cut its timber and actively endorse federal timber sales.
At the same time, it should be sure not to let spending cuts negatively affect the fisheries and tourism industries. It’s imperative to, at the very least, maintain and preferably grow existing industries.
It’s a tall order. But, a new administration with high energy, as is always evident at this juncture following the swearing in of a governor, might be able to fill it.
Alaskans will be watching anxiously and hopefully.
— Ketchikan Daily News,