Commentary: Rein in state spending gradually

By Robert R. Richards
For The Cordova Times

Alaska is overflowing with abundant blessings: rich natural resources, breathtaking scenic grandeur and, mostly, the people. And there are no greater examples of the stellar conscientious and congenial citizenry of Alaska than the three people who have committed themselves to getting the state back on track: Arliss Sturgulewski, Vic Fischer and Joe Usibelli, who should be commended for spearheading the critically important effort of recalling the governor.

Each of these individuals played an important role in Alaska becoming a state, then becoming a viable economy and a marvelous place for personal lifestyle. They have demonstrated years of generous contributions to making Alaska the grand place that it is.

Somehow, under the present state administration, Alaska has gotten off track. Such an aberration is not unique to Alaska, occurring in other states and on the national level. But in Alaska, with its quickness and assertiveness, there is a better opportunity for correcting a mistake before too much damage is done.

The fiscal problem is real, but there have been advance warnings for half a century. When oil was discovered on the North Slope 50 years ago, we knew it would eventually be depleted. And Alaska has received billions more dollars than we ever counted on.

When discovered, the Prudhoe Bay field was estimated to contain one-fourth of the United States proved crude oil reserves. Then, over the years, thanks to private companies willing to incur the enormous risk of making massive investments in oil development, revenues to the state continued stronger than originally forecast.

When oil first commenced flowing through the pipeline, I had the great privilege of serving as an advisor to Gov. Jay Hammond, who came up with an ingenious device to keep at least part of the oil money largesse out of the hands of politicians: the Permanent Fund, with dividends going directly to the people. Gov. Hammond was a moderate progressive Republican with a wariness toward government. 

Under conditions at that time of huge revenue excesses, this program made a great deal of sense. But conditions have changed. And now the Permanent Fund Dividend has become a demonstration of the law of unintended consequences: When a good idea under certain conditions, can become a bad idea under different conditions.

Several books have been written on the curse of oil, and Alaska is experiencing that to some degree, with some people becoming dependent on the Permanent Fund Dividend financed by oil revenues. The oil money was always known to be temporary, and now it is simply time to recognize that. 

Acknowledging that doing away with the dividend could be catastrophic for certain families or, as some have argued, in effect a form of regressive taxation, perhaps it is time to enact an income tax.

That said, it strikes me as silly to have one state agency down in Juneau sending out checks and another agency across the street collecting checks.

But two things are certain: the dividend should not be increased, and the budget problem should not be solved by ripping apart a major segment of the economy — state spending. What a tragedy the latter would be, voluntarily incurring a self-imposed catastrophe of slashing jobs and incomes and critically important services to many communities.

Even a fiscally conservative Republican, such as myself, understands that when it is such a significant part of the economy, state spending should be reined in only gradually. Every responsible Alaskan should join Ms. Sturgulewski, Mr. Fischer and Mr. Usibelli in re-establishing fiscal sanity in the Great Land.

Robert R. Richards is a former economist for the National Bank of Alaska (Wells Fargo) and former vice chairman of Alaska Pacific Bancorporation. He is currently a consulting economist in Seattle and former chair of the Visiting Committee of the Economics Department of the University of Washington.