Fueled by soaring stock market, Alaska's net worth climbs to $103,000 per person

Alex DeMarbanAlaska Dispatch News
According to a new report, Alaska is staring down the barrel of a fiscal shotgun, but its finances aren’t too shabby at the moment -- even when compared to one of the planet’s wealthiest countries. istockphoto

Alaska is staring down the barrel of a fiscal shotgun, but its finances aren’t too shabby at the moment -- even when compared to one of the planet’s wealthiest countries. What’s more, the state has the wherewithal to bridge the coming fiscal crisis.

That was a take-home message from the eighth annual Alaska Asset Review, a wide-ranging look at state resources put together each new year by the folks at Commonwealth North, a think tank that illuminates policy issues in the 49th state. 

Making the news recently was Norway’s sovereign wealth fund worth about $820 billion, meaning every Norwegian recently became a crown millionaire. Those crown millionaires, in dollars, are worth about $165,000.

But Alaska’s wealth has grown too, thanks largely to a booming stock market, years of high oil prices, and a small debt load. The state now has net assets of $76 billion -- made up mostly of the $49 billion Alaska Permanent Fund.

That makes every Alaskan worth a cool $103,000. But before you go buying that new home, remember that money won’t be cashed out and showered on the people -- something considered years ago when Sen. Jerry Mackie temporarily pitched the idea of handing every Alaska a $25,000 payout from the Permanent Fund. 

And while the state’s $76 billion pile is a lot of money, it’s a little less than the net worth of the world’s richest individual. Bill Gates weighs in at $79 billion, said Joe Beedle, a past president of Commonwealth North and the event’s emcee. 

“$103,000 is very attractive, but it doesn’t take care of everything,” said Beedle, who is also president of Northrim Bank.

Still, there’s plenty to love. The state’s cash reserves have mounted to $17 billion, the result of the recently ended tax regime that brought Alaska ginormous revenues as the price of oil rose, allowing lawmakers to sock away the big bonuses in a pair of savings accounts. In addition, the state has roughly another $10 billion in net assets here and there, in its general fund and in things like the Alaska Housing Finance Corp. with $1.5 billion in equity and in the Alaska Industrial Development and Export Authority with $1.2 billion in assets.

What’s more, the state’s net worth grew robustly in 2013, with an 8 percent leap that would be the envy of any country or state, said Beedle. Of the world’s 25 largest sovereign wealth funds, Alaska’s Permanent Fund, ranked 24th, is the only one belonging to a state and not a country. “For us to be on this list at all is impressive,” said Beedle. (Texas’ $25 billion Permanent School Fund, established before the start of the Civil War, is the next state wealth fund on the list, ranking 29th.)

Oil production has set Alaska on the path to prosperity, and that production is falling. Yet Alaska has other resources. It’s barely tapped into its substantial mineral deposits, including coal, copper and zinc, said Ed Fogels, deputy commissioner of Natural Resources.

Also important are the increasingly sought rare earth elements such as europium, needed to produce the color red in TVs and computer screens. There are 70 occurrences of rare earth elements in the state, including the Ray Mountains northwest of Livengood and Bokan Mountain in Southeast, he said.  

Alaska has just begun to study its mineral potential. Only 15 percent of the state’s mineral resources have been properly mapped. Geophysical surveys have been flown over only 25 percent of the 100 million acres the state owns. “We have barely scratched the surface in mapping Alaska,” Fogels said.

Also little developed are agricultural opportunities in Alaska  as well as one of North America’s largest reservoirs of conventional natural gas -- gas that is produced with oil but is re-injected back into the earth to squeeze tens of thousands of barrels of oil out of the ground each day.  

Also, the state has not tapped many of its potential revenue streams, though it has the potential to do so, said Angela Rodell, the state’s Revenue commissioner. Slides she presented highlighted the development of natural gas as a potential revenue stream.

Unmentioned were other possibilities, including a personal income tax, a statewide sales tax or tapping the earnings of the Permanent Fund Dividend. Also, industries in Alaska are generally lightly taxed, including mining and fishing, other areas that could help the state diversify its income. The oil patch currently pays for most state services.

“We are in a great place,” Rodell said. Alaska enjoys AAA credit ratings that reduce interest payments on debt. She said financial managers Outside are impressed to learn that Alaska could live off its cash reserves for three years if it didn’t receive a dime of revenue: “No one else can say that anywhere.”

Financial managers also want to know why the state hasn’t used its enormous wealth to shore up its $12 billion unfunded obligation to retirees, Rodell said. To help address that problem, Gov. Sean Parnell has recently proposed moving $3 billion from the state’s cash reserves to boost its $20 billion retirement fund. The boost would help the retirement fund grow while reducing future payments from the state’s operating budget.

Alaska is strong in other ways, too, Rodell said. Census data through 2012 shows Alaska is third in the country for median household income -- approaching $70,000 -- and enjoys some of the nation’s lowest poverty rates. About 10 percent of Alaskans are below the poverty line. Property values have been stable, without the huge drops seen throughout the Lower 48, and unemployment in Alaska was about 7 percent in 2012, putting Alaska about in the middle, nationally.

Still, with little new oil production in sight and lawmakers having recently cut taxes paid by the oil producers, the state is staring at massive deficits in the coming years that could lead to huge draws on the cash reserves.  

Fortunately, the state has the means to weather a rough patch, said Beedle. “By all measures we are very strong, very fortunate. We can bridge this fiscal gap in future.”

Contact Alex DeMarban at alex@alaskadispatch.com.