Of all the things that Gov. Bill Walker might say about the state of Alaska's finances, I'll bet that he won't say "All bets are off."
Not that he couldn't find a reason to quote the memorable 1986 words of Gov. Steve Cowper, uttered at a news conference three weeks after Cowper became governor.
"There was a lot bigger deficit than we had reason to believe before we got there," Cowper said from Texas in a phone interview about his offhand comment about campaign promises. "There wasn't enough money for me to keep every promise. Of course everybody screamed and yelled and said I was a thief and a liar, but that's the way things are."
Cowper called for new taxes, salary decreases, spending cuts, the use of some Permanent Fund earnings and a variety of other unpopular moves to keep the state solvent. But oil prices that had dropped below $10 in July 1986, shot up to $15 and higher the following spring, easing the pressure, a pattern that we've seen many times since the trans-Alaska pipeline started pumping oil.
Nearly 40 years after diversifying the economy became a political catchphrase, the lack of any economic powerhouse to match the industry in Alaska finds us more dependent on oil than any other state.
Five months ago, worldwide worries about Iraq sent the price of oil to $112. That level, had it been sustained, was $5 short of what Alaska needed for an annual average to balance its budget. When the Legislature approved the SB 21 tax cut in 2013, the state was predicting that oil prices in this fiscal year would average $112.
"Forecast oil prices remain above $100 per barrel throughout our forecast period to 2022," the state Department of Revenue said that spring.
Since those halcyon days, Alaska oil prices have slipped by more than $40 per barrel, a collapse that will translate into billions of dollars in lower revenue, if it sticks. It's always possible that an international calamity will give us another reprieve, but on Thursday, the Wall Street Journal reported that the Saudis may be happy with oil at $60 per barrel.
On the plus side for Alaska, the state has tens of billions of dollars in reserves, enough to pay its bills and create some flexibility while spending and tax levels are rebalanced by the governor and Legislature.
The first time this happened during the statehood era, the ink was hardly dry on the statehood proclamation. The Wall Street Journal summarized Alaska finances in 1960: "Alaska's Ordeal: Problems Pile Up Fast For 49th State As It Finishes First Year." One of the first state commissioners defined the difference between state revenue supply and demand as a "slight gaposis," later known as the "fiscal gap."
In 1963, the Saturday Evening Post wondered if the 49th state had a future as anything other than an "invalid ward of the federal government."
The patient gained strength in the rebuilding surge that followed the 1964 earthquake and the oil boom that began with the discovery of the largest oil field in North America. Since then the state has wavered between periods of perceived surplus and deficit.
Those of us who have written about this over the years have contributed to the problem -- portraying the annual fall and spring revenue forecasts as either cause for celebration or gloom and doom, always focused on the here and now. The latest revenue sources book is due this month, and it will likely show a much bigger deficit than the state predicted last spring.
Alaskans have ridden the ups and downs of the oil market for decades, fighting about the need for revenue unrelated to oil -- the excessive fretting over the Murkowski administration tire tax comes to mind -- whenever prices tank. But just as predictable, whenever prices rise, we forget about progress on the 12-step program to end oil dependence. Until the pattern repeats.
Veteran Alaska economist Scott Goldsmith has done more than anyone to explain why a different approach makes sense, one that goes beyond the 12-month budget horizon and considers what is sustainable over the long term. There is a token 10-year state spending forecast updated each year, but it doesn't deal with the most difficult decisions -- those made in year No. 1.
We should have long ago abandoned the idea of linking income and outgo to a 12-month cycle in Alaska. Goldsmith makes the case that we should estimate the total value of state financial assets over the long term, limit spending to what we can afford and take that path to solvency. It sounds simple enough, but in a system where political leaders and the public are thinking of the next election, not the next generation, the future is always now.
The exact numbers Goldsmith has offered about how much the state can afford to spend each year can be disputed and debated. Even in the short term, no one really knows the dollar value to the state of oil and gas in the ground and the future value of the Alaska Permanent Fund. For the dangers of predictions, take the 2013 declaration that oil prices were expected to stay above $100 for the next 10 years.
The important thing about Goldsmith's approach is the overall trend. Oil production in the trans-Alaska pipeline today is one-quarter of what it was 25 years ago -- not because of oil taxes -- but because of geology. The continued decline of the giant oil fields indicates that with present spending patterns, we're not safe and we're going to be sorry.
Goldsmith has been saying that we need to take stock of our assets and look beyond the one-year budget cycle in making plans for the future.
I think doing that means addressing three topics that are bound to be unpopular across the state -- cutting spending, instituting statewide taxes on individuals and using some earnings from the $50 billion Alaska Permanent Fund to help pay for the government.
A real solution to our dilemma requires a difficult combination of actions that many people won't like. It has to go beyond oil taxes, dreaming for a gas pipeline, increased oil production or for a disruption in world oil markets.
Whatever the mix of elements Alaskans choose, if some Permanent Fund earnings are not part of the picture, the plan will be more tenuous, more damaging to the state economy and less likely to work.
The new Walker administration and the Legislature are in a difficult spot, one that Alaskans ought to understand as we begin again to develop a fiscal plan. The need to resuscitate a fiscal plan for Alaska's future is pressing.
The former governor who said "all bets are off" says it looks to him this is not going to be a popularity contest. I expect he's right.
"You can't be popular and make a decision that needs to be made," Cowper said. "If something needs to be done that's popular, someone's already done it."
Dermot Cole is a reporter and columnist for Alaska Dispatch News.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, e-mail commentary(at)alaskadispatch.com