After three squandered Alaska oil booms, let's prevent future megaprojects

When oil prices went up in the early 1980s, Alaska spent $227 million studying the Susitna-Watana Dam, then abandoned the project as uneconomic and unaffordable. When prices went up again in the last decade, we spent another $187 million studying the same project, without having the $5.7 billion to build it.

Including only projects that failed or were never completed, we have the agriculture project, the petrochemical project (I wonder how many readers remember that one), the Healy Clean Coal Project, the super-duper seafood plant that is now a church, the Knik Arm bridge (once every couple of decades), the Point MacKenzie Rail Extension and ferry, the Juneau Access Road, and the Ambler Road.

I'm leaving out many others. Each time I write a column I get a bunch of additional nominations that are new to me. I'm also leaving out many projects that the state funded and that were completed but that were uneconomic — meaning we would have been better off without them.

Should we get mad and throw the bums out? Maybe, but that probably won't fix the problem. Many oil-rich governments around the world made these same mistakes with completely different bums at the helm. Alaska had different bums blowing money in our three rounds of oil wealth and waste.

The names on the doors in Juneau don't matter much. We need to fix the system.

When excess money is on the table, elites find ways to get their hands on it. In some countries, they steal it. In Alaska, business people brush off slogans about diversifying the economy and creating jobs.

Economist Gregg Erickson, who graduated from Anchorage High in 1959, the year of statehood, said the diversification ideology hasn't changed in a century.


"It has never had any evidence," he said, "and increasingly has had to contend with an accumulation of evidence on the other side that says efforts to diversify the economy by transforming oil wealth into infrastructure just don't work."

Investor and activist Jamie Kenworthy put it more simply: "Infrastructure has to support a real economy. Infrastructure does not create a real economy."

When projects are economic, private capital invests and public money isn't needed. When a project is uneconomic, it wastes public money. Finding the few projects that are on the bubble and need just a little push to become economic is hard and rarely successful.

The Alaska Industrial Development and Export Authority is the main entity doing that work, and it has the biggest share of massive boondoggles to its name. AIDEA officials would not talk to me for my columns. They currently hold $1.3 billion in state assets, including $700 million in cash and securities, and pay the state a dividend of $6.3 million, a return of 0.5 percent.

When I asked Gov. Bill Walker why he doesn't just cancel the four big megaprojects still consuming state money, he said he wants to find a logical stopping point, but added: "Some of these have the potential of diversifying our economy. So that is part of the justification as well."

He suggested we should have done more economic diversification in the past so we wouldn't be so dependent on oil now.

Actually, the biggest thing we did right in the past was not spending more on these projects.

During the hangover periods after Alaska's past capital project parties, we made progress in building a sustainable financial system. After $900 million from the 1969 Prudhoe Bay lease sale disappeared, we got the Permanent Fund. After the crash of the 1980s, we got the Constitutional Budget Reserve.

Those constitutional changes are the only reason we have a shot of making it through the current slump. Forty years of investments in diversifying the economy are contributing next to nothing to balancing the state's books.

In fact, if the money spent on the 1980s megaprojects had been invested in the Permanent Fund, the fund would be larger by $14.9 billion today, according to Ginny Fay, an economist with the UAA Institute of Social and Economic Research who wrote a report on the subject. That's enough to spin off $1.2 billion a year for the budget, a third of our deficit and six times the amount of the proposed income tax.

Countries around the world have found solutions to reduce megaproject waste. Norway saves all its non-renewable wealth. The UK has set up an independent agency to vet big projects. The U.S. General Accountability Office published a handbook of best practices.

The solutions are obvious. Don't fund projects without independently verified financial and feasibility studies. Don't start projects without all the money on hand to finish them. Don't invest public money in economic development projects without private investment. And don't spend millions on engineering and environmental studies until all the players have skin in the game.

But these simple rules aren't enough. Otherwise, the Legislature and AIDEA wouldn't have failed so many times.

That's why I suggested in my earlier column that we need to pay income taxes, even during times of high oil income. Democracy is the best solution to restraining elites from siphoning off our wealth.

It works simply enough at the local level. If the city wants to build a school, it has to put the project on the ballot with the cost in property taxes clearly labeled. If it wants to build an economic development project, such as the Dena'ina Center, it has to convince bond buyers that the project will pay back the cost.

It would be just as simple at the state level. Just stop paying cash for capital projects.

For economic development projects, issue revenue bonds that are payable by proceeds from the development. If the project doesn't pencil out, no one will buy the bonds.


"That would be the end of all this nonsense," Kenworthy said. "Wall Street would look at these projects."

For other kinds of projects, use general obligation bonds. The Alaska Constitution already requires that the public vote on them. Pay back the bonds with taxes, clearly labeled on the ballot.

Some of this will happen soon anyway, because Juneau doesn't have oil money at the moment and will have to borrow for projects. But just in case we get rich again, let's put it in the constitution.

Charles Wohlforth's column appears three times weekly. He is a lifelong Alaska resident.

The views expressed here are the writer's and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com or click here to submit via any Web browser.

Charles Wohlforth

Charles Wohlforth was an Anchorage Daily News reporter from 1988 to 1992 and wrote a regular opinion column from 2015 until 2019. He served two terms on the Anchorage Assembly. He is the author of a dozen books about Alaska, science, history and the environment. More at wohlforth.com.