FAIRBANKS—In the two years before the trans-Alaska oil pipeline began pumping in 1977, the state government avoided a distress sale of state assets or a government shutdown by borrowing hundreds of millions from the North Slope oil companies.
The $900 million collected from the giant 1969 lease sale was almost gone and as pipeline construction began, the state faced a financial crisis.
Steve Cowper, a Fairbanks lawyer and freshman legislator in 1975, recounted this chaotic chapter in state history in a presentation here Wednesday morning.
His audience at the Osher Life Long Learning Institute included about 40 people, most of whom have been around long enough to know that the name of the former Alaska governor, who has been in Texas the last 15 years, is pronounced "Cooper."
Now 78, Cowper has long since gone gray, but he has not lost his North Carolina drawl or his ability to spin a yarn. I knew that when he started talking about how he had almost become an oil and gas adviser to Somalia some years back and was told, "We're going to fly you guys over to the Mogadishu airport and you're going to jump out in parachutes.'"
He never made that leap, but 30 years ago he was elected governor on his second try, claiming to be the oldest rugby player in Alaska. An Anchorage Daily News story by Hal Spencer in early 1986 set the stage for how he was portrayed: "Steve Cowper's fellow state legislators nicknamed him the High Plains Drifter after a Clint Eastwood character — a loner whose strong, silent ways carried a hint of danger."
I did see him kick a trash can once like a soccer ball as a legislator, and there is a famous story about how he tossed a telephone out a state Capitol window in frustration, but Cowper always settled down fast after volcanic episodes, and he inspired a dedicated following during those difficult years of the first big oil collapse.
A former boss, the late Attorney General Edgar Paul Boyko, once said with Cowper's penchant for always trying the unexpected, he never knew whether Cowper was about to "take a year off to enter a monastery in Tibet or be a war correspondent in Vietnam."
In 1974, Cowper followed through on a threat to run for the Legislature. He said Wednesday the four years he spent in the state House were the "most remarkable experience of my life."
It was a time when pipeline construction overwhelmed every aspect of life in Alaska and two things — the disappearance of the $900 million windfall and the need to borrow money to run state government — helped ensure the creation of the Alaska Permanent Fund.
There is truth in the proverb, "Success has many fathers and failure is an orphan."
The Permanent Fund has many fathers, Cowper among them — though he says the three men most responsible are all dead — former Gov. Jay Hammond, former Rep. Hugh Malone and Jim Rhode.
Cowper said the general understanding was that the fund's purpose was to provide some of the money needed to pay for state government when the inevitable decline occurred at Prudhoe Bay. They expected that would happen in about 25 years, but it has taken nearly 40.
As far as the dividend goes, Cowper says Rhode, a brilliant staff member to the House Finance Committee, deserves more credit than most people know.
"Jim Rhode said, 'We've got to protect the fund. The way you protect the fund is to give people some of it.' That's exactly the words that he used and he's always the place where you start because none of this originated with Malone or Hammond," he said.
"Those are the three big people," he said. The late Dave Rose, who ran the Permanent Fund corporation for its first decade, deserves the most credit for establishing a successful corporate operation, Cowper added.
To understand the early enthusiasm for the Permanent Fund, you have to understand the precarious situation of state finances four decades ago.
The state borrowed the money it needed to pay its bills in 1976-77 through a tax on petroleum assets in the ground, which would be paid back to the companies in the form of lower severance taxes as soon as giant oil tankers began hauling millions of barrels out of Valdez. The state borrowed a half-billion that way in 1976-77, more than $2 billion in today's dollars.
The politics of that time, Cowper said, required that the oil industry be convinced to not overtly oppose the reserves tax. He recalled a meeting at which the late Rep. Willard Bowman, an Anchorage Democrat, explained the situation to industry officials: "Willard says, 'Here's the thing. We've got a bill here that we're going to pass where we pay you people back. We want you to agree with that. If you don't, we ain't going to pay you back.'"
The state paid the money back after the pipeline began operating, and its finances soared after the Iranian Revolution in 1979, when oil prices doubled, generating billions more than anyone had ever dreamed and predictions that the price would never drop.
But by the time Cowper was elected governor in 1986, that prediction had been proven wrong. The Alaska economy collapsed, unemployment and foreclosures soared and the state faced financial peril yet again.
Temporary salvation arrived after the Exxon Valdez ran aground in 1989, triggering a multiyear cleanup that pumped billions into the Alaska economy.
So in the space of a decade, Alaska had been saved by a war and an environmental disaster, a "uniquely Alaska solution," Cowper said. The need for better solutions was obvious then, as it is now.
In an article he wrote for a 2007 textbook on sovereign wealth management, he said in Alaska "the continued unwillingness of elected officials to deal with the root causes of long-term revenue instability means the 1986 crisis is likely to repeat itself. If and when it does, the state's reliance on extraneous events and blind luck may not be enough to ward off fiscal chaos."
In the early years of this century, war in the Middle East, as well as rising demand in India and China combined to give Alaska another economic boost, though oil production continued to decline.
With a repeat financial crisis upon us now, Cowper said Gov. Bill Walker is taking the right steps to stabilize operations, but the Legislature "won't do anything."
"Let me tell you something, if Alaska had to invent a governor to be there when this is happening, that's the guy," said Cowper, pounding his fist on the desk.
"That Legislature is playing with fire, that's what's happening," he said.
Cowper had a well-deserved reputation in Alaska for being blunt. He's right about this—the legislative decision to count on world events and blind luck has pushed us closer to fiscal chaos.
Columnist Dermot Cole can be reached at firstname.lastname@example.org.
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