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The recession is ending, but Alaska’s economic future remains precarious

  • Author: Charles Wohlforth
    | Opinion
  • Updated: July 17
  • Published July 17

The bottom of Alaska's recession is nearing, but the economy faces deeper threats that go beyond the downturn of the last three years.

The rate of job losses slowed in the first part of the year. A consensus holds among economists and business people that we're at or near the bottom. Business looks flat for folks I talked to, but flat is good.

The next few years could look much like what we have now—not great, but better than the last three years of decline caused by lower oil prices and cuts to state spending.

Economists' predictions proved essentially correct. I expect they're right again. That's some cause for optimism. Treading water is better than sinking.

But beyond a few years, Alaska's future seems more precarious than many seem to accept.

Tim Bradner's ADN column over the weekend opined a flat outlook because of the lack of likely positive development that would grow economic activity. But Bradner's column only looked at potential upside events. He didn't discuss negative changes that could happen.

"When I was writing that column, I wasn't trying to be too depressing," he said. "When you're writing this stuff, you feel a sense of responsibility. You don't want to add to the depressing effect by what you write."

It's true, expectations do influence reality.

Business pessimism followed the Legislature's long stalemate on the state's fiscal problems, and that made the recession worse than it needed to be.

Finally, the Legislature worked itself into a corner and was forced to draw on the Earnings Reserve of the Alaska Permanent Fund to cover most of the deficit, an entirely predictable result that really amounted to a change in how the state's money is counted. But that's taken as a cause for optimism.

As a reader, I appreciate bad news. It helps me make good decisions. That's why I sometimes write these depressing columns.

Bradner has a strong handle on the oil industry. Oil prices and production have stabilized.

Assuming oil stays in the price range that we've seen for almost a year, a reasonable bet, oil companies will keep hiring workers and buying equipment to develop fields near existing infrastructure. Those investments will offset declines.

But these projects are not large enough to drive significant growth. The projects that would—big new oil fields with giant investments — remain too speculative or too far off for a realistic prediction. (And I join him in his skepticism about a state-owned liquefied natural gas project.)

Besides, global changes are happening faster than projects can move forward. A decade from now, when boards in Houston or London make these big investment decisions, the equation may have completely changed due to energy policy and competing renewable energy technology.

Oil pays many of the bills in Alaska, but other industries employ more people and provide more stability. The basic industries that bring money into our economy face long-term threats.

Government is the largest segment of Alaska's economy, with federal spending supporting about a third of jobs directly or indirectly.

Our state receives much more from Washington than we pay in taxes, but the exact amount is difficult to nail down because of many ways federal money flows through our economy.

For example, preferential federal contracting for Alaska Native corporations, called 8(a) contracting, has made those firms some of the biggest in the state. But the majority of the work is done far from Alaska and doesn't show up on statistics of federal spending here.

That money is vulnerable. Our congressional delegation has defended it, but it's easy to imagine a political scenario in which it would rapidly disappear. For example, what happens if control of the Congress flips to Democrats, but Alaska continues to elect an all-Republican delegation?

Alaska receives many other special federal benefits, too. The federal government gives a special boost to its Alaska employees' paychecks, a policy left over from the days when the cost of living was much higher here. Today Anchorage is cheaper than Seattle.

The federal government also pays for much of Alaska's one growth industry, health care. Last year we came within a couple of votes in the U.S. Senate of losing a big bite of that funding.

Military spending and jobs dwarf all else. Alaska has strategic advantages, but spending levels and basing decisions are essentially political. National politics are as unpredictable as they've ever been.

The changing environment is also a threat.

This year's busted salmon runs in Southeast and Southcentral Alaska could preview how climate change will transform the fishing industry, the key employer and source of stability in coastal Alaska. A warm water blob in the Gulf of Alaska is a suspect.

Warmer waters and higher ocean acidity could reduce the productivity of Alaska ocean waters permanently.

Tourism is a relatively small contributor to bringing new money into the state. Most of our visitors come with the cruise industry, which captures those dollars internally.

But independent travelers, flying or driving to Alaska, spend money that filters through Alaska towns. Many of them come with dreams of catching a king salmon on the Kenai Peninsula or in the Susitna watershed. After too many closures, sportfish industries in those areas are dying.

The negatives are as real as the positives. But business people tend to be optimists.

They have reason to be. The recession wasn't as bad as many expected.

Betsy Lawer, CEO of First National Bank Alaska, said some indicators of economic trouble never became severe. She didn't see many delinquent payments or troubled loans. The economy showed unexpected resilience.

"The downturn in the economy has forced people to look at their business model, how they do business, and make adjustments," Lawer said.

Alaskans will need to make more adjustments. Our state has big problems holding us back, including crime, the quality of education and the cost of health care. Meanwhile, the world is rapidly shifting the ground beneath us.

Our best hope is to see clearly — bad news as well as good — and adapt.

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

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