One of the things a governor does is show people the upside of what he or she is proposing, and how particular policies will make our state a better place to live.
In this regard, Gov. Mike Dunleavy has drawn a broad outline of his vision, that leaner state government will attract private investment and make us all better off in the long run. But there are no details so far, or evidence that this strategy can work in a small regional economy heavily dependent on natural resource industries.
It’s time for the governor to explain how this is good for us.
Earlier this spring, I listened to Donna Arduin, the governor’s budget director, tell the Senate Finance Committee that the recession that began in 2016 and continues today was due to the instability of state finances and chronic budget deficits that grew larger that year as the recession set in. State Sen. Click Bishop, R-Fairbanks, retired labor leader, gold miner and political pragmatist, quickly rejected this: “The recession is due to collapse of oil prices,” he told Arduin.
The budget director is adept at sticking to the script, however. By cutting spending and bringing expenses in line with (depleted) revenues, new private investment will flood in, creating enough jobs to end the recession and grow our economy, she said.
I agree with Bishop. The collapse of oil prices in late 2015 triggered layoffs in the oil and construction industries, and — after a lag — also in state government and ultimately other industries as the effects of lower oil revenues trickled through the economy.
Bishop, and most legislators, know that what moves the needle in our economy is resource development like a big oil discovery, new mines and fish plants or a plant that makes products from forest resources.
Does smaller government attract new investment in these industries? I don’t see the connection.
Industries and businesses do like to be in places with stable fiscal and political environments, of course. Those are important, but how do they rank against other things?
What really attracts resource industries, it seems to me, is the presence of resources, like the prospect of discovering new oil or minerals. The second, third and fourth most important factors are the availability of skilled labor, energy and infrastructure. Government has an important role in providing all three of those.
Tax and political stability are in the mix, but not as important as, say, the natural resource endowment. That’s unless you’re in the Congo. But we’re not Congo.
A stable tax structure is important over the long term and particularly with mature, producing industries. We did see this demonstrated from 2008 to 2012, which were years of stagnant oil investment but also high oil prices, and there should have been more drilling. Those were also years of frequent changes in state oil tax policy.
Prudent industrial investors also know, however, that an educated local workforce is vital, along with communities that are good places for employees to live in, and which have good schools, culture and arts. Those help make a good business investment environment.
Business investors also know that as long as Alaska is dependent on unpredictable revenues from oil and now income from the Permanent Fund, its fiscal base will be unstable, because oil and financial markets will always be volatile. A truly diversified revenue base is safer. Taxes paid by individual people, whether income or sales taxes, are more stable than resource income or stock market gains.
If the governor wants true tax stability, he would push for a more diverse revenue base that includes Alaskans and visitors contributing to the cost of public services. This would give confidence to business investors. More than anything, business wants stability, in fiscal matters along with stable public policies. Business does not like disruption.
I believe it’s also time for the governor to talk about economic development and how he intends to encourage it. All governors develop proposals, some more practical than others, to show how they can create new jobs and prosperity.
So far, we know the governor is in favor of mining, and we know he likes a Canadian promoter’s idea for an Alaska-Canada rail link, a mega-project. We haven’t heard any details on these. We also know there is a special infrastructure task force at work within the Department of Commerce and Economic Development, but what this group is doing is being kept under wraps. It’s time to lift the veil.
These things are important because Alaskans need something to feel good about, some sense that there’s a future. Smaller state government, gutted social services and a trashed university don’t make me feel good about the future. Fortunately, the governor is now backing off on some of his extreme early ideas, particularly for the university.
No one can argue with the governor’s notion that state government, including agencies like the Department of Health and Social Services and the university, could use intelligent belt-tightening. There’s also logic to the notion that these institutions don’t have the internal discipline to do the job themselves without powerful external pressure, like a powerful governor with an ax.
Dunleavy’s threat to use the ax has started the discussion, as he says. However, the trick in this is to wave the ax to get people’s attention but at the right moment to back off and switch to a scalpel. Doing this carefully, over a period of several years, is now what’s important.
Tim Bradner is co-publisher of the Alaska Legislative Digest and Alaska Economic Report.
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