A triple-whammy. Now there’s a lot of new uncertainty.
People worry about virus outbreaks in Alaska and so far there has been only one person who tested positive. Let’s give Gov. Mike Dunleavy and state health officials credit for aggressively ramping up the public communication needed to keep people calm.
A huge uncertainty hangs over the summer visitor season. Cruise ships drive Alaska tourism, and outbreaks of the virus on ships in Asia and off California came just when people were to be signing up for summer voyages.
This puts Alaskans in the visitor business in a tight spot because now is the time they have to line up summer workers, order supplies and plan the reopening of seasonal lodges. What to do? It’s a tough call.
COVID-19 will play itself out eventually, although the virus is new and there’s not a lot known about it. Bottom line is that we’re likely to see a dent in the summer visitor season after years of record-breaking growth.
But if the virus fades and it happens soon enough, and the cruise companies can convince people cruise ships can be safe, the season can be salvaged. These companies are pretty good at marketing. As for oil, we’ve seen this before. It happened in 1986, 1998 and 2015 — there may be one I missed. Typically, something in the market sparks it — in this case, the virus-related demand slump.
But what really drives it is major world oil producers get in a mud fight over market share. Usually, the Saudis open the valves to grab more share of the declining market. That causes prices to drop.
These things usually sort themselves out, but there can still be a lot of damage. Within the petroleum industry, the shale oil producers are most vulnerable. We might see some of that supply off the market.
Alaska’s industry appears in better shape for now, because most of the companies’ investments here are long term. However, if COVID-19 causes a serious recession, we could be in for an extended period of low oil prices.
Ditto the stock market. I’m no financial market expert, but some kind of correction seemed overdue because we’ve been in a boom market for so long. But when it came, it was a doozy.
Some good news: Our state budget won’t collapse like it did during the 2015 oil price collapse or the one in 1986. Let’s thank the state Legislature for its wisdom in passing Senate Bill 26 a couple of years ago, which makes a portion of Alaska’s Permanent Fund’s income, which is hefty, available to help support the budget.
In fact, for the next decade, most of the funding for our budget will come from Permanent Fund earnings. We were substantially less dependent on oil revenues even before last week.
The stock market decline, if it continues, will eat into the fund’s earnings, however. Fortunately, the annual draw from earnings to support the budget is calculated on a five-year trailing average, which means the effect of any drop in earnings is delayed. That said, it will eventually catch us if the economic slump continues.
On this, we should be thinking about further diversifying our revenue base by asking citizens to pay state taxes like they do in other states. As for new taxes on the oil industry, which some propose, the timing would be terrible.
The most important thing now is to remain calm and listen to our state health experts. The advice we’re getting is to do the basics — wash our hands; avoid handshakes, stay out of crowds — in general, be aware.
We’re lucky to have Dr. Anne Zink as our chief state medical officer. She’s a veteran physician with experience in the emergency room, a place where one has to be calm, collected and prepared for anything coming through the door. The governor and Health and Social Services Commissioner Adam Crum are doing their jobs, too, to ensure front-line people like Dr. Zink have the resources they need.
We’ll get through this. We always do.
Tim Bradner is co-publisher of the Alaska Legislative Digest and Alaska Economic Report.
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