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Editorials

Alaska’s economic pain is just beginning

  • Author: Anchorage Daily News editorial board
    | Opinion
  • Updated: April 11
  • Published April 11

The Alpine Central Facility serves as the hub for the Alpine oil field, photographed on Tuesday, February 9, 2016. Alpine is only connected to existing oil development infrastructure by seasonal ice roads and by air. (Loren Holmes / ADN)

The immediate impact of the COVID-19 pandemic on Alaska has been dire. In the past three weeks, more than 36,000 Alaskans have filed new unemployment claims — more than 10% of the state’s total workforce. When it will be safe for Alaskans in nonessential industries to return to work remains an open question. But the extent of the economic carnage Alaska will face in the months and years ahead will stretch far beyond the pain Alaskans are feeling today.

A year from now, there could be a vaccine for the novel coronavirus. But there can be no vaccine for the near-collapse of Alaska’s major sources of revenue.

The shuttering of the service industry

It’s safe to say that Alaska’s restaurants, bars and brick-and-mortar retailers have never seen an economic event this devastating. Although these industries have seen tough times before — the oil price collapse of the late 1980s, for instance — there has never been a catastrophe that so completely unraveled their ability to do business. Although some restaurants are managing to limp along on takeout and delivery business, many aren’t able to hang on. As of April 1, 14% of Alaska restaurant owners surveyed by the Cabaret, Hotel, Restaurant and Retailers Association said they planned to close their establishments for good. That number will grow the longer shelter-in-place mandates are in place.

This isn’t to say that those mandates should be relaxed or abandoned: They’re the only effective means of controlling an airborne virus for which there is no vaccine. Easing them now would likely lead to a surge in COVID-19 cases that would overwhelm our hospitals and inflict even greater economic damage. Simultaneously, we must acknowledge the impact they have on our service industry and work to blunt that damage as much as is possible — on the governmental level, through aid measures such as the CARES Act, and on an individual level, by continuing to support local businesses to whatever extent is possible for us.

Dark days for oil

Even more ominous for Alaska’s longer-term fiscal prospects is the historic collapse in oil prices that has accompanied COVID-19. A precipitous drop in global demand resulting from travel restrictions around the world, coupled with a production standoff between Russia and Saudi Arabia, sent prices for North Slope crude plunging as low as $21.80 per barrel, a low not seen in close to two decades.

Even as the production war may be nearing its end, a massive supply glut and questions about how long travel restrictions will persist mean there will be no quick recovery from these lows. And that means hundreds of millions of dollars less revenue each year for the state, even if production continues at present levels. And the ripple effects are spreading. ConocoPhillips this week announced it’s halting exploration work on the Slope. There are signs of trouble for the BP-Hilcorp deal in the wake of news that low oil prices could impact Hilcorp’s ability to repay its lenders. The state Department of Revenue forecasts that oil prices will average $37 per barrel this year, just more than half of the previous year’s forecast.

Hundreds of millions less revenue for the state means hundreds of millions of dollars lost that would have helped pay for education, transportation, health care and public safety in Alaska. It means the Legislature’s task of balancing the state budget while preserving state services will be far more difficult. And it means we must be realistic: The free ride we’ve been getting on the back of abundant revenue — receiving services we don’t pay for and receiving a share of state money to boot — is over. It has to be. We must be honest with ourselves about that, and have a frank, fact-based conversation about what we can do to fund the budget now that oil tax revenue is much diminished.

Delays for COVID-19 relief

All of the dark clouds in the future could be compounded by our current situation. In the short-term, the pressing need for COVID-19 aid to individuals and businesses has yet to be met. The $1,200 relief checks to every American, the most meaningful direct federal aid, have yet to land in bank accounts as Alaskans enter their third week under shelter-in-place orders (the first checks are supposed to start going out in a few days, according to the Treasury Department). Many Alaskans seeking unemployment are also seeing long delays, as state officials strain to deal with the massive influx in new claims.

And for businesses, relief is tangled in crossed wires and red tape: A federal small business loan fund called the Economic Injury Disaster Loan program, intended to give affected businesses as much as $2 million in immediate assistance, is buckling under a flood of new applications and has told prospective borrowers that new loans will be capped at $15,000, a pittance for most. State aid, largely to be administered by the Alaska Industrial Development and Export Authority, is slated to be reserved for those with existing loans under current rules, leaving many unable to participate. It’s a welcomed effort, but that aid has yet to flow to businesses that are eligible.

Navigating Alaska’s fast-moving economic disaster is a bit like running whitewater rapids — you have to worry about the rocks dead ahead first, while also keeping an eye on potential dangers beyond. State and federal officials must act quickly to keep us off the rocks in the short-term, while Alaskans and their leaders look ahead and plan for the long stretch of rough water to come.


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