A noted university economist says the state is spending too much of its petroleum wealth and passing a fiscal burden on to future generations of Alaskans.
"I think we've been blessed by having the high oil revenues," said Scott Goldsmith, an economist with the University of Alaska Anchorage Institute of Social and Economic Research. "We've gotten used to them, sort of like a drug addict. It's hard to get off. Nobody wants the party to end."
Goldsmith spoke in an interview Feb. 15 after release of his ISER report on state spending from its oil wealth, and his thoughts on how much the state should be saving and why.
"I don't like being the guy who says last call at the bar," he said. "It's more like the last call at the bar, but it's a free bar, but we have to face up to the fact that if we are really committed to Alaska, we have to face up to the fact that the oil is not sustainable.
In the future, he said, if the state plans well, its wealth will come less from oil in the ground and more from its savings account. If not, it will come from individual and business taxes and those businesses will be less viable, he said.
Goldsmith's report notes that Alaska is in the lucky position of having an estimated $126 billion in petroleum wealth, $45 billion in savings accounts derived from oil revenues, and $81 billion in future state revenues from oil and gas still in the ground, if current official state projections prove accurate.
"Almost all state revenues come from oil, as they have for 30 years. But oil production is now only a third of what it once was, and analysts think that even with new discoveries and enhanced recovery, production from state lands will keep dropping," Goldsmith said in his report summary. "So Alaskans face a dilemma: how can we preserve this petroleum wealth for future generations, while still benefitting from it ourselves?"
The answer, he said is limiting how much the state spends from its petroleum wealth, and investing the savings in income generating assets. The income from those assets would grow over time and gradually replace declining petroleum revenues
The state has already taken a major step by depositing 24 percent of past oil revenues into savings accounts, but Goldsmith questioned whether that is enough.
Alaska could draw up to $5 billion this year and conserve its petroleum wealth at a constant value per resident, he said. That assumes $81 billion in petroleum in the ground, state population growing at1 percent a year, and annual income of 5 percent on state investments, he said.
But the size of the wealth-preserving draw depends on actual future revenues, he said. That would be less if revenues projected by the state Department of Revenue don't materialize, and more if production and prices are higher than currently expected. "Because of this uncertainty, the level of the draw should take into account how much risk we feel comfortable with," he said.
In the new fiscal year, Alaska will draw about $5.5 billion from petroleum wealth, an overdraw that means the state is eroding the value of its oil wealth and putting a fiscal burden on future generations, Goldsmith's report said.
"My concern," he added in an interview, "is that we are not thinking about the future the way we should be and that we continue to be locked into thinking about short term economic stimuluses that may generate jobs in the short run or economic diversification.
Margaret Bauman can be reached at firstname.lastname@example.org, or by phone at 907-348-2438.
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