Saturday, September 16, 2006

The Economist Labels Alaska "America's Welfare State"

An article published in the August 24th issue of The Economist implies that Alaskans are "wrapped in a thick mink coat of subsidies" despite the fact that for 80% of us, the "last" frontier is a typical urban or suburban area amply stocked with espresso bars, broadband connections and all the comforts of modernity. They label us "America's Welfare State". Yeah, I know, the article's almost three weeks old, but I guess neither KTUU nor the Anchorage Daily News reads The Economist either, since this article slipped under their radar screens as well.

According to the article, Federal spending supports a third of all Alaskan jobs, based upon input from the Institute for Social and Economic Research at the University of Alaska in Anchorage (UAA). Note: I strongly recommend you read a 21-page report posted on their site, entitled "Understanding Alaska: People, Economy & Resources". Alaska's representatives in Washington, DC have a hard-earned reputation for piping Federal dollars back home. A proposed $229 million “Bridge to Nowhere”, connecting the town of Ketchikan to an airport on an island with a population of 50, is the most notorious boondoggle. But, according to the Economist, the state is paved with pork—from its half-empty high-speed ferries to the $500,000 that the federally-funded Alaska Fisheries Marketing Board gave to Alaska Airlines to paint a giant king salmon on one of its aeroplanes in October 2005. Citizens Against Government Waste, a watchdog, calculates that Alaska guzzles more pork per head than any other state.

Why is Washington so generous to Alaskans? It is not as if they have no other source of cash. Alaska's oil wells allow the state to function without levying an income tax. And the interest from a $34 billion “Permanent Fund”, in which past oil receipts are stashed, gives every Alaskan man, woman and child an annual handout, expected to be about $1,000 this year.

The Economist is fair-minded enough to admit that there are some good reasons for the Federal government to spend money in Alaska anyway. First, there's the strategic military value, with over 21,000 troops there to protect it. There are also treaty-bound obligations to indigenous Alaskans to support, and finally, it owns (and must look after) some 60% of Alaska's land. Add to this America's romantic view of pioneers, and perhaps a lingering fear that its vast territory, if no one is encouraged to occupy it, may one day be grabbed by a foreign power. Back in 1880, the latter was a reasonable fear when, only 13 years after America bought Alaska from Russia, a census found only 435 frostbitten non-native residents, and the Cold War continued to justify the concern. But now the population is a healthy 665,000 and The Economist believes there is no plausible invader, even though our former Cold War adversary, Russia, still has nuclear missiles and is not exactly a cheerleader for America. And with oil prices so high, The Economist believes the taxpayers of the Lower 48 should be given a break.

For some reason, this idea gets little attention in Alaska. Politics revolves around two issues: how to suck more cash out of Washington and more fossil fuels out of the ground. Alaska's three members of Congress are adept at the former. The latter task is trickier—it involves complex negotiations with energy firms, and an uphill struggle to persuade the rest of America that a bit of drilling will not do too much damage to the Arctic National Wildlife Refuge. The big debate in the current race for the governorship concerns how and where to build a gas pipeline.
The Republican incumbent, Frank Murkowski, favours a pipe running south from Prudhoe Bay (where the gas is pumped) to the Midwest, via Canada. This is customarily referred to in Alaska as the "highway route", versus the "LNG" or Liquified Natural Gas Route, which would parallel the Alaska oil pipeline. He has come close to cementing a deal with oil firms. But he was rudely dumped by his own party in a primary on August 22nd. His ditching was unrelated to the pipeline or any other big issue; his problem was simply that Alaskans do not like him. His campaign song acknowledged as much: “And I'm proud to be supporting Frank Murkowski/ He's a man that's not afraid to take some licks/ He might not win awards for his charisma/ But Alaska's gonna need Frank in '06.”

Apparently Alaskans disagreed. Mr Murkowski came third in the primary, with less than a fifth of the vote. Yet as a senator for 22 years, he never had trouble getting re-elected. What has changed? When Mr Murkowski was far off in Washington, DC, his critics snipe, Alaskans never got to know him. More important, as a senator, he brought home goodies. As governor, his decisions have involved pain as well as gain for Alaskans.
Inheriting a deficit when he took office in 2002, he raised taxes on cigarettes and abolished the “longevity bonus”, a handout to persuade old people to stay in Alaska. This was probably necessary, but it was tactless of him to order a state jet, which he seems to use a lot, while calling for austerity. These and other displays of high-handedness, such as appointing his daughter Lisa to fill his vacant Senate seat, doomed Mr Murkowski.

The victor in the Republican primary, with 51%, was Sarah Palin, an articulate former small-town mayor. She is both fiscally and socially conservative, abhorring abortion (though, as governor, she would have no power to ban it) and favouring the death penalty for child-killers (though Alaska does not allow it). She has threatened to toss a figurative bomb into the pipeline negotiations, by demanding that other routes be considered and by suggesting that the gas should be liquefied in Alaska and shipped out by tanker. Her critics think this impractical.

Her Democratic opponent in November will be Tony Knowles, who was governor between 1994 and 2002. His party label ought to hinder him in such a conservative state as Alaska, but he is seen as a pragmatist. Mr Knowles says he would renegotiate Mr Murkowski's pipeline contract so skilfully as to net an extra $2 billion a year for Alaskans, though he gives few details.

Both candidates agree that Alaska needs to diversify, so that its economy depends less on a commodity whose price goes up and down like a drunken mountaineer. But neither really knows how this might be done. And neither likes to consider that Alaska's Federal subsidy might also take a tumble some day.

Analysis: The Economist is apparently well-versed on Alaskan elections (except for their omission of Andrew Halcro). I strongly agree with their summation of Frank Murkowski; despite wanting to do the right thing, he came off as too imperious because he lost touch with how to communicate with Alaskans at the grass-roots level because of his 22-year long sojourn in the U.S. Senate, and he paid the price.

However, the magazine is not quite so well-versed on Alaskan economics, and Lew Williams, a former Ketchikan mayor who contributes regular columns to the Voice of the Times (the remnant of the old Anchorage Times which was contractually preserved after the Anchorage Daily News absorbed the Times 14 years ago), was quick to pounce. In Saturday's column, he decries the Economist column as more frustrating misinformation about Alaska, characterizing it as inexcusable in this 21st century of jets and Google. He rebuts false claims about how Alaska is criticized for exporting its oil to foreign countries. North Slope oil has not been exported since 1999, and, before then, shipped out only 7 percent of production. Alaska is criticized over the five-year Federal highway plan approved in July 2005. Politicians and editors prefer the old sound bite, financing “bridges to nowhere,” to fairness and facts. Those three words were used as early as 1930 to describe a bridge near New Orleans.

Williams further discusses Federal highway funding. The Federal highway act divides federal gas tax receipts among the states based on a calculated formula considering the area of the state, the number of miles of highways, the amount of highway taxes contributed and other factors. All states are awarded a share of the highway funds based on that formula. How states spend it is no other state’s business, except, evidently, in the opinion of political hacks capitalizing on a lack of knowledge about Alaska.

Williams also points out that although Alaska is one-fifth the land area of the Lower 48, it has fewer miles of highway and contributes less in tax revenue. So, despite its size, it was allocated only $2 billion in highway funds for the five years. Thirty-two states, including all of the Gulf states hit by Katrina, received more. California received the most, $17 billion, followed by Texas at $14.5 billion. However, I would have to admit the latter justification might be a bit weak, since Alaska has far fewer total road miles to maintain than California, except that we need to expand our existing road network.

Williams also complained about a non-specified article on Alaska in the Wall Street Journal. According to him, the Journal complained that a larger amount of Federal money per capita goes to Alaska than to other states. Their half-baked reporting left out a few pertinent facts. Of Alaska’s 365 million acres, 67 percent, or 244 million acres, is owned by the federal government, an area equal to Texas and California combined. Shouldn’t owners of that land contribute to operation of the airports, highways, ferries, schools, hospitals and other infrastructure enabling access to that land?

Another complaint is that Alaskans are ripping off Americans with high oil prices. The Wall Street Journal reported this week that when Alaska North Slope crude was $62.46 a barrel, West Texas crude was $63.77 and Louisiana crude was $63.57. However, just one month ago, oil was in the $78 range, so the Journal forgets about the commodity's volatility.

Sure, Alaska has $34 billion in its Permanent Fund. Its earnings pay Alaskans a dividend. Should Alaskans be penalized for saving money? Many states have been producing oil for more years than Alaska. Their politicians should be ashamed to have nothing to show for it.

However, if politicians want to reduce spending in Alaska, they could transfer 22.5 million acres of national forests to the state (save $90 million) or 59.2 million acres of park land (an area greater than any one of 40 states) and so forth. Or, at least return management of subsistence hunting and fishing to Alaska and save more than $3 million a year. Personally, I might add that they could also allow us to open up ANWR for exploration and responsible development.

Otherwise, as long as Alaska is going to host and provide access to the nation’s playgrounds, it’s appropriate that the nation contribute in proportion to its size. And Lew Williams is absolutely right. Alaska's greater value to the nation because of it's strategic value, natural resources, and wildlife warrant a greater contribution by the Federal government.

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