A way out of Alaska’s fiscal hole

The Alaska legislature currently finds itself with the unenviable task of addressing a $3.8 billion deficit caused by plummeting oil prices this past year. While those of us in the Lower 48 may wonder how the price of oil can have such a catastrophic effect on a state’s finances, we must remember that our 49th state is unique. Alaska is blessed with an abundance of natural resources and it was the development of those resources — and their ability to sustain an economy — which led to Congress granting statehood in 1959.

{mosads}Fast-forward over 50 years and Alaska’s economic well-being is overwhelmingly dependent on the oil and gas industry. Which is why the March announcement by Secretary of the Interior Sally Jewell and Bureau of Ocean Energy Management (BOEM) Director Abigail Ross Hopper on the proposal for the nation’s Outer Continental Shelf (OCS) Oil and Gas Leasing Program for 2017 to 2022 is critical for Alaska’s future.

While this proposal unfortunately canceled projected OCS lease sales for the Atlantic, the current version still includes three possible leasing areas for Alaska in the Chukchi Sea, Beaufort Sea and Cook Inlet. The BOEM public comment period on other options, including an alternative that includes no new leasing altogether, ends this week. Put quite simply, Alaska’s economy, and its citizens, can ill afford such a decision.

Complete cancellation of the OCS leases in the Arctic region would be a devastating blow to energy resource development — a pillar of Alaska’s economy — and would affect any Alaskan in, or connected to, the oil and gas industry. Over one-third of Alaskan jobs are tied to the industry, which supports 110,000 jobs and $6 billion in public and private sector wages (accounting for 89 percent of the state’s unrestricted revenue stream). It should be noted that no presidential administration has completely rescinded prior decisions on leasing areas.

Alaska is already feeling the pinch of declining oil and gas production. And it’s not just affecting those who work in the industry. Neal Fried, an economist with Alaska’s Department of Labor, recently told a local television station that the oil sector in Alaska lost around 2,300 jobs — a 20 percent loss — between April 2015 and April 2016. Fried noted, “those oil industry jobs pay [two-and-a-half] times the average. When those jobs are lost, you lose other jobs, whether it’s in retail, other services, you name it, those can be felt throughout the economy.”

There is a way out of this economic hole and it’s in BOEM’s hands. By retaining the Arctic leases in the five-year plan, Alaskans have a much better chance of digging their way out of their fiscal hole. A University of Alaska-Anchorage report concluded that OCS development would create an estimated annual average of 54,700 new jobs, which would be sustained through 2057. That would increase to 68,600 during production and an astonishing 91,500 at peak employment.

The payoff is there, too, as the Alaska OCS is believed to contain over 30 percent of the country’s known recoverable offshore resources, with the potential of 26 billion barrels of oil and 132 trillion cubic feet (tcf) of natural gas.

However, the impact of the Alaska’s oil and gas industry goes far beyond the state’s borders. Access to these abundant energy resources benefit energy consumers throughout the country and our economy as a whole.

Significantly, the majority of Alaskans — 72 percent — support allowing offshore oil and gas development in the Artic. They have an opportunity to secure their — and their children’s — economic future. These are the voices we should be listening to.

Thorning is senior economic policy adviser for the American Council for Capital Formation.