Alaskans reap boom – and bust – from oil

The oil price spike has brought the best of times and worst of times in Alaska.

In the state's urban metropolis, a retail frenzy is under way as merchants compete for the extra $3,269 that landed on Sept. 12 in residents' bank accounts. The money is from the normal annual dividend paid by the Alaska Permanent Fund – a record $2,069 payout this year to nearly every Alaska man, woman, and child – plus an extra one-time $1,200 payment, made possible from huge state budget surpluses, that was championed by Alaska Gov. Sarah Palin.

But the high oil prices that are swelling the state treasury and fattening urban bank accounts are crushing rural residents. Energy spending claims 40 percent of household budgets in rural communities, according to the University of Alaska, Anchorage. Here, the big payout is seen as an economic lifeline.

Take Anaktuvuk Pass, an isolated Inupiat Eskimo village in the Brooks Range, the mountains in the same North Slope district that holds Alaska's prolific oil fields. Gasoline prices there had spiked to $9.20 a gallon at one point, meaning a trip by all-terrain vehicle to hunt caribou – the dietary staple in a village whose name translates to "Place of Caribou Droppings" – was an economically risky venture. "And what if they don't catch anything?" asks George Paneak, mayor of the village of 277. "You just have to live with the hard times."

Many rural Alaskans are choosing not to live with the hard times. Some have become "energy refugees" – migrants from their villages to the bigger cities, where costs are lower but traditional cultures and lifestyles are absent.

This year's $3,269-per-person payout gave village families the grubstake they needed to relocate to Anchorage, Fairbanks, and other cities, some economists say. Rural districts report enrollment decreases and school closures while the Anchorage School District gained about 500 students of Alaska Native or American Indian descent in the first month of the academic year.

The change disrupts both urban and rural districts. "A prosperous, culturally diverse Alaska depends on both flourishing villages and thriving cities, so we cannot stand by and tolerate the deterioration of rural Alaska," said a Sept. 29 letter to Governor Palin from Mark Begich, Anchorage's mayor, and Carol Comeau, the city's school superintendent.

At least state coffers are flourishing. Oil royalties, taxes, and fees currently provide about 90 percent of the state's general revenues. Thanks to the recent spike in prices and a recent rewrite of the state's oil-tax system that reaps the benefits of high prices, the state treasury is overflowing. That has allowed Palin and the legislature to authorize bigger budgets, including a nearly $1 billion "energy assistance" package that allowed the special $1,200 payments and targets aid for rural utilities and bulk-fuel purchases.

Alaska's current riches are a dramatic turnaround from the 1990s, when oil prices fell as low as $9 a barrel and the state was weighing whether to reinstate a personal-income tax, impose a statewide sales tax, or tap into its Permanent Fund to pay for services.

"We were the only state in the nation at that time that was actually cutting its budget, and every one of the eight years I was in office, we cut our budget," says former Gov. Tony Knowles, a Democrat who served from 1994 to 2002.

Skyrocketing oil prices have erased that dilemma for now. Even as state operating budgets rose from $2.46 billion in fiscal 2005 to $5.26 billion for the current fiscal year, the legislature was able to sock away $5 billion into various savings accounts and craft the energy package that includes the $1,200 payment.

Under Palin's watch, the legislature reinstated a popular municipal revenue-sharing program and revived the Alaska Film Office. Education spending is up, and capital budgets have been among the biggest in state history.

But the future could bring a dramatic fiscal reversal, said Scott Goldsmith, an economist with the University of Alaska Anchorage's Institute of Social and Economic Research.

Oil prices have already dropped, a trend that is likely to continue, and North Slope oil production is on the decline, he says. It will be at least a decade, under the best-case scenario, before any of the long-languishing North Slope natural gas – touted as the base for Alaska's economic future – is sent to any markets. So that means budget deficits will probably return, he says.

At least Alaska leaders know enough to create a cushion for the coming hard times, Mr. Goldsmith said. "Since we've been through so many fiscal ups and downs, there's more of an awareness today of the need to conserve and the need to save."

Some skeptics consider the $1,200 payout part of a shortsighted plan that lacked investment in the future and, at worst, could morph into a long-term entitlement.

"It sounds good that you give everybody 1,200 bucks," said state Rep. Les Gara, an Anchorage Democrat. "But as a government leader, you're supposed to figure out what the problem is and find out a solution.... Everybody decided it was just easier to dole out the cash than to come up with a plan to reduce the cost of energy."