Seeing an issue through a younger person's point of view can be a real eye-opener. I recently attended the Alaska Fiscal Crisis forum put on by Alaska Common Ground and the Institute of Social and Economic Research (ISER). I had assigned the conference to my students as extra credit. How we address this next big strategic fork in the road will have long-term consequences for the Alaskans we're teaching today.
After the event I was struck by how upset students were from hearing the legislators who attended explain that they understood fiscal problems needed to be resolved quickly, but who were unwilling to move off their particular solution, or were rejecting possible alternatives out of hand due to their ideology. I heard one legislator say as an aside that they didn't think it fair to be forced to endanger their political future over this -- they weren't relishing making tough decisions. Well, too bad.
This is my fourth Alaska fiscal crisis. Many voters in Alaska understand the state's history beginning when they arrived. For me, that's been about 35 years. In that time I had the dubious honor of holding leadership roles in state government each time oil dropped below $10 per barrel. Alaska faced a fiscal crunch three times before -- first in 1986 when Alaska North Slope oil dropped to its lowest first-purchase price (fpp) per barrel of $3.11, in 1990 when the fpp dipped to $7.90, and again in 1999 when the fpp was $5.34.
Amazingly, each time Alaska's economy emerged a bit stronger. Spending on the Exxon Valdez cleanup was key to pulling us out of the 1986/1990 deep recession. Even big layoffs by BP in 1990 helped build up the professional services sector we have in Alaska today. And when I mention the deep price drops in 1999, almost no one remembers. Alaska got lucky, prices and production rose after each precipitous drop and revenues returned to state coffers; we kept doing what we'd always done.
This current fiscal crisis seems right on schedule, but this time it is so much worse. Average North Slope oil production in 1986 was 1.83 million barrels per day, in 1990 it was 1.82 million and in 1998 it was 1.26 million. Today oil production is 0.498 million barrels per day, 27 percent of what it was during 1986! This time, even huge price increases won't make enough difference to solve Alaska's fiscal problem, ever. And if we fired every state employee through budget cuts, it wouldn't solve the problem either. We can't hope or cut our way out of this.
The good news is Alaska has significant financial resources, which really could solve our current and future fiscal needs. But putting those resources to long-term use will take some politically difficult choices. Frankly, I feel lucky to sit this one out because I'm not optimistic our Legislature will do what needs to be done -- I expect them to kick the can down the road. After all, next year is an election year, but then that's true every other year.
Unfortunately, kicking the can is not a strategy. Alaska has no long-range strategy, no real goal, so one approach is as good as another. In days leading up to statehood, Alaskans had a strategy, becoming a full-fledged U.S. state. After that, as part of the goal to fully implement the statehood compact and to clear the way for the trans-Alaska pipeline system, Alaskans worked on the Alaska Native Claims Act and the Alaska National Interest Lands Conservation Act. When oil revenues started flowing, other Alaskans had the strategy to establish the Permanent Fund assuring that, when the oil did run out, Alaska would have the financial resources to carry itself forward. Most Alaskans could align themselves around these. Today, beyond the ever-discussed gas pipeline, Alaska has no real plan for the future.
The guru of business strategy, Harvard professor Michael Porter, argues only strategies that enable an organization to do better relative to its competitors are real strategies; everything else is just a plan. Think of Alaska as in competition with the other 49 states for residents and investment. If an organization has a real strategy, then it will carefully align its expenditures, its value chain, to assure the strategy is carried out as successfully as possible. A real strategy is one that involves making choices -- what an organization is going to do, and more importantly, what it is not going to do.
Kicking the can farther down the road may be a plan, a really bad plan, but it is not a strategy. It sets Alaska up to be a low-performing state like Mississippi, Maine or Montana. But we could come together as Alaskans to be better than that. I came to Alaska because I wanted to contribute to building a relatively new state. I hear the same thing from my students; they want to contribute and they want to live here, build their futures here and raise their families here. But with no vision for the future, what will this state be like five, 10 and 20 years from now? At 61, I won't care much about this in 20 years, but it is of vital importance to our children and their children.
Alaska needs a strategy to be an above-average state, we need to align our operating and capital budgets to implement our strategy, and we need to make very tough choices about what services the state of Alaska will provide and what it won't. Alaska's strategy would be the clear test for all budget requests -- if the budget item moves the strategy forward, it should be considered, and if it doesn't it should be rejected. Our strategy needs to be broad enough that most Alaskans, urban and rural, can get behind it.
Rather than arguing about which approach -- cutting the budget, eliminating Permanent Fund dividends or implementing new taxes -- is the best way to kick the can down the road, we need to imagine what our dream state would be, develop a strategy to get there, and structure everything else to make that imagined state possible.
Bob Poe has had an extensive career in Alaska holding top management jobs in both the private and public sectors for over 35 years. During his career in Alaska he has served five governors in a variety of cabinet and subcabinet roles. Today he is an assistant term professor at UAA's College of Business and Public Policy teaching business strategy.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com.