Legislative indecision has extended and worsened Alaska's recession

Alaska's recession is worse than it needed to be because the state didn't solve its fiscal gap last year. The longer we wait for a solution, the longer the recession will last.

The private sector has frozen investment and hiring while waiting for the Alaska Legislature to act. The uncertainty about taxes and government spending is too great.

"If you want to kill investment, create fear, uncertainty and doubt," said Bob Kaufman, who owns a tourism and advertising business. "I would be more comfortable with a smaller state and a smaller economy but have certainty around it. Because now I can build a business."

I heard the same response from all the business people I talked to over the last week. I also checked those impressions with a survey of business people by the Anchorage Economic Development Corp.

Everyone said the Legislature's indecision is dragging down the economy. Businesses need to know when changes will hit and how severe they will be so they can anticipate economic conditions.

"This uncertainty is getting to the point now where it is creating a crisis in confidence," said AEDC president Bill Popp, relaying the survey results. "The No. 1 barrier to growth is the state fiscal situation. There is not even a close second."

Expectations drive investment. Businesses don't risk spending on hiring or new facilities when they think the economy is shrinking and new capacity will not be needed. That restraint makes the economy worse. When investors see the bottom, they spend again to compete for a share of coming growth.

A bottom that comes sooner rather than later would allow investment to begin again. An unpredictable, drawn-out change in state policy is the worst outcome, because it puts the future further away.

"It will be a period of several years of turmoil, and then there will be stability, but a new type of stability, and we don't know what that will look like yet," said Betsy Lawer, president of First National Bank Alaska. "We won't know until Juneau takes some actions and makes some decisions."

"Failure to balance the budget and stabilize the investment climate can only result in continued decline," said Jim Jansen, CEO of Lynden, the freight firm.

[Economists say recession will last three more years, followed by a smaller, poorer Alaska]

Lynden relies on Alaska. Seventy percent of its freight touches here. Last year, the company's cargo volumes were down 10 percent and in 2015 were down 5 percent. It has managed reductions through attrition and by not replacing aging equipment, Jansen said.

Telecommunications company GCI cut capital investment 25 percent after the Legislature failed to pass a fiscal solution, said CEO Ron Duncan. It is expanding its business outside Alaska.

Business people are in remarkable agreement on what a solution should look like. Popp's survey of 300 businesses found 100 percent wanted a balanced solution that uses all options, not just budget cuts, as some Senate Republicans have suggested.

The plan advanced by Sen. Mike Dunleavy, R-Wasilla, to balance the budget through huge, unspecified cuts spread over four years is the opposite of what the business community says it needs. His plan would be economic poison.

Legislative promises of future, unspecified cuts are not credible. And business people said a partial or unpredictable solution would be a disaster.

"There's pain. You don't want to extend that pain for three years," Kaufman said. "It's like jumping from a rooftop to another rooftop. If you're not going to jump all the way across, don't jump."

[2016 was bad for the Alaska job market. 2017 might be worse.]

I had the feeling from these conversations that if I was sitting in a room with these business people, we could agree on a solution to the fiscal gap fairly quickly. But getting there requires a new perspective.

For decades, Alaska's state government has run on oil money, with the Legislature's main function being dividing up the spoils. Democrats fought for more money for services, Republicans for more capital construction and lower oil taxes.

In our future economy, the private sector will be dominant. State government, rather than fueling the economy, will have to learn to be its servant.

Legislators know how to play the role of kids under a broken pinata, grabbing what they can for their constituents' goody bags. When Juneau is no longer a zero-sum game, their job will be much harder, finding the right balance of taxes and services that benefits us all the most.

For example, Jansen, who gets much of his business from the oil industry, opposes an increase in oil taxes. He said we need to start thinking of the industry more as a source of economic activity rather than a flow of dollars for the state government. (He did say the state's oil tax credits are probably too generous.)

[Recession grips Alaska as employment losses hit new sectors]

Oil prices are down and Alaska's production costs are high but Jansen said enough oil remains profitable to keep the pipeline operating if the investment climate is attractive. The high cost of producing that oil will benefit the private economy even if the government gets a much smaller share.

Kaufman said we cannot cut public school classrooms much more — although we may be able to make administration more efficient — because if schools are weak, businesses such as his that rely on high-skill employees won't be able to retain them.

Both have good points. I plan to write about both these issues in future columns as I myself learn the right balance. It's possible that we need new combinations of political ideas in this new paradigm.

But once we've made that transition, the business people were surprisingly hopeful. Popp said the recession has been relatively mild so far, thanks to a variety of factors that have kept job losses from spiking too rapidly and have supported the real estate market. We're surviving.

Jansen pointed out that Alaska has important assets. It's true. Just look around you.

"There's no excuse for us to not be competitive," he said. "Everybody is so doom and gloom. Let's roll up our sleeves and go compete for the business. It may not be what we had but we could do pretty well."

The views expressed here are the writer's and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary@alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com or click here to submit via any web browser.