State savings provides breathing room

Three decades of steady growth have given Alaska some much-needed time to address budget problems, economist writes

ERIC LIDJI

For Petroleum News

Is it the ’80s all over again? Maybe not. Even though Alaska is nearly as dependent on oil and federal spending today as it was 30 years ago, the overall economy is more robust today than it was after the pipeline boom, according to an article by the Alaska Department of Labor and Workforce Development.

“A larger, more mature economy makes a repeat of the massive 1980s bust less likely, but it doesn’t guarantee a soft landing. The future will largely depend on policy decisions and how resilient today’s economy is compared to the 1980s,” economist Caroline Schultz wrote in the September 2015 issue of the state journal Alaska Economic Trends.

With 30 years of steady population and employment growth, and large savings, Alaska is in a better position to weather an economic shock than it was in the 1980s, she argued.

While the employment boom of the 1970s was expected, the economic boom of the 1980s was something of a surprise, according to Schultz. Everyone knew that the workers who flooded the state in the mid-1970s would only be around as long as it took to complete construction of the trans-Alaska oil pipeline. The economic growth of the early 1980s, on the other hand, was built upon a major increase in government spending brought about by the early years of rising North Slope oil production and high oil prices.

The growing economy once again attracted people to the state. The population of Alaska increased by 36 percent between 1980 and 1985 and 60 percent were from out of state.

With a steep drop in oil prices in the middle of the decade, Alaska entered the deepest recession in the history of the state. Employment collapsed, population declined, the foreclosure rate skyrocketed and more than 40 percent of banks failed. “When prices crashed and state spending dipped sharply, the fever turned into a flu,” Schultz wrote.

Steadier growth

Unlike the oil-fueled boom of the early 1980s, economic growth has been slower and steadier over the past three decades. The population of Alaska grew 35 percent over that time, which Schultz described as “modest.” More importantly, the population is more evenly distributed and less dependent on younger people. The median age is now 34.4, up from 27.5 in the early 1980s. As such, familial roots are much deeper. “Babies born in Alaska now are much more likely to have grandparents in the state,” Schultz wrote.

Job growth presents a similar picture. Employment grew 6 percent per year on average between 1980 and 1985 but just 1 percent on average over the past six years. The slower growth has been reliable, though. Employment increased 26 out of the past 27 years.

A generation of growth also diversified the work force. Jobs in the food services have grown alongside the population. Jobs in health care and social services have grown faster.

Less oil to sell

“When the bottom fell out of the economy in 1986, there was a light at the end of the tunnel: the volume of oil produced in Alaska was still rising,” Schultz wrote.

Even though North Slope oil production peaked in 1988, the declines remained above rates during initial years of operation in the late 1970s. That started to change in the late 1990s and has only intensified in the decades since. “Even if oil prices hadn’t collapsed in 2014, Alaska would have eventually lacked enough oil revenue to fund its government. The state made some hard choices about cuts in the 1980s, but not about how to fund a state budget with nonoil revenue sources,” Schultz wrote. With 30 years of budget reserves built-up, Alaska has “breathing room” today, which it lacked in the late 1980s.