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University of Alaska Anchorage economist says Alaska faces challenges in transition to 'post-Prudhoe' economy

Posted: September 26, 2011 - 12:18am  |  Updated: September 26, 2011 - 11:24am

ANCHORAGE — Alaska over the next decade will move to a “post-Prudhoe economy,” according to a new University of Alaska Anchorage report, but is in danger of not preparing because of the continued high price of oil.

The report by the Institute of Social and Economic Research said the problem of preparing for the decline in traditional North Slope oil resources has been hidden by high oil earnings.

Economist Scott Goldsmith, who wrote the study, concluded Alaska continues to have great petroleum resources, the Anchorage Daily News reported.

“But any number of roadblocks could derail a smooth transition. We all have a natural tendency to avoid decisions that require sacrifice in the near term to achieve a longer term goal,” Goldsmith said. “Obvious challenges to planning for the future include not focusing on the problem, not believing it’s urgent, not understanding the issues, and not trusting government to act in the interests of the average Alaskan.”

Revenue connected to oil production provides almost 90 percent of Alaska’s general fund revenue. Production through the trans-Alaska pipeline, however, has declined from a high of 2.1 million barrels per day. The 2011 daily average posted Sunday on the Alyeska Pipeline Service Co. website was 568,471 barrels.

Much of new oil production potential is on federal land or in offshore waters and would not give state government as much earnings, Goldsmith noted.

The report was presented as Alaska debates its tax structure.

“Alaskans need to consider how to structure a tax policy that will not only bring in revenues in the short run, but encourage continued production at levels that keep the oil pipeline economically viable and future revenues flowing,” Goldsmith wrote.

Gov. Sean Parnell during the legislative session urged lower state taxes for oil companies. He contends that lower taxes will be an incentive for oil companies to invest in Alaska.

Opponents of Parnell’s tax cut say there is no assurance that oil companies will use a tax savings to spend developing new fields in Alaska. The state House approved the tax measure but it faces strong opposition in the Senate.

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