My Turn: Energy costs present demographic challenge

Posted: Sunday, August 10, 2008

Legislators spent most of their 60 days in the special sessions just concluded pondering whether to grant an exclusive gas pipeline license to Calgary-based TransCanada. On day 54 they approved the license, handing Gov. Sarah Palin her third major legislative victory in the 20 months since she took office. But there was a far more profound demographic issue at play.

The governor's excitement over her pipeline victory got the better of her.

"This is a monumental, life-changing, paramount issue for Alaskans," she enthused. "Alaska has never in our history before had commitments to build this line. Now we do."

That was untrue, a fact she acknowledged a few minutes later, after her commissioner of revenue gently pointed out that there is as yet no such commitment.

"It's not a done deal," Palin amended.

Even if it was a done deal, how the state commercializes its North Slope gas likely will have less impact on Alaskans than how it deploys its burgeoning budget surplus. Under the most optimistic scenario, gas won't flow from the North Slope for 10 years. In 10 years 40 percent of today's Alaskans will be dead or living elsewhere. For those who remain, the aggregate economic effect of a pipeline, including energy cost savings and state revenue, are unlikely to boost household income by more than a couple of percentage points.

The Alaska budget surplus is a much bigger deal. If oil prices were frozen at the current level for the rest of this fiscal year, and the state distributed the one-year budget surplus, each resident would receive $13,000. The paltry $1,200 legislators added to the annual Alaska Permanent Fund dividend is less than a tenth of that.

The governor framed the special session on "energy," including the dramatically higher oil prices and the need for state investments in lower-cost energy. Even the $1,200 added dividend was cast in these terms, as a way of providing relief to families struggling to pay for the next tank-load of heating oil.

For rural Alaska the rising cost of energy presents a demographic challenge. By giving people resources that could be used to relocate, an increased dividend could magnify that problem. Speaking Wednesday on the House floor, Bryce Edgmon, who represents the Alaska Peninsula and Aleutian Islands, noted the five-fold differences in energy costs in Anchorage and some of the villages he represents, and its implications for his job as a legislator.

"Reapportionment is two years away. We are going to see a mass exodus from Bush Alaska because they cannot afford to pay their bills out there," Edgmon said. "The demographics of the state are going to change dramatically."

In a Thursday interview Sen. Lyman Hoffman, who represents the same and other rural areas in the Senate, agreed. "I'm concerned that people already have started moving out."

For rural legislators, using the surplus to increase rural subsidy programs is the preferred approach to stemming this exodus; unlike payments to individuals, people only receive the extra money if they remain in the high-cost area.

During the special session Hoffman tried to establish a new program that would put a $3 per gallon ceiling on the price anyone anywhere in the state would pay for heating oil or the equivalent in other energy. Though concerned about the plight of rural Alaska, to gain passage through the Senate the Bethel Democrat crafted the program to apply statewide.

The measure failed in the House, but Hoffman, who is not up for re-election, said he will try again next year. There are precedents, he points out: The U.S. postal system was established with the single postage-stamp letter rate to help knit the United States together as a nation. And he notes that the existing electricity subsidy program, power cost equalization, has been in place for 23 years.

How far can Alaska go to insulating residents from the price signals that are telling householders to consider their options for living elsewhere? It is a complex question with profound social and cultural ramifications.

As long as the state treasury bulges with surpluses, and the budgets of Alaska households are being battered by rising energy and food prices, politicians across the state try to suppress the price signals that encourage migration. Whether that can work in the long run depends on, among other things, a continuing source of money to pay the subsidies that will be required. The only really permanent source of such money is the permanent fund.

• Juneau economic consultant Gregg Erickson is editor-at-large of the Alaska Budget Report, a newsletter covering the state budget and economy. He can be contacted at

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