This article was published at The McAlvany Intelligence Advisor on Friday, December 11, 2015:
Matthew Henry commented on Joseph’s interpretation of the Pharoah’s dreams:
Pharoah had dreamed that he stood upon the bank of the river Nile, and saw the kine, both the fat ones, and the lean ones, come out of the river….
We cannot be sure that tomorrow shall be as this day, or next year as this.
We must learn how to want, as well as how to abound.
Mark the goodness of God in sending the seven years of plenty before those of famine, that provision might be made.
For the past generation Alaskans have enjoyed the fat years. An estimated 90 percent of the government’s budget came from oil and gas revenues. Its massive Prudhoe Bay field is the largest in the world, and its natural gas reserves are equally substantial.
In 1980 the Alaskan legislature, seeing how the government was spending every dime that came in after the Trans-Alaska Pipeline was built, decided to exercise at least a measure of prudence, and created the state’s Permanent Fund, putting excess revenues into it, and drawing out just five percent each year to pay a dividend to Alaska’s permanent residents. Last year 645,000 of them got a check for $2,072. In June that fund was worth $53 billion.
It won’t be enough. Not nearly enough.
Thankfully Governor Bill Walker sees what’s coming: If oil and natural gas prices stay low, or move even lower (West Texas Intermediate crude is selling at $37 barrel, while Brent crude just broke below $40 and natural gas is approaching $2 per million British Thermal Units), those reserves and the Permanent Fund itself will be totally depleted in just a few years.
At the moment Walker is facing a 70 percent deficit! It is estimated this year to be $3.5 billion out of a $5 billion state budget. Next year it will be even greater.
And so on Wednesday he offered his proposal: institute an income tax (it was abolished in 1980 as revenues from the pipeline started piling up), raise taxes on alcohol and cigarettes, cut government spending a little more, and cut the Permanent Fund dividend in half. And take the balance from the Permanent Fund.
Screams of anguish were heard from Nome to Anchorage. Walker, a Republican who turned Independent, is facing Republicans who think he can cut the government further and Democrats who are wailing about how the poor cannot live without the government checks.
The income tax will raise about $200 million, while the cut in the dividend check will save another $650 million. Giving Walker the benefit of the doubt, there might be another few hundred million he can cut from the budget. That still leaves at least a $2.5 billion shortfall this year.
But what about next year? And the years after?
The problem is exacerbated by the simple fact that as prices for oil and gas have fallen, so has production. Alaskan producers have seen production fall by an astonishing 75 percent over the last year. So the state not only is selling less – much less – but they’re selling it at much lower prices.
The lean years are here.
If we do nothing, we will empty our savings in the constitutional budget reserve and then we will have to tap into the earnings reserve – which means that in five years Alaskans would no longer get dividends.
If oil and gas prices stay down, or decline even further, and stay down longer, what will happen in five years? It’s predictable: Alaskans, especially those living in rural areas where unemployment is already 60 percent, will suffer mightily. Not only will the state fall off the list of states with no income tax (Florida, Nevada, South Dakota, Texas, Washington and Wyoming), it will also have its bond ratings trashed. There will be an exodus of those who can leave, trying (like Joseph’s brothers) to find a better place to live.
Who can say how long the travail will last? In seven years Israel had sold to Joseph everything they owned in order to eat. In seven years Israel turned itself from a sovereign state into a slave state.
Alaskans have enjoyed 25 fat years. Now come the lean years.
Matthew Henry: Joseph interprets Pharoah’s dreams
Wall Street Journal: Alaska Governor Calls for State’s First Income Tax in Nearly Four Decades
USA Today: Alaska governor calls for income tax