The views expressed here are the writer's own and do not express those of Institute of the North. To view editorials from previous guest columnist please visit the Top of the World Archives section on our website. How Important is Resource Development
By
Mayor Doug Isaacson
City of North Pole, Alaska
How important is resource development to Alaskan communities? In a word, “Vital.”
Without it, our economy is at a standstill. Fierce special interest media campaigns
notwithstanding, Alaskans are largely ignorant of how interconnected resource
development is with our ability to afford and enjoy life in Alaska, and how the policies of
government officials, both federal and State, are restricting the abilities of Alaskans to
gain maximum benefit from our resources.
For example, oil is king in Alaska, and the power to retain refinery jobs and reduce the
oppressively high cost of energy is within State officials’ control through contracts with
producers and in-state refiners of our royalty oil. Simplistically, the lower the cost to the
refineries, the lower the cost to the consumer; lowering the cost to the refineries makes
in-state refineries able to compete with Outside refineries, keeping our neighbors and
family members employed. Instead the Governor refuses to adjust the price of royalty oil
for in-state refining, resulting in an uncompetitive environment that threatens the
existence of the largest refinery in Alaska, causing Alaskans to pay more for in-state
refined oil products, and resulting in people losing their jobs—over one hundred
Anchorage-based railroad jobs and forty refinery jobs in the last 18 months. The effect
hits countless other people in associated industries, like fabricators, home builders, auto
dealers, insurance agents, grocery stores—even the Port of Anchorage.
Another resource, natural gas is touted as being less expensive than oil. But that hasn’t
been the experience of our communities in Interior and Rural Alaska where relatively
small populations don’t have the volume demand that will affordably drive down the
tariff. The cost to the consumer is directly related to the volume being used in a
community. Presently, our options are limited and our costs high.
One way to drive down the tariff is to create new demand, which can come by developing
the vast natural resources in Interior Alaska. There’s plenty of room to grow this sector.
The Alaska Department of Natural Resources states there are over 7000 mineral
occurrences but only 7 operating mines in all Alaska.
Why are there so few mines? One problem is the current permitting of a mine takes
anywhere from 14 years (Ft. Knox and Pogo) to 28 years (Kensington). A mining
engineer can graduate from UAF and spend his or her entire career providing income
only to bureaucrats and attorneys—without ever working an actual mine, or creating
wealth, or creating jobs and opportunities for the greater community and the good of
Alaska! This is unacceptable. Once a mine opens, an industry cluster can form and when
several mines open the economies of scale are created that make manufacturing possible,
employing even more Alaskans.
Mines need the same thing most businesses need: 1. Affordable energy, 2. Transportation
access, 3. a trained work force, 4. prudent management, and 5. regulatory management
that protects the public interest without being overly restrictive.
How does this apply to getting natural gas to Interior Alaska? Get mines into production
between here and Canada and we create the demand for a large diameter gas pipeline all
the way to Valdez, benefiting us with job creation, refining and manufacturing
opportunities, export options abroad, and giving an affordable cost to the residents in the
vast rural and interior regions of Alaska.
Meanwhile, most of our communities are oil based. The challenge is to help resource
development be economic in a way that positively impacts government budgets and
improves life for Alaskans. Unfortunately for the common citizen, when elected officials
base the health of the State by the size of its savings accounts, the State ends up relatively
well off; residents end up with a PFD check but an overpriced and oppressive cost of
living. The emphasis needs to be on healthy, affordable regional economies throughout
this vast state.
Regional economic health actually reduces the cost of government. But economic health
is thwarted when the State charges premiums to in-state refiners but discounts charges
paid by refineries outside the State. The result is artificially high costs of doing business
in Alaska. Who suffers most? It’s you, me, or your neighbor—the people who can’t pay
their bills who either turn to the State for a safety net or end up moving out of state. The
state social safety net, the Health and Social Services budget, grew by $500 million
(that's one half billion dollars) this past year alone, from FY12 to FY13. If the State quest
to get revenue results in huge public assistance, shouldn’t we reverse course and
concentrate on incentivizing growth in the private sector? When people can pay their own
bills, State expenditures shrink. In its quest to get revenue, the State now pays almost
40% of the operating budget to provide public assistance. It’s time to change our thinking.
It doesn’t matter what party is in the driver’s seat, when a community can’t access and
develop the resources close by, regional economies suffer, unemployment grows, lower
paying jobs become the norm, household disposable incomes evaporate, and many people
move destabilizing the economy even more. Interior Alaska is a case in point, following
precariously in the footsteps of a decadal retreat from Rural Alaska to elsewhere. But
when people are permitted to develop the local natural resources, employment soars,
wealth is created, and investments flow into communities, as it is right now on the Kenai
Peninsula where unemployment is down around 2%, versus 9% or more in Interior and
Rural Alaska. When regional economies are healthy, people don’t need to keep asking
the government for assistance to pay their heating oil or other bills.
I hear the objections: Alaska must be preserved and left undisturbed. In fact, Alaska’s
Constitution requires conservation—and also utilization, development and settlement!
Who’s fooling whom? Alaska is rich in resources! We rank in the top ten among nations
for our resource wealth--but rank low among states for manufacturing, exports, and being
business friendly. We sell our proximity to everywhere as vital for the military, but
oddly, we vigorously argue against employ our people in manufacturing value added
products from our resources because we say we’re too expensive and too far from the
markets to compete. And yet we’re not too far away to ship raw, heavy zinc ore to
Australia. Let’s get competitive and creative—let’s incentivize manufacturing and
exports!
Some object that Alaska needs more wilderness, more land withdrawls. Why? Alaska is
larger than all but 18 nations on earth, we are one-fifth the size of the continental USA;
our population density is only 1.2 people per square mile but we act as if we live in
Manhattan and must protect Central Park from urban encroachment! We were given
103.5 million acres but have never insisted upon the complete transfer of that land to the
State, so 65% of our State’s allotment, PLUS over two-thirds of Alaska’s total 570,641
square miles, is retained by the Federal government. At the present rate of transfer, it will
be another 200 years before the remaining land is transferred—yet who among us is
making an outcry! So development languishes, bankrupting our people and forcing us to
depend upon government handouts or forcing us to move into the sprawling urban centers
of anyplace other than home. Encouraging resource development is the solution.
Alaskans must quit acting like we’re small, poor, and without opportunity. We must also
insist upon the transfer of our land so that we can develop it as any other state would be
at liberty to do.
In the absence of ownership and development, we partner with government agencies and
the military in hopes that we might have a stable employment base. It’s an illusion.
Interior Alaska’s total payroll is now 70% dependent upon government, according to the
Fairbanks Economic Development Corporation. This dependence is unsustainable for
regional stability. The current situation with Eielson Air Force Base is a perfect example.
Eielson is an economic pillar accounting for up to one-third of the local economy. We
love our military, but missions change and federal priorities change; a loss of the mission
at Eielson causes the economy to stagger; people panic, home sales falter, home prices
plummet, businesses shutter, and people become unemployed and immediately turn to the
State for relief and assistance.
The recent anxiety was heightened for a couple reasons that would be immediately
reduced by concentrating on expanding our resource development base:
First, is the high cost of energy. Monthly household energy costs this past winter—just
for heating oil and electricity—for the first time ever EXCEEDED many homeowners’
mortgage payments.
Second, the State’s largest refinery is hamstrung by excessive costs associated with
purchasing royalty oil, and with the declining amount of oil it can purchase due to
declining North Slope field production, which is due to an overly high rate of taxation on
production of North Slope oil.
Interior and Rural Alaska’s energy crisis is the result of inadequate thinking—of thinking
that resource development doesn’t matter, of thinking that it doesn’t matter where a dollar
comes from, just as long as I have enough of them in my pocket at any given time.
Wealth is created by innovation, by making a better widget, by using the resources at
hand; wealth is lost when we only provide incentives to import somebody else’s goods
and services. Wealth is created when people pay us for what we’ve made; wealth is lost
when we are only consumers of someone else’s industry.
Just how vital is resource development to the communities of Alaska? It is everything.
We must adjust our thinking, roll up our sleeves, and get working together for the
survival of our communities and for the success of Alaska. Communities need less
government in Juneau and more entrepreneurial resource development in Alaska.
Doug Isaacson is in his sixth year as Mayor of the City of North Pole, which is home to
two of the four oil refineries in Alaska, and home to 180 megawatts of electric
generation. North Pole is known world-wide as the city “Where the Spirit of Christmas
Lives Year Round.”