In Alaska, Shrinking Oil Revenues May Mean Severe Cutbacks To State Ferry System

Apr 10, 2019
Originally published on April 11, 2019 12:35 am

Just after 6 a.m., a handful of cars drive down the ramp into the LeConte, the Alaska state ferry docked in Juneau.

The LeConte's destinations that day include Angoon, an indigenous village of 450, and Tenakee Springs, a town of about 150. Both sit on islands with no connection to the state's road system and airports. To get to Angoon or Tenakee Springs from Juneau, you can buy a seaplane ticket for $150, or spend $50 to ride the ferry.

But Alaska's new Republican governor, Mike Dunleavy, is taking aim at the ferry system's budget, proposing sharp cuts that are threatening its future. He's also pushing major reductions to public schools, health care and the state university system. The savings would be used to boost dividends from the state's oil-wealth fund up to $3,000.

Oil revenue once was sufficient for Alaska to run its state government and pay dividends from the fund, according to a decades-old legal formula. But amid lower oil prices and a longstanding decline in production, there's no longer enough money to do both. Dunleavy's plan to boost the dividends by cutting government programs is spurring a debate here about what residents value and are willing to pay for.

"I'm having a difficult time believing that we take that money off of elders in rural Alaska, we take that money off of 10-year-olds who are saving it up for college, we take that money off of single parents that have three or four children in their families that are struggling. And we bring it into government to continue spending at the rate we're spending," Dunleavy said during a recent appearance on Alaska Public Media.

Opponents of the governor's proposals have turned out at demonstrations and public meetings, where they've said his plans would change the character of Alaska – particularly its rural communities. They've also said they're willing to give up some of their dividends or pay taxes – Alaskans currently pay no state taxes on income or sales.

It's like a giant step back in time. - Shayne Thompson, store owner in Angoon

School buses and freight transport

Onboard the LeConte, Shayne Thompson was contemplating what would happen if the state ferry system stops running Oct. 1, as Dunleavy is proposing. The system, with nearly a dozen vessels, functions as school buses, freight transport and even hearses in the southeast part of the state, a 300-mile-long archipelago where only a few towns are connected to the road system.

Thompson runs the store in Angoon, and he puts supplies on the ferry every week. He could hire a barge for deliveries instead, but prices would likely rise by 25 percent and food would come less often, he says.

"It's like a giant step back in time," Thompson says. "We would have, basically, fresh produce and dairy for a week or two of the month. And then the rest of the month it would be all dry goods."

Southeast Alaska residents and political leaders have staged rallies at the Capitol where they've advocated for the preservation of the system, which is known as the marine highway.

Diminishing oil production

Alaska once pumped 2 million barrels of oil a day and accounted for one-fourth of U.S. crude production. But production from the state's massive North Slope fields has been declining for 30 years, and it's now about 500,000 barrels a day.

For more than two decades, state lawmakers had debated filling budget deficits with money from Alaska's oil-wealth fund. But they'd never voted to do so until a 2014 crash in oil prices led to the depletion of the state's savings accounts.

[T]he best thing to do is reduce the government side of the economy. - Alaska Gov. Mike Dunleavy

Last year, for the first time ever, the Legislature voted to use some of the fund's money on general government programs — reducing residents' dividends from an estimated $2,900 to $1,600.

Dunleavy campaigned on boosting dividends back to roughly $3,000 this year, and paying residents back for reductions in previous years. He held public forums last month — sponsored by the anti-tax group Americans for Prosperity — where he continued making the case that individuals should decide how to spend their dividends, rather than the government.

"We feel that for the sake of the private economy to get that back on its feet, and to grow the private economy, that the best thing to do is reduce the government side of the economy," he said at an Anchorage forum.

Campaign promises

The governor's critics have argued that, when Dunleavy was a candidate, he promised to pay larger dividends without acknowledging the deep cuts to services that would be required to afford them. At one campaign stop in the Southeast Alaska city of Ketchikan, he said there was "no plan to hack, cut or destroy" the state ferry system.

Dunleavy's budget ultimately proposed cutting more than two-thirds from the ferry system's budget, justifying the move by saying that a short-term decline in oil prices had reduced the state's expectations for oil revenue.

Thompson, the Angoon store owner, is a Republican who voted for Dunleavy after hearing he would protect the state ferry system.

"I feel like a fool, because of listening to somebody that had a totally different agenda in mind when they were on the campaign trail," Thompson says.

The state legislature, which is still in the middle of its budget process, has so far rejected or softened many of the governor's proposed cuts.

But Dunleavy has line-item veto power that would require three-fourths of the legislature to vote to overturn, prompting anxiety among people who depend on the services that he's proposing to cut.

Bert Stedman, a state senator from Sitka who co-chairs his chamber's budget committee, says political dynamics are likely to force residents from his region to accept some level of reduced service.

When the ferry system was established a half-century ago, Southeast Alaska's timber industry was booming. Now, Stedman says, "there's no more pulp mills," and there are now two senators that represent Southeast, down from five.

"We have had a significant dilution, since the creation of the marine highway, of political influence. And that is continuing to erode," Stedman says. "We are not in the position where we can, frankly, dictate what we want to do. We just don't have the numbers."

Copyright 2019 Alaska Public Media. To see more, visit Alaska Public Media.

AILSA CHANG, HOST:

For decades, the state of Alaska has collected enough revenue from the oil industry to run the government and pay a yearly cash dividend to each resident. Now, oil money is dwindling, so there's not enough for both. The state's new governor wants to boost the cash payments at the expense of health care, schools and Alaska's iconic ferry system. Nat Herz with Alaska Public Media has more.

NAT HERZ, BYLINE: The southeast Alaska town of Tenakee Springs has no airport and just a tiny stretch of dirt road.

UNIDENTIFIED PERSON #1: Well, good for them. It's a beautiful day.

HERZ: So the arrival of the twice-weekly ferry, the LeConte, is an event. Friends shout to each other across the water as it comes to shore, and at the dock, people load and unload with all-terrain vehicles.

UNIDENTIFIED PERSON #2: Back it right in front of that trailer in line, OK?

UNIDENTIFIED PERSON #3: I've got two of them.

HERZ: One of the passengers is Shayne Thompson who is shipping a weekly truckload of groceries to the indigenous village of Angoon, where he runs the store. And right now, Thompson is worried because Alaska's new governor, Republican Mike Dunleavy, has proposed a budget that would stop the ferry system's operations October 1. Thompson says he could hire a barge for his deliveries, but prices would rise by about 25 percent, and food would come less often.

SHAYNE THOMPSON: It's like a giant step back in time, and we would have fresh produce and dairy for a week or two of the month. Then the rest of the month, it would be all dry goods.

HERZ: The ferry system isn't the only government program that the governor wants to shrink. Dunleavy is also proposing major cuts to K-12 schools, the university system and health care. He says those cuts are needed to pay each resident a $3,000 dividend - about twice what it was last year. The governor campaigned on the issue, and he's continued to make the case that individuals should decide how to spend their dividends rather than the government.

MIKE DUNLEAVY: I'm having a difficult time believing that we take that money off of elders in rural Alaska, we take that money off of 10-year-olds who are saving up for college, we take that money off of single parents that have three or four children in their families and are struggling, and we bring it in the government to continue spending at the rate we're spending.

HERZ: The governor argues that the state can't afford that anymore with oil revenues less than half of what they were five years ago, and the money has to come from somewhere since Alaskans pay no state sales or income taxes. Dunleavy's proposal has sparked a debate that centers on what residents value and are willing to pay for. Dustin James spoke at a recent public forum in Fairbanks, the headquarters of the state university system.

DUSTIN JAMES: The university on the hill has got to take a look at their income and stop demanding from the citizens to meet their salaries and their retirement programs and all these other things. It's not fair to the rest of us.

HERZ: Many other Alaskans who turned out to the public hearings objected to the governor's proposed cuts, including those to the ferries, which function as school buses, freight vessels and even hearses in the southeast part of the state. On board the LeConte, as it steams from Tenakee Springs back to Juneau, retired state worker Erling Olsen says the reductions would cripple the region's economy.

ERLING OLSEN: This boat is functioning for us people. We have no road system. We're on an island. I mean, this is what we rely on.

HERZ: So far, the state legislature has rejected many of the governor's cuts, moving instead to lower residents' dividends and preserve state programs. The governor can't unilaterally boost dividends, but he does have line item veto power that he can use to cut spending after lawmakers pass the budget. For NPR News, I'm Nat in Anchorage. Transcript provided by NPR, Copyright NPR.