Alaska is in deep trouble

Something might be going on in there.The Alaska State Capitol building as photographed in 2010. (Photo by Kimberly Vardeman/Creative Commons)

5:58 p.m.: Gov. Mike Dunleavy announced a foreign national traveling through Alaska has tested positive for coronavirus and is currently in isolation. The individual reportedly traveled through Anchorage but officials didn’t offer details about what type of flight the individual was on or where they had been traveling from. The individual called ahead to Alaska Regional Hospital before going for testing. The individual’s time in Anchorage is not entirely clear but Alaska Chief Medical Officer Anne Zink said the person did an “amazing job” of self-isolating after experiencing symptoms. The person is stable and has been discharged from Alaska Regional Hospital and is being housed at an undisclosed location in the Anchorage area while he recovers. More information here.

Original story:

2:30 p.m.: This post has been updated to include a Juneau business owner’s plans to scuttle a summer expansion due to the coronavirus.

This session, legislators have thrown around talk of the $1.5 billion deficit in Gov. Mike Dunleavy’s budget proposal rather lightly knowing that it’s almost entirely due to a full-sized PFD they were never going to pay.

But with the coronavirus-driven market downturn putting the pinch on the Alaska Permanent Fund, plummeting oil prices and mounting uncertainty over the summer’s tourism season, Alaska is staring down a particularly bleak outlook… and that’s still with zero confirmed cases of coronavirus.

Legislators got a good look at the issue on Wednesday when the Legislature’s financial analysts provided an updated estimate on the state’s revenue outlooks. Fiscal analyst Alexei Painter presented revised revenue estimates based on plummeting oil prices, suggesting that an average for the upcoming fiscal year of about $40 would be more accurate. The state’s forecast, which was released in the fall, estimated oil would average at $59 per barrel during the upcoming fiscal year.

“The impact of going with this lower price assumption is about $550 million and that is really just the oil market. That’s not factoring in any other tax changes due to coronavirus or any other factors that could impact the tax revenue,” he said. “To give an idea of some other impacts that we could have to our revenue that are not captured in our oil market, the revenue forecast called for about $50 million in unrestricted investment that’s interest earned on our savings accounts. In the low-interest environment that we appear to be entering, $50 million may be high. Last year, we got about $16 million of corporate income taxes from the tourism industry. With the hit to cruise ships this year that may be high.”

Painter also noted that he hadn’t examined the potential impact to the seafood industry, noting it would likely see an impact. Overall, he said the deficit in the state’s budget could grow by more than $600 million in the upcoming fiscal year, which starts on July 1, due to coronavirus impacts.

He said the gap in the current year’s budget could also grow by $300 million, which would be on top of the $300 million supplemental budget to patch holes left by unattainable cuts and vetoes made by Gov. Mike Dunleavy as well as higher-than-expected forest fighting costs.

It was a startling meeting for legislators, who had called the hearing to discuss two different options for restructuring how the earnings reserve of the Alaska Permanent Fund is used to fund government and dividends. Both proposals, House Bill 300 and House Bill 306, proposed a small dividend of about $1,000 or less with most of the annual draw on the permanent fund going to fund government.

“When you look at these prices at $40 that we didn’t look at a month ago, it’s pretty sobering that even if we don’t pay a dividend, we have a deficit,” said Rep. Adam Wool, the sponsor of House Bill 300. “We’ve already said we don’t want to go into the earnings reserve, and I don’t hear a lot of people say we really want to have a zero dividend so it’s really a conundrum. … These scenarios are pretty grim.”

Wool’s proposal would allocate the draw on the permanent fund to specific purposes like K-12 education, the University of Alaska, direct payments to communities, the state’s general fund and dividends.

The direct payments to communities piqued legislators’ interest because it could potentially allow the state to pull back on grants to local programs and instead let local communities decide how to spend the money. Wool said the proposal would amount to about $300 per resident.

But just what direction the Legislature may take—if it takes any—on the dividend this year in light of the coronavirus panic is unclear.

Legislative Finance Division Director Pat Pitney said that the state is better-positioned to weather the financial troubles than it was in 2015 when oil prices plummeted into the $30-dollar range. A far smaller portion of the state’s budget relies on oil today than compared to then, she said, but added that the situation highlights just how much of Alaska’s budget it outside of the state’s control.

The Legislature approved its mental health budget on Wednesday, including $13 million in a mix between state and federal funding for an immediate response to the budget. The Legislature is also considering plans to end the session early or potentially work remotely in response to coronavirus.

What’s been largely left unanswered is any potential measures to respond to the economic impacts on Alaska due to coronavirus. The state’s economy–though not necessarily the state budget–relies heavily on the tourism industry and things are looking particularly bleak as the cruise industry pulls back. The parent company of Princess Cruises, a key cruise operator in Alaska, announced today plans to suspend all cruises for the next two months.

Alaska’s cruise season typically starts in late April and kicks into full gear in May.

The situation has several Alaska businesses bracing for the worst, and one Juneau business owner said the virus has already forced him to cancel a planned expansion.

“The financial hit of the virus and subsequent loss of visitors to Juneau have forced me to abandon my plans for a downtown Gallery,” wrote Rainforest Custom owner Dean Graber in an Instagram post today. “A whole lot of work went into planning and making all this inventory. Everything is on sale now and wholesale to retailers. I’ll still be building custom furniture and cabinets but another gallery just isn’t in the cards. Stop in and take a look and if I’m not there at the moment don’t hesitate to email, call, text! Sucks to forgo part of a dream, but my heart goes out to those lost or losing loved ones. Stay well.”

As the state’s top executive, Gov. Mike Dunleavy said health concerns will come first when he signed an emergency declaration on Wednesday.

“This is going to change habits, and this is going to have an impact daily life, including the economy and in certain sectors especially,” he said. “We view the health approach as 1A but there’s a 1B that’s going to be discussed, and is being discussed by some, and that’s what’s the economic fallout going to be if there’s going to be changes in behaviors. Those discussions are absolutely happening, it’s just they’re second to the health concerns and the health approaches that we’re talking about.”

Though Dunleavy has conceded that coronavirus “is probably here now,” he has also downplayed the long-term risk to Alaska, calling it earlier this week a “momentary glitch” and “a momentary bump in the road for Alaska.”

Former Anchorage Daily News columnist Charles Wohlforth returned to the paper this week to call for action to defend the state’s economy in a column entitled All the warning lights are flashing red for Alaska’s economy, blasting the governor for a seemingly hands-off approach when the economy needs it the most.

“Dunleavy’s Plan B seems to be sitting quietly and doing nothing in hopes Alaskans will forget their anger. Taking a leaf from President Donald Trump, he has tried to wish away the COVID-19 epidemic, calling it a ‘glitch,’” Wohlforth wrote. “We can’t prepare for the coming storm without leadership. Under Alaska’s constitution, the governor is the leader. He needs a plan. Or perhaps someone can step forward from the Legislature.”

The House Finance Committee is scheduled to continue its discussions on the future of the dividend and state spending later today and on Friday.

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