By ZACHARY COILE
San Francisco Chronicle
September 07, 2005
"What is our plan for increasing revenue?" Murkowski said in his first address to the state Legislature. "In a single word - oil."
The newly elected Republican governor said Alaska needed to drill in the Arctic National Wildlife Refuge and elsewhere to make up for declining revenues from Prudhoe Bay, with oil flowing at only half-capacity through the trans-Alaska pipeline.
This fall, Murkowski and other Alaskan officials are expected to get their wish: Congress appears likely to approve a budget bill that would allow drilling on the 1.5 million-acre coastal plain of the refuge.
While environmentalists have pledged to fight it, budget bills can't be filibustered and an enlarged Republican majority in the U.S. Senate has given proponents confidence it will pass this year.
In Congress, the issue has been cast by supporters as an effort to lessen the United States' reliance on foreign oil. The debate pits the nation's energy needs against protection of one of America's last truly wild places.
But in Alaska, what's driving the campaign to drill in the refuge is the state's dependence on oil for its economic survival, and its fears of what will happen as the state's largest oil field at Prudhoe Bay taps out.
"Oil is the thing that keeps us going in Alaska," explained Jeffrey John, 49, a Gwich'in tribal member from Fort Yukon, who has spent years working pipeline repair jobs on the North Slope.
"We need oil to keep everything running - to keep the planes running, to keep businesses running in the state of Alaska," he said. "If we don't do that, our economy will go down, and we'll have a hard time getting jobs."
Since the first major discovery of oil in Prudhoe Bay in 1968, the extent of the state's reliance on oil has become evident:
- Taxes and royalties from oil production now account for 87 percent of revenues to the state's general fund, paying for everything from schools to roads.
- Oil production brings in more revenue for Alaska than all of its other major industries - fishing, mining, timber, tourism and air cargo - combined.
- Oil revenues allow Alaskans to pay no state income tax, and every man, woman and child who lives there collects an annual Permanent Fund dividend check based on oil royalties, which last year totaled $919.84.
- Oil companies are the state's largest corporate donors to charities, funding everything from college scholarships, Boys and Girls Clubs, United Way programs, and performances of the Nutcracker ballet in Anchorage.
Around the nation, a slight majority of Americans opposes drilling, according to opinion polls. A Gallup survey in March, for example, found that 53 percent of people surveyed opposed drilling in the Arctic National Wildlife Refuge, while 42 percent supported it.
But in Alaska, where residents have reaped the economic benefits of drilling, polls over the last two decades have shown more than 70 percent favor drilling in the coastal plain of the 19 million-acre refuge, which covers the northeast corner of the state.
"There is this overwhelming perception that if the oil runs out and if we don't find other sources of oil up here that basically the Alaskan economy is toast," said Ivan Moore, a veteran Anchorage-based pollster.
"The whole economy is based on oil, and if the oil stopped ... there would be a massive decline in jobs, and people would be fighting their way to get on airplanes to get out."
The only thing Alaska relies more on than oil is federal spending. The state gets back $2 for every dollar it sends to Washington. Heavy spending on military, land management and services for Alaska natives means that one out of every three jobs is dependent on federal largesse.
For more than a decade, Alaskan officials have faced a worrisome trend. Oil production from Prudhoe Bay peaked in 1988 - at just more than 2 million barrels a day - and has since declined by almost 50 percent.
The state's Department of Revenue predicts that revenues from oil production will fall from $2.3 billion in 2004 to $1.3 billion in 2015, but state expenditures will continue to rise. Without new oil supplies, Alaska officials have warned they will have to raise taxes or slash government spending in the future.
"The state is not broke, but sooner or later we are going to have a real cash flow problem," said Matt Berman, an economics professor at the Institute of Social and Economic Research at the University of Alaska Anchorage.
"Alaskans eventually are going to have to start paying taxes," he said. "We would already be facing a fiscal problem if it hadn't been for high oil prices. It's put off the inevitable day of reckoning."
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