Navarre delves into details of state's economic future
April 14th | Carey Restino
Kenai Peninsula Borough Mayor Mike Navarre studied government in college, but the best education he got was in the Alaska Legislature. Navarre served 12 years in the House of Representatives in the late '80s and early '90s, oil was flowing, state coffers were full, and the political landscape was markedly different.
On the sunset of his two-term limit as mayor, Navarre and his right-hand man, Larry Persily, want peninsula residents to think hard about the state fiscal situation.
"I'm hoping we can help broaden the debate a little bit," Navarre said. "It's important to the state's economy."
Navarre described how the situation with Alaska oil is markedly different than it was a couple decades ago. Oil fields in the Lower 48 have come online, offering competition for Alaska's oil.
"That's why the dynamics have changed," Navarre said. "It doesn't mean we can't get new oil development, but we're competing and we're not competing with Saudi Arabia."
New oil development is very expensive to produce, and given the current price of oil, the chance that Alaska's oil development will bail the state out of its $3 billion fiscal crisis is slim because early development contributes very little to Alaska's budget.
Persily said current oil production in Alaska is much less efficient compared to in Alaska's heyday.
"At peak production, it took five workers to produce a barrel of oil" he said. "Now it takes 30 workers. Some of those wells used to be 90 percent oil — now it's 90 percent water and 10 percent oil. It's a lot more work just to get the same number of barrels."
Add to that an aging infrastructure that needs more maintenance and you see the difficulty the oil industry faces, the pair said, and the challenge the state faces if oil is its primary source of revenue.
Navarre noted that while the Alaska Permanent Fund has $45 billion in its earning reserve, it hasn't been inflation-proofed in two years. And while issuing permanent fund dividends does stimulate economic activity in Alaska, the idea of not using some portion of the earning reserve doesn't seem reasonable to Navarre.
"There is no responsible fiscal plan that I have seen that doesn't use the earnings of the permanent fund as one of the components of the plan," he said.
Navarre noted that other economic development ideas may be a boon to cities and boroughs but since there is no income tax, bringing more people to the state only costs the state more. On average, they said, the state generates about $260 in funds per person. But every new student costs the state about $3,100.
"Without a broad-based tax, economic development makes the state's fiscal problem even worse," he said. "That was fine for two generations because we lived off oil, but it is a nonsustainable mathematical equation."
Navarre said he is frustrated by the amount of misinformation being promoted by talk radio and other sources that do a great job of entertaining but are not so good at providing accurate information about the reality of Alaska's situation. He suggested Alaskans need to elect people that are not necessarily the ones telling us what we want to hear, and examine the fiscal backing of politicians to find the ones that are strong enough to deal with the fiscal crisis without having to pander to funders.
Navarre said there is no perfect plan to solve the state's fiscal crisis, but understanding the dynamics at work helps move the conversation forward. He told the story of a young man who approached him, demanding what Navarre was going to do to help the up-and-coming generation find jobs.
"Alaska's still a relatively young state," Navarre said. "We have a wealth of natural beauty and there's a lot of opportunity still but we've got to get it right or it's going to be a drag on our communities."