Alaska Dispatch

Rich in resources but plagued by remoteness from markets, small population and high costs, Alaska has struggled since statehood to realize the full promise of its natural wealth.

With oil production on the decline, the economy isn't looking particularly rosy going into the future. That's left policymakers wondering how much the state can give up in order to advance the developments -- on and off the North Slope -- that leaders believe would best serve the state's interests. Aside from the Mother Lode projects, like Prudhoe Bay or the proposed Pebble Mine, those developments aren't necessarily eyed favorably by the private sector. That leaves Alaska politicians to advocate various levels of subsidies -- call them incentives, credits, inducements, loans or grants -- to get what they want.

"We have to be competitive, and we have to look at what our goals and policies are as a state," Sen. Bill Wielechowski, D-Anchorage, said. Everyone wants more production in Cook Inlet, on the North Slope, more renewable energy projects. "The question then becomes what levers and triggers are available to the government to encourage those things. It's one we're really grappling with this year. You don't want to give incentives for things that don't have to be incentivized."

Alaska lawmakers want to send a message that the state is open for business, and to create a competitive environment. But Outside companies may not be willing to invest in the state without a little extra incentive.

"The state is so large in area, and so small in population, there is this inclination for the state to come in and be the bank for a lot of things," Rep. Charisse Millett, R-Anchorage, said. "There is a fine line where the state has to help the private sector get over that threshold ... but the expectation that the state can bear the burden of all the development is a little much."

The state has loans for fisheries and small businesses, grants for renewable energy projects like wind systems and in-river turbines, and tax and royalty breaks for oil, gas and possibly geothermal power. Then there's the $500 million the state is authorized to spend on private sector work on a massive natural gas pipeline to Canada.

Mineral resources aren't the only target for incentives; Gov. Sean Parnell announced on Friday he'll seek a tax break for cruise lines. The news came shortly after his return from a Florida cruise ship conference, where tourism industry representatives told him the same thing oil companies are saying: Alaska's regulatory environment and high taxes make it a difficult place to do business.

At the same time, politicians say the state can't just give everything away. Some call for the state to fund its own projects instead -- everything from gas exploration in Cook Inlet to an in-state natural gas pipeline.

Alaska's economy is narrow and dependent on resource extraction, according to Stephen Haycox, a University of Alaska professor who has written extensively about Alaska's resource history. That fact has set the stage for politicians to offer what they can to get what they -- and their constituents -- want.

"Every Alaska politician has one primary responsibility: Pursue any economic development project that exists or can be projected," Haycox said.

Economic development takes precedence over all other issues for the state's leaders, he said. It's not that they don't care about other concerns, such as the environment, that can be at odds with resource development; "It's that there's nothing besides resource development and federal spending from which to construct an economy in Alaska, and as oil goes down, job insecurity goes up," Haycox said.

Yet there's really no telling how well incentives have worked in the past.

"One of the problems is that the state does create these incentives and never really goes back to see how effective they have been," said Scott Goldsmith, an economist with the Institute of Social and Economic Research in Anchorage. "We're sort of operating in a vacuum, without really knowing how well these things work."

Alaska's in a tight spot, balancing the promise it made at statehood -- develop resources to sustain the remote state -- with a lack of private sector enthusiasm for developing all but the biggest, most valuable projects. That's at times prodded the state itself to step in to make things happen -- historically with less than optimal results.

"We have more of a history (than other states) of trying to use the good money we've gotten from petroleum and trying to buy other industries with it," Goldsmith said. He pointed to some visible failures -- like state grain silos.

"There are some memorable physical monuments we've made in the past," he said. "It's generally because we've overestimated the benefits and underestimated the costs ... It's really a challenge."

Part of the incentives debate is political, at least when it comes to oil. Republicans want to give more tax breaks to big companies to spur fresh investment and keep oil flowing through the pipeline. Democrats say those same global companies are already raking in profits. They prefer shooting breaks to smaller companies willing to explore new fields the big guys aren't bothering with. But even Republicans question some of the credits. For example, Reps. Paul Seaton, R-Homer, and Peggy Wilson, R-Wrangell, wondered recently why the state should offer bigger tax breaks to encourage Cook Inlet natural gas production. The region has had special tax rates for years that should have proved incentive enough, they said during a committee hearing.

State officials charged with evaluating the potential financial impacts of proposed incentives hit a wall: Without knowledge of whether an incentive will encourage the desired behavior from the private sector, its impact just isn't known. If a credit works and a company develops geothermal power, for instance, the state could have more money coming in, plus ancillary benefits like energy from renewable resources. A project's potential has to be weighed against the possible cost to the state.

"For most of these activities, the state doesn't have control over all the variables that are important in determining reinvestment," Goldsmith said. "World market conditions change ... it's always difficult to sort out whether a change in behavior is the result of something we've done. You can never answer those questions definitively."

Contact Rena Delbridge at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

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