Alaska, oil, and the impact of austerity politics on public schools.
by Greg Morton
"Alaska Oil Pipeline" by mmmavocado is licensed under CC BY 2.0
When President Biden signed his $1.9 trillion stimulus into law, he promised working class Americans a fighting chance. Direct cash payments, billions in aid for small businesses, and an extension of a moratorium on evictions were each designed to provide a lifeline to those drowning in the economic hurricane the pandemic has wrought. The government wants people to feel comfortable spending money again, not only to turn the page on a historic year of private sector job loss, but also to enable state and local governments to fund public sector jobs and public services that will be essential as we collectively embark on the road to becoming a functioning society. The $350 billion earmarked for state and local governments around the country is a second chance to balance their budget after a year in which many state budgets came up short of the funds needed to deliver essential public services because of a lack of revenue from essential streams like sales tax. For most states, a return to relative normalcy at some point in the year combined with the sizable cash injection to the state budget will be enough to save many public services and government jobs. Unfortunately for one state far north of all the others, not all fighting chances are created equal.
Eight hundred miles of oil pipeline runs through Alaska’s wilderness, carrying 20% of the United States’ domestic oil supply and the fate of Alaska’s state economy. As goes the price of oil, so go the fortunes of the big state up north. Without statewide sales tax, property tax, or income tax, Alaska finds itself relying on taxes on oil for more than 80% of state revenue. The price of oil doesn’t just dictate the fate of oil jobs (which themselves are estimated to employ about one in every three Alaskans), but how many teachers and staff public schools are able to employ, how many social programs Alaska is able to provide, and the availability of public services in a place where low population density make these services unusually difficult to administer.
Where a lot of states can draw on diverse sources to generate enough tax revenue to fulfill the priorities of a state budget, Alaska relies more on a single commodity than any other. This means Alaska’s economy runs on a different cycle than most of the lower 48. When oil is trading high, funding is easier to come by and the state can afford to save for a rainy day and pay out a cash oil dividend to each and every one of its citizens. But when oil’s value is low, Alaska can slip into recession alone, without the kind of sweeping stimulus the federal government provides during national recessions to close state budget shortfalls and fund public services. Alaska found itself in one of these lonely recessions in 2014, just when most of the country was beginning to emerge from the protracted Great Recession. By the end of 2019, the state recession resulting from a downward trend in oil prices left the state’s rainy day fund almost empty, education funding stagnant, and the state staring down a budget deficit. Then in 2020, the world stopped. As city after city, state after state, and country after country locked down, the price of oil collapsed, turning the cracks exposed in the state government’s fiscal solvency by the state recession into big, glaring holes.
Even before either recession, Alaska wasn’t the easiest place to be a public educator. Teachers and staff across Alaska’s 50+ school districts could be forgiven for a pervasive feeling of uncertainty as they booted up computers to begin the virtual learning experiment. The lack of sales or income tax is simply not enough to compensate for the lack of benefits available to most employees of Alaska’s public schools. Alaska is one of 15 states whose teachers are not entitled to Social Security benefits and teachers who started after 2006 are not eligible for a defined benefit pension plan. The life of a public educator in Alaska comes with a particularly draconian catch-22: spend enough to maintain quality of life, or save enough for retirement. The wrong choice could mean running out of money after retirement, a fate all too common for former teachers and public school employees in Alaska.
By the end of March, the start of the Alaska state legislature’s budget season, oil prices were down over 50 percent. The oil price was the headline everywhere from local media to NEA Alaska press releases. The precarious state budget has dire impacts for the entity that uses the largest percentage of Alaska’s state revenue. Through 5 years of recession, Alaska’s public school funding stagnated. Base K-12 student allocation (the amount of money the state allocates to each school per student) has remained unchanged since 2016. In effect, the stagnant public school budget is a wound that gets worse every year.
Because Alaska’s public schools cannot afford to keep up with inflation, they have been forced to slowly bleed staff, gradually raise class sizes, and, over time, rob schools, educators, and students of resources. Unfortunately, the worst might be yet to come. The number of students who departed Alaska’s public school system during the pandemic presents an immediate threat to state public education funding, which is allocated based on student population
So why not raise taxes? Why not find creative funding sources for the most important public service that the state provides? Alaskans don’t hate teachers or public school. To understand the lack of political will to raise revenue to help a public education system that is ranked 47th in America, it is important to understand the black hole that exists at the center of Alaska’s state politics: the Alaska Permanent Fund (APF).
Even the most optimistic Alaskan would acknowledge that one day Alaska’s vast oil fields will dry up and the appetite for and supply of fossil fuels will destroy oil’s viability as the bedrock of the state’s economy. Thus, Alaska established the APF, a state savings account meant to sustain Alaskan into the long term future, in 1976 before the peak oil production on the North Slope. The state constitution now says that at least 25% of all oil revenues generated by the state through royalties, leases, revenue sharing payments, etc must be deposited into the APF every year for the sake of future generations.
Today, the APF has two primary functions. The first is to create wealth through investment. Much in the same way a university of sovereign wealth funds invests savings, the majority of the APF, a sum of $45 billion, is saved and invested. The second, and most notable, is the Earnings Reserve Account, $17 billion in investment earrings that Alaska uses primarily to pay a dividend out to each and every Alaskan citizen. As one of the oldest and most well established forms of Universal Basic Income in America, the PFD dividend has become for most Alaskans not only one of the most sacred features of Alaska’s state budget, but also a source of pride and a sense of ownership, of both state politics and the oil industry. Receiving the yearly PFD has become one of the defining features of being an Alaskan and naturally Alaskan citizens are fiercely protective of it. Knowing this, it is extremely easy and convenient for politicians to pit essential public services against “free money”. When many perceived it being threatened by a ballot measure that would raise more taxes from oil production, Alaskans showed up en masse to vote it down by a wide margin.
It is not difficult to imagine a reality in which the oil wealth that Alaska was blessed with funds state of the art public schools, generous benefits for public employees, and robust state infrastructure. But Alaska has become a cautionary tale, stretching the limits of anti-tax libertarianism by making abstract promises to future generations while gradually tearing apart the public services those future generations will need. The 2014 recession and subsequent 2020 collapse in oil prices represents the culmination of almost 20 years straight of oil production decline. Alaska produces less than 25% of the oil it did at its peak. Last year was the first year on record the APF contributed more to Alaska’s tax revenue than taxes on oil and natural gas production. The Budget Reserve fund that contains the discretionary dollars Alaska uses to fund both budget shortfalls and the PFD could run out of money within 10 years. The Budget Reserve fund specifically created to cover shortfalls in Alaska’s economy was nearly depleted by 2020 and is scheduled to run out of money by 2022. Yet consistently the question as it relates to schools, public services, and social programs is what and how much to cut. The state of Alaska owes its teachers enough funding to be effective, and that means drawing on more diverse tax sources.
The time has come for Alaska to reconcile with what “saving for the future” really means and to reconcile with the futility of funding a state budget almost solely via a volatile commodity. If nothing else, the pandemic has made clear the perils of an under-resourced public sector. It has more than exposed structural weaknesses and resource shortages, especially in rural areas in which a lack of access to technology and wireless infrastructure has been particularly detrimental to students. It has also had a detrimental impact on teachers, Alaska’s largest cohort of unionized public employees. Not only have they had to sacrifice the benefits that would sustain them into retirement, they’re also being gradually robbed of the resources they need to be effective in the classroom. There’s a fundamental indignity to having your job security dictated by the price of a random commodity you just happen to live on top of. The sense of ownership in the fate of your state is a bit hollow when it could cost you your job as well. Underfunded public services are not just an Alaska problem either. As Berkeley’s Dr. Sara Hinkley notes, the US came into the pandemic with a smaller public sector relative to population size than at the beginning of the Great Recession. The ultimate cost of our diminished public sector capacity is incalculable, but how slow we were to rebuild the public sector and to build it back stronger after the Great Recession cost people their jobs, derailed lives, and contributed to preventable deaths during the year of the plague.
Greg Morton (@invisibae) is a retail worker, musician, and Economics student at Howard University in Washington, DC.