Alaskanomics

Alaska Produces Less Than 1 Barrel Per Person

You have probably seen both of these charts in your life, but probably never together.  The blue line shows oil production in Alaska since 1978, after oil began flowing down the Trans-Alaska Pipeline.  It peaked at 2 million barrels per day of production in 1988, but has since declined to 577,819 barrels a day at the end of the State’s fiscal year ending June 30, 2012.  The red line highlights the population of Alaska over the same period.  It was 411,600 in 1978 and has grown to approximately 730,000 people today.

That means at peak production in 1988 Alaska was producing 3.8 barrels a day per person.  However, in 2012 that rate has declined to only 0.79 barrels a day per person.  That is nearly five times less on a per capita basis.  This has serious economic implications because of the extreme dependency the State of Alaska government has on oil taxes to pay for government services.  According to the Alaska Department of Revenue, in fiscal year 2011 oil revenue accounted for 92% of the State’s unrestricted revenue. 

This is money without “strings attached”, unlike Federal program receipts and investment returns from accounts like the Permanent Fund.  In total, the State collected over $8 billion last year in energy taxes of various types. These revenues fund a lion’s share of the State operating and capital budgets, providing money for countless programs throughout Alaska.

Oil averaged over $112 per barrel in fiscal year 2012.  Oil production tax rates escalate 0.4% for every dollar the net value rises above $30.  The rate increases 0.1% when the value rises above $92.5.  As a result, Alaska continues to be flush with oil revenues at today’s very high prices, regardless of the continual decline in the amount of oil we are producing.  However, our population continues to grow and shows no sign of stopping. 

Therefore, we are more sensitive than ever to a decline in oil prices.  Alaska has never seen prices this high, nor have we had our tax revenues so reliant on a progressivity price factor.  It has been a windfall for government at these high prices, but we have not yet felt the pain of what the reverse feels like if prices decline.

Many politicians in Juneau seem to be gambling that prices will stay high for ever and continue to mask our declining production problem.  Others are taking the more realistic long-term view that prices have always been volatile.  In response, we need to control the level of spending to more sustainable levels, attempt to diversify our revenue streams, and most importantly, make every effort to incentivize more oil production.

Texas and North Dakota have demonstrated that multi-decade stagnate or declining oil production levels can be turned around.  They have each added over 500,000 barrels per day of new oil production in the last few years.  Alaska must endeavor to do the same.

Mid-year Anchorage Inflation Stable at 2.5%

According to the Federal Bureau of Labor Statistics, the Consumer Price Index (CPI) in Anchorage rose 2.5% annnualized in the first half of 2012.  Anchorage is the only "urban" community in Alaska that is tracked for these national statistics which come out twice a year.  It measures the price of a consistent “basket of goods” over time that comprises a typical households spending.  Therefore, expenses for housing are weighted the highest as percentage of the average person’s income, followed by energy and food. 

The 2.5% increase over the last 12 months is nearly identical to Anchorage's 10 year average inflation rate of 2.6%.  Average prices have not shown much volitility during the decade reaching a high of 4.6% and a low of 1.2%. 

Over the twelve month period since June of 2011, the largest price increases in Anchorage were seen in apparel (+4.6%), food (+4.4%), medical care (+4.3%), energy (+4.1%), and housing (+2.5%).  Price declines were measured in two major categories.  Recreation fell (-1.4%) and education and communications was (-0.5%) lower.

Nationwide, inflation has been low, increasing only 1.4% between June of 2011 and July of 2012.  The largest increases have been in medical care (+4.4%), food (+2.3%), housing (+2.1%), and transportation (+1.6%).  This is offset somewhat by a 5% decline in the cost of energy.  On a nationwide average, gasoline prices are 5.5% lower and utilities are 12.7% lower than the prior 12 month period.

Alaska residential mortgage and delinquency rates remain low relative to the U.S.

The recently released survey by the Mortgage Bankers Association shows that Alaska continues to have some of the lowest levels of foreclosures and delinquencies on residential mortgage loans in the United States.  Through the second quarter of 2012, Alaska ranked 3^rd best in the nation out of 50 states in both foreclosures and delinquencies of all loan types.

The total inventory of foreclosures in process is 1.2% in Alaska, while the country has a much larger lingering foreclosure inventory at 4.3% due to higher rates during the recession and longer resolution times.  These rates are nearly the same as the second quarter of 2011, but a small improvement from two years ago when Alaska’s rate was 1.4% and the U.S. foreclosure rate was 4.6%.

Delinquent loans are more than 30 days past due, but not yet in foreclosure. Alaska is third best behind North Dakota and South Dakota, in the overall level of delinquent loans.  Alaska’s delinquency rate is 4%, while the U.S. average is 7.4% for all loan types.  This is an improvement for Alaska from 4.5% in the second quarter of 2011 and 4.8% two years ago.  The U.S. delinquency rate has also come down from 9.4% at this time two years ago, to 8.4% last year.

Subprime lending to traditionally non-qualified borrowers was a large contributing factor to the national mortgage problems.  The survey covers just fewer than 95,000 mortgages in Alaska.  Approximately 6,900 or 7% were considered subprime, compared to 9% nationally.  The rate of delinquencies and foreclosures on subprime loans is significantly higher.  However, Alaska is in a far better position and again leads the nation as having the lowest level of foreclosures and delinquencies in this important category.  Subprime foreclosures in Alaska are at 3.4% while the national average is 13.6%.  Alaska’s subprime delinquency rate is 9.8% compared to the national average of 20.3%.