Alaska Faces Crisis amid Oil Price Drop

State officials struggle with the budget as low oil prices hamper production and revenue, jeopardizing the Alaska Permanent Fund, a program that comprises of investment dividends paid to residents, according to the Associated Press. Alaska pays no income or sales taxes, and a majority of the state’s income derives from federal aid and oil production.

State officials struggle with the budget as low oil prices hamper production and revenue, jeopardizing the Alaska Permanent Fund, a program that comprises of investment dividends paid to residents, according to the Associated Press. Alaska pays no income or sales taxes, and a majority of the state’s income derives from federal aid and oil production.

The amount that residents receive from the Alaska Permanent Fund depends on the rate of return. For example, dividends paid for 2015 was over $2000, which is on the higher end of the scale. Oil revenue sustained the fund in the beginning, but other investments expand the program, and the government cannot touch the balance under state law.

Currently, the fund is valued at $52 billion. Such payments help many Alaskans, which is why many leaders scoff at the notion of cutting or siphoning funds from the program.

Alaskan Entitlement?

Many people in rural areas rely on dividend payments to counter the state’s limited job market and high standard of living. The situation is bad to the point where officials contemplate imposing sales and income taxes to make up for the shortfalls, and analysts consider this an inevitable option.

Critics may criticize Alaska for being an entitlement state, but many Alaskans prefer such policies as reducing a portion of the fund, introducing a state sales tax and lowering energy tax credits, notes Alaska News Dispatch. However, most Alaskans are opposed to the idea of deep cuts, especially any mention of eliminating the fund altogether.

Oil Fallout

Alaskan oil production has been in decline for decades, and the state’s failure to diversify has placed leaders in the precarious position of making tough choices that could upset many people. Authorities aspired to reclaim Alaska’s status as an oil-bearing state, but with oil prices hovering at around $50, such an achievement will never likely come to fruition in the near future, especially as the U.S. energy bubble is on the verge of bursting.

Alaskan production in the state’s North Slope region peaked at 2 million a day in the 1980s, but it has been in decline since 1988, states to the U.S. Energy Information Administration. Further, North Slope oil production will come to a virtual halt beyond 2025 if prices fail to rise.

Federal Assistance

Alaska’s federal aid is drying up as well. The amount of federal money flowing into the state has waned due to the late Senator Ted Stevens’ absence from office, cites the New York Times. Stevens helmed the Senate Appropriations Committee and held vast sway in getting pork for his state. Alaska primarily receives federal aid to maintain the state’s expensive infrastructure.