Sunday Morning Note (Sept 6, 2015) …

As usual, we start with this past week’s data.  After undergoing a considerable run up at the close of the previous week that extended into Monday of this week with next month WTI approaching $50 and Brent nearing $55 , trading the remainder of the week  drifted downward to close in the mid-$40’s for WTI and short of $50 for Brent.

Here is the chart reflecting the closing prices this past Friday (an explanation of the source of the data is here) :

Despite the downward drift following Monday’s runup, next month WTI carried enough of Monday’s momentum through the remainder of the week to still close higher than the previous week ($46.05 v. $45.22).  Last week’s chart is here.

That was the only price we follow that did, however.  All of the remainder of the WTI prices closed down from the previous week, with 2020 WTI again closing, if only barely, below $60.  As it has done largely since the start of the L48 oil shale revolution Brent stayed higher than WTI, but closed down slightly when compared against itself from the previous week for next month ($49.61 v. $50.05), intermediate term (2017 Brent, $60.29 v. $61.69) and longer term (2020 Brent, $64.71 v. $66.91).

Next month natural gas also drifted downward on the week, with October Henry Hub closing at $2.62 this week v. $2.72 last week, but longer term prices stayed even, with 2017 Henry Hub closing both weeks at $3.06 and 2020 Henry Hub doing the same, also closing both weeks at $3.30.

Interesting juxtaposition.  As I was catching up this morning on news of the week I noticed an interesting juxtaposition of articles that explains much about Alaska’s current fiscal situation and where we may be headed next.

The first, published in business website The Street, names Alaska as the second most “socialist” state in the US, ahead of Hawaii, Vermont and New Mexico (and all of the other 48 states), and behind only West Virginia.  See “10 Most Socialist States in America.”

The second, an extended piece in The Atlantic about Alaska’s current fiscal situation timed to coincide with the President’s visit this past week, ends with this quote from current Department of Revenue Commissioner Randall Hoffbeck, “At some point in time, we’re going to have to have broad-based taxes …. We’re going to have to fund ourselves like everybody else does.” See The Stingiest State in the Union.

Personally I find Hoffbeck’s position disingenuous because it assumes going forward that Alaska needs to maintain something like its current spending level — what the first article describes as the second most socialist in the US.

In my view that assumption puts the cart before the horse.  From my perspective the first debate that Alaska needs to have with itself in its current situation is what type and size of government we want going forward.  Just ten years ago (FY2006), before various levels of Medicaid expansion, changes to K-12 funding and an explosion in the number of state employees, Alaska survived with a government that only cost $3.4 billion, the equivalent of roughly $4 billion in today’s dollars, adjusted for inflation.  Now, some attempt to tell us that the current (FY2016) budget in the range of $5.4 billion (35% higher than FY2006, adjusted) is cutting into the bone.

Certainly, if we want to maintain the level of government that justifies our current ranking as the second most socialist state in the nation then Hoffbeck is probably right.  Alaska is “going to have to fund [itself] just like everybody else does.”

But, contrary to Hoffbeck’s statement (“we’re going to have to …”), that isn’t a necessary outcome.  If Alaska can re-envision itself as only the fifth, tenth or maybe even only the twenty-fifth most socialist state in the US, then the need for broad based taxes disappears into the mists.

A $4 billion budget (the FY2006 spending level, adjusted for inflation) is well within current sustainable levels.  Rather than look to the future and attempt to sustain the government we have built since, Alaskans are better off looking to the past, and rolling government back to the level that existed before we achieved the ranking of second “most socialist” state in the US.

Looking forward.  This coming week both the US Federal Energy Information Administration (on Wednesday) and the International Energy Agency (on Friday) release their monthly updates.  We will be covering those during the week and including what we learn as part of next week’s Sunday Morning Note.

And just to remind those who may find it interesting, we hi-lite again a fiscal forum being co-sponsored later this month by the  University of Alaska-Anchorage Institute of Social and Economic Research (ISER) and Alaska Common Ground.

Designed to help progress the state’s fiscal conversation from a conceptual stage to something more concrete, among others the September 19 forum will feature the presentation and discussion of four alternative fiscal plans designed to close an assumed annual $2.5 billion gap (between spending and traditional oil and other revenues) for each of five consecutive years.  I will be presenting one of the alternative plans.

The forum also will feature a newly designed “be the legislator” game designed to help Alaskans better understand the challenges which legislators and others face as they come to grips with the state’s current fiscal situation.  A video of an early roll out of the game, which I attended and found quite interesting, is available here.  I believe it is well worth the time for those interested in the subject.

Finally, the flyer and agenda for the forum itself is available here: