Alaskans Pin Hopes on Drilling in Refuge

It’s tax day for most Americans, but here in Alaska, nobody is writing a check to the state. There is no state income tax. To the contrary, Alaska sent a $1,850.28 check in October to every man, woman and child in the state.

The annual Permanent Fund bonanza fuels everything from new big-screen TVs in Anchorage to all-night gambling parties in the bush. The windfall is thanks to royalties from the million barrels of oil flowing every day out of Alaska’s North Slope.

It is one of the biggest reasons why Alaska--more than President Bush’s energy advisors, probably more than the oil companies--wants to see the U.S. Senate open the Arctic National Wildlife Refuge to oil drilling. This week’s expected debate is the culmination of a $7-million lobbying campaign in which the state has ferried members of Congress to one of the most remote places on Earth and hired lobbyists to work in a dozen crucial states.

The oil dividends are also a big reason why Alaska has given major tax breaks to oil companies, why Alaska has tolerated the effects of dozens of serious oil spills on its North Slope, why Alaska is moving to roll back some of its permitting regulations on the oil industry.

The boom years are over. Prudhoe Bay, the biggest oil field in North America, is sending only half the amount of oil down the trans-Alaska pipeline that it did during the 1980s. The state, which depends on oil money for more than 80% of its budget, is facing a shortfall of $865 million--nearly half the general fund. Alaska is running through its $2.6-billion oil savings account so fast it will likely run dry within four years.

What to do? Adopt an income tax? Pass a sales tax? Or start pumping more oil? For about 70% of Alaskans polled recently, it’s a no-brainer.

In a state that has tried for years to develop a well-rounded economy--tourism has boomed, fishing is suffering but still profitable--it is oil that continues to fuel the state treasury, and oil and gas that remain the cornerstone of Alaskans’ planning for their futures.

“It’s like cocaine,” said Kip Knudson, general manager of Era Aviation, a regional carrier. “Without it, we just don’t have the population base nor the property tax base to support the life to which we have become accustomed. We are about as Third World as you can get. We are completely dependent on resource extraction, and we don’t know what to do without it.”

In recent years, an increasingly vocal lobby of environmental groups--empowered by the spectacular growth in tourism, which depends on Alaska’s pristine landscape--has raised questions about the environmental costs of oil development.

The dispute on the local scene goes far beyond the caribou and their calving grounds that have been the focus of the Arctic National Wildlife Refuge debate. While the oil fields at Prudhoe Bay are probably the best-operated in the world, there has been an average of nearly 400 spills a year on the North Slope since 1996, involving more than 1.3 million gallons of diesel, crude oil and hydraulic oil. While most incidents were minor, 79 spills were greater than 1,000 gallons.

Personnel Matters Raise Questions

In the last few weeks, the state Department of Environmental Conservation, which has no full-time inspectors on the North Slope, has been rocked by the March 5 resignation of its oil spill prevention and cleanup supervisor, Susan Harvey, who had been removed from spill oversight duties two months earlier. The department said her workload was too heavy, but co-workers said she had been punished for regulating the oil industry too vigorously.

Three weeks later, an air quality supervisor for the state Department of Natural Resources, Bill MacClarence, was charged with insubordination for complaining outside the chain of command about the method used to measure oil industry air pollution.

“It’s an issue the state doesn’t want to deal with, because it’s pretty sensitive politically. Because it involves a lot of money,” MacClarence said.

No one knows how bad the air is on the North Slope, he said, because no one monitors it. “I can tell you, I’ve been up there, and it’s not pleasant,” he said. “In the dead of winter, it takes your breath away.”

These revelations are providing ammunition for the environmental community in Alaska, which has worked for years to try to persuade the government to wean the state off oil.

“The oil industry’s record has been one of chronic, continual spills, leaks, improper disposal of waste, long-term contaminated sites that are still needing to be cleaned up,” said Pam Miller, head of Fairbanks-based Arctic Connections, who opposes drilling in the wildlife refuge.

Yet a good many Alaskans--most, probably--don’t see it that way. They point to the industry’s record of rapidly cleaning up spills and the fact that, after two decades of operations on the North Slope, the consequences have been minimal. The caribou herd at Prudhoe actually has prospered under oil development, growing from 3,000 in 1974 to about 27,000 today.

Carl Rosier, president of the Alaska Outdoor Council, the largest fishing, hunting and trapping group in the state, said oil revenue allows the state to protect wilderness. “In the absence of these revenues, it could hamper natural resource management and impair those resources everyone would like to protect,” he told Congress recently.

Indeed, proponents of drilling in the refuge say conservationists who oppose drilling in the heavily regulated Arctic are effectively pushing oil production to areas of the world where its environmental costs are likely to be much greater.

“They [drilling opponents] make it seem like an anti-environment vote, that we are going to destroy the coastal plain. Like anyone in Alaska has any interest in destroying the Arctic environment,” complained Kim Duke, executive director of Arctic Power, the group lobbying for opening the refuge to oil exploration.

“They put a little polar bear picture on something and say, ‘The big oil industry wants to destroy the polar bear, send us $25. . . .,’ ” she said. “And they don’t point out that the population of all wildlife species on the slope has maintained, or grown.”

Nobody wants that message heard more than the Alaskan government. To that end, the state has poured $7.3 million into funding Arctic Power’s lobbying efforts since 1993.

With the money, supplemented by large grants from the oil industry, Arctic Power has flown lawmakers up to see the refuge and hired lobbyists and public relations consultants in Washington in an attempt to sway Congress to open it for drilling. Efforts were successful in the House, which approved the drilling last year.

The lobbying group produced a video on how ice roads constructed to oil fields can allow drilling with minimal or no damage to the underlying tundra. Footage from the video, along with other shots of the stark, frozen coastal plain, made it onto the Interior Department Web site, prompting U.S. Rep. Edward J. Markey (D-Mass.) last week to accuse Interior Secretary Gale A. Norton of illegally using lobbying material to argue for opening the refuge.

A chunk of the lobbying money also went to the tiny Eskimo village of Kaktovik, which lies on the edge of the coastal plain and is hoping to access its own oil reserves underneath the refuge. Kaktovik elders were paid $100 honorariums for news interviews, along with substantial travel expenses for regular trips to Capitol Hill.

State officials tend to view the Arctic Power expenditures as an investment in the state’s economic stability.

“There’s no place in America with the huge quantity of oil our nation needs than beneath a small portion of the [refuge],” Gov. Tony Knowles said in his Jan. 16 State of the State address. “This environmentally responsible development will create tens of thousands of jobs in Alaska and throughout America. We must keep a full-court press working . . . to open ANWR this year.”

Though revenue from the refuge wouldn’t start flowing for at least 10 years, state petroleum economist Chuck Logsdon said drilling could bring $500 million a year to Alaska’s treasury.

With the $2.6 billion in the state’s oil-funded budget reserve scheduled to be depleted around 2004 to 2006, something needs to happen soon, economists say.

Legal settlements from the oil industry fund the reserve, which is different from the Permanent Fund, which survives on leasing and royalty deposits.

Searching for Long-Term Solutions

“For 10 years, we’ve been able to draw on money we’ve had in the bank. . . . But that source is disappearing fast,” said Scott Goldsmith of the University of Alaska’s Institute of Social and Economic Research.

The wildlife refuge, he said, can’t be the solution, not in the long run. The ultimate answer, he said, must be either to implement a broad-based tax or to tap into the earnings of the Permanent Fund, an option that could raise $800 million a year. That fund, which began tucking away a portion of oil revenue in 1977, has earned $25 billion since then and paid out $11 billion in dividends, which cost the fund about $1 billion a year.

Knowles has proposed a state income tax that would raise $350 million and other tax increases that would raise $50 million.

The governor has also proposed a $4.8-million spending package that would streamline processing for oil and gas permit applications for exploration and development and hire inspectors for the North Slope.

But conservation groups fear that, with the Legislature slashing the budget, the new inspectors will never be funded.

Indeed, the Legislature is reviewing a package of bills that would significantly roll back some of the stringent measures adopted after the 1989 Exxon Valdez oil spill.

The bills make it easier to obtain water use and solid waste permits, and lift a requirement that the state order oil companies to plan for the best available technology in cleaning up possible spills.

“In our view, [the state is] just blowing off a lot of spill plan and air quality laws on the North Slope, to the point that their own employees are screaming about it,” said Peter Van Tuyn, litigation director for Trustees of Alaska, a conservation group. “It is a very significant rollback.”

State officials say they already monitor oil activities more stringently than any other industry. Only 17% of the hazardous material spills in the state occurred on the North Slope, noted Larry Diedrick, director of the DEC’s division of spill prevention and response.

Knudson, the Era Aviation executive, said he and other businessmen support opening the wildlife refuge because they know the industry has done a good job so far. “I think the general theory among Alaskans is that people in the Lower 48 are ignorant. They screwed up their states and they’re going to make it right in Alaska,” Knudson said.

Recently, he was in Los Angeles, and the refuge came up. “They were all opposing it,” he recalled. “I said, ‘How can you possibly live in Southern California and be opposed to more oil development?’ They didn’t get it. They went home and turned on their air conditioning.”