Alaska’s Cable Company Wants to Put The Whole State on Welfare So It’ll Have Customers

Duncan, 62, who made $3.4 million last year as CEO of GCI, the cable and communications firm that dominates Alaska, has had recent troubles with mouthy executives and new competition from Japan.

More seriously, GCI lost $26 million in 2015, nearly $9 million in the fourth quarter alone – after which he said, paraphrasing Custer no doubt: “We finished 2015 on strong operational footing, which sets us up to capitalize on opportunities in 2016.”

But his real problem will come when the Alaska legislature declines to continue to fund his gravy train. Alaska is in a budget crisis. At the end of May, hours before the state was to begin sending layoff notices for most of its 25,000 employees, the legislature reached agreement on a plan that would cut spending from $5.1 billion to $4.26 billion and address a $3.4 billion shortfall. That’s right, they were $3.4 billion short of funding their $4.26 billion budget.

The state, which spends $11 million per day from the rainy day fund, a pace at which it will be exhausted in two years, borrowed additional money from the fund to cover the shortfall. Lawmakers did not offer any legislation that provided for repayment or a way forward beyond this one-year fix, and the speaker of the state’s house of representatives says he “can’t guarantee any bills will pass” along these lines.

What’s happening is Alaska decided decades ago to base its economy on oil and gas, and that economic model is proving increasingly unworkable. Alaska has in recent years derived 90 percent of its revenue from oil and gas taxes, but it has gone from pumping 2 million barrels per day 30 years ago – a quarter of all U.S. output at the time – to 500,000 barrels per day now. The Trans-Alaskan Pipeline System now is filled to only one-quarter capacity, and prices for oil are nearing historic lows, undercutting revenue generated from taxes on oil production.

Meanwhile, its residents pay the lowest taxes in the nation – there’s never been a sales tax and the income tax was eliminated 35 years ago after oil tax revenue began pouring in – and its citizens enjoy the highest level of spending per capita.

In any other state, we would be moving to the discussion of how to shore up the rainy day fund and bring some fiscal sanity to the state. But Alaska has that $51.3 billion piggybank known as the Permanent Fund, to which the state wisely dedicates one-fourth of all oil and gas revenues.

The state uses $3.2 billion in interest from the fund each year to pay for the Permanent Fund Dividends – the checks, for about $2,000 in 2015, that go to every man, woman and child in the state each year. The question before Alaska is whether to begin tapping that fund for yearly revenue needs or to streamline state government and start preparing for a dynamic post-oil economy.

Duncan is on the side of tapping the fund to pay for state spending. He said if the legislature can’t address at least half the structural shortfall this year, “we’ll have to stop investing.” The big investment he’s working on now is a $220 million project to bring high-speed broadband to a dozen remote Alaskan villages.

Duncan has allied himself with labor union leaders and others in his call for making permanent this fiscal irresponsibility. He wants to cut the PFD – the Permanent Fund Dividend – in half and tap more of the interest for state services. His Alaska’s Future non-profit threatens opponents with political extinction if they do not get behind this program.

GCI is the dominant telecommunications company in Alaska, with 2,250 workers and $910 million in revenue in 2014. It makes tens of millions of dollars per year off state contracts in Alaska, and it rakes in $170 million of the $230 million the federal government sends every year from the Universal Service Fund—created by Congress to ensure broadband access to all Americans. It needs Alaska, which provides matching funds for the program, to keep spending as if the oil will never stop flowing.

It would be easy to feel sorry for Duncan. He took a lot of chances starting this company, nurturing it to where it is today and now trying to fend off economic forces beyond his control. But his prescription is more dependency, more government spending, putting an entire state, in essence, on welfare … all so the local cable company will have enough paying customers.

That might be helpful to Ron Duncan and even the 2,250 people who work for him. But Alaska’s leaders need to understand it would not be helpful to the people they represent.

In Alaska, all the (Visible) taxes we pay are local. All tax dollars stay in your own community and state revenue flows downward to the boroughs, cities, towns and villages. Individual Alaska residents receive an annual dividend check from the Permanent Fund. Last year it was $2000. Since oil revenue has tanked the politicians are desperate to maintain their Cadillac government but have no money. They want to raid the permanent fund and The governor has capped the dividend payments at $1000, the balance to go to the state. They want all of it, of course, but that would be political suicide.

Just like the wild hogs in the story, the government has come to depend on the lavish oil revenues and low income people in Alaska have come to depend on the annual dividend checks. For some of them it amounts to 20% or more of their income. For others it pays their federal taxes. Many of us donate all or part of the dividend to charity through the Pick-Click-Give program.

The charity donations are important because they support many local services and amenities like local public radio, the Humane Association, school sports, Little League and churches (There are twelve active churches in this little Alaska island town of 2500 souls)

The state cannot implement a state sales tax because local communities have long financed local government with sales taxes. The additional burden of a state tax would destroy local businesses. Severe cutbacks in state government, a raid on the permanent fund and a state income tax are all being considered. The politicians are beside themselves.

We are being bombarded with “We’ve got to DO something!” ads aimed at softening up the voters and mitigating the backlash that will come when the politicians eliminate the dividend and implement state taxes to avoid cutting spending.

And, of course, everyone wants to protect their state subsidies. Public broadcasting, for example. Our local radio station gets a third of their funding from the Feds, conditional upon certain criteria being met. They are able to meet these criteria because they get a third of their funding from the state and a third from private donations. State funding must be cut. Private donations will suffer due to the loss of the Permanent Fund Dividend checks. They are facing the loss of virtually all of their funding. No more public radio which, incidentally, is the ONLY radio and the ONLY form of broadcast communication available in many rural communities, including this one. That isn’t just the ability to listen to classic rock and Prairie Home Companion. Weather alerts, tsunami warnings, news and personal messages are all important information transmitted over FM radio that can reach areas with no cell or cable service. Loss of this important resource would be a disaster for small Alaska towns and villages.

That is just one example. Life in the last frontier is about to change drastically. It is not just about the loss of one cable/broadband service.

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