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Alaska faces future confidently, despite falling oil revenues

With oil prices falling, Alaskans may face some changes in their life styles, but not a depression, state leaders say.

``The steak eaters are ordering burgers,'' says Phil Griffin, proprietor of the Girdwood Griddle restaurant near here.

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Restaurants and other small businesses often are the bellwether of economic change, and owners like Mr. Griffin are usually the first to detect fluctuation in people's attitudes about money.

Alaskans are facing the fact that as oil prices tumble, their life styles likely will suffer. Voices from other oil-producing states -- Oklahoma, Texas, and Louisiana -- attest to that.

Alaskans are well aware that state spending is the straw that stirs their economy. About 85 percent of the state's revenues derive from oil developments. The citizen-owners of the Prudhoe Bay oil field -- the largest in North America -- nervously watched the value of their oil drop by 50 percent over a recent 60-day period.

The slide has caused a population accustomed to sunny economic news to shiver in the shadow of the first raincloud to appear on Alaska's horizon in nearly a decade.

``The economic news is not good,'' said Alaska governor Bill Sheffield in a televised address last week. ``We're America's fastest-growing state with America's fastest-shrinking budget.''

Governor Sheffield has taken it upon himself to lower expectations. He's telling residents that less revenues means fewer jobs; reduction in government services; fewer loans to students, home-buyers, and businesses; maybe increases in local taxes. But like most public officials and economic analysts here, the governor is remarkably sanguine about Alaska's economic prospects.

``We may not be able to control the price of oil, but we can control our future,'' he said on television. After six years of unprecedented state spending, Alaska's economy is robust, the governor proclaimed.

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The average annual income here, $28,500, is more than 40 percent above the national average, and it's not taxed by the state.

Although declining oil prices could cause an 11 percent drop in Alaskans' earning power by the end of the decade, wages will remain sufficiently high to provide a comfortable living, said one economist.

State spending will drop, but it, too, is at lofty levels -- $1,200 per resident a year, five times the national average. The state subsidizes home and business loans, employs about 17,000 Alaskans, and builds things in all parts of Alaska ranging from convention centers to air strips to water and sewer systems, libraries, and dams. Political leaders here predict the popular dividend program that annually pays residents a share of the state's oil wealth (over $500 each this year) will continue, potentially pumping a quarter billion dollars into the economy.

The transition to a moderate-income state will involve a ``shakeout'' in which some businesses will fail and some people will decide to leave the state, said Scott Hawkins, an economist with Alaska Pacific Bank.

``We're just starting into a moderate recession that I think will last two or three years. It should leave us at about the same place as other high-growth Western states,'' Mr. Hawkins said.

``The drop in oil prices is something we've anticipated,'' said Bob Miller, the governor's communications director. ``We're surprised by how soon it's happened, but we have the mechanisms in place to make for a soft transition.''

But some observers believe expressions of optimism in the face of falling oil prices are little more than self-interested boosterism.

In a speech last month, Seattle economist Arlon Tussing predicted that tumbling oil prices will lead Alaska into depression because of the state's lopsided dependence on oil revenues. The speech set local economists scurrying to undo the psychological damage they believe is caused by pessimistic predictions. Mr. Tussing was denounced for his use of the word depression.

Some factors that people like Mr. Miller believe will enable Alaska to avoid major econonuc problems:

Alaska has socked away a big chunk of its oil windfall for just such a rainy day. A fixed proportion of the state's oil revenues automatically goes into the Alaska Permanent Fund, a $7.1 billion savings account against the end of the oil era. Additionally, Alaska has nearly $2 billion in miscellaneous accounts, some of it recently received as settlements in legal disputes between the state and the oil industry.

Governor Sheffield has vowed not to touch the principal of the Permanent Fund, which earns $2 million a day in interest and dividends. Portions of the other funds can be used to ``gently bring us back to reality,'' says the governor, and to avoid drastic budget reductions this year.

Alaska has abundant natural resources. The recent slide of the dollar relative to Japan's yen is expected to make it easier for Alaskans to sell their fish, timber, coal, and natural gas.

The oil industry in Alaska is extremely capital intensive. Twenty percent of domestic supplies are produced on the North Slope with only 1.5 percent of the industry's domestic work force. An industry slowdown won't cause massive layoffs on the oil-production side. Oil exploration is another matter, with most activity shutting down.

The service and trade sectors of Alaska's economy flourished during the oil boom years. Nearly half of the jobs in Alaska are in the service sector.

A steady stream of people have come to Alaska -- 140,000 between 1980 and 1984, taking the state's population to over 500,000 and bringing in new skills and new ideas.

Alaska's frontier tolerance cultivates an entrepreneurial climate that's well-suited to the state's youthful, risk-taking population, says Hawkins. ``There's a receptivity to the individual here, and an access to decisionmakers. It's the kind of environment that drives economic growth,'' he adds.

Alaska's urban centers have become increasingly cosmopolitan. High wages, combined with more to do, and an accent on the individual, have cut down on the notorious transience of Alaskan society, stabilizing the population.

For the minority of Alaskans living in remote rural areas, few of these ameliorating factors are expected to take the bite out of decreased oil revenues.

``The bush is the first place the pinch is felt because it's more dependent on state spending,'' said governor's aide Miller.

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