MADELEINE BRAND, host:
This is DAY TO DAY. I'm Madeleine Brand.
ALEX CHADWICK, host:
I'm Alex Chadwick. Alaskans pride themselves on their independence, but their economy is very dependent on oil. Petroleum company BP announced cutbacks in production there in this week after it found corroded pipes. It will try to keep some oil coming, the company says, but Alaska's worried because less oil means smaller state revenues. Libby Casey of member station KUAC reports from Fairbanks.
LIBBY CASEY reporting:
If you can handle Alaska's cold, dark winters and isolation, living here can seem like a good deal. It's the only state with no income or sales tax, and every October Alaskans get a check in the mail called the Permanent Fund Dividend, about $1000 per person. It's all thanks to oil. In addition, nearly 90 percent of the state's unrestricted budget comes from the industry. Former Deputy Revenue Commissioner Larry Persily.
Mr. LARRY PERSILY (Former Deputy Revenue Commissioner, Alaska): Alaskans feel dependent on the industry, no question. Do they realize how addicted they are to it? Probably don't want to admit it - most addicts don't. But we know that this is fragile in terms of cash flow to the state. If there's a long term significant production cutback, we're in trouble.
CASEY: The BP slow down could cost Alaska nearly six and a half million dollars a day in the form of lost taxes and lost royalty payments.
Mr. MICHAEL WILLIAMS (State Chief Economist, Alaska): I'd call that a big deal.
CASEY: State Chief Economist Michael Williams.
Mr. WILLIAMS: If you think in terms of your household, what would happen to you if your income fell by 40 percent for your household? It would get your attention.
CASEY: It's got the attention of the governor. To try and save money, Governor Frank Murkowski announced this week a state hiring freeze and said the shutdown hasn't helped government/industry relations.
Governor FRANK MURKOWSKI (Alaska): What I see developing here, it's unfortunate, but there's been deterioration and a lack of trust between the industry and the producers and the administration and the legislature. And we've got to get back on track.
CASEY: But Juno based economist Greg Erickson says the threat is overblown. He believes the governor's hiring freeze is really just political posturing.
Mr. GREG ERICKSON (Economist): I don't think there'll be hardly any economic repercussions. There may be political and attitudinal repercussions, but I don't think it's going to have much impact on the economy. Not directly in any sense.
CASEY: That's because, Erickson says, the state has a built-in financial buffer. The last few years of high oil prices have meant a windfall in royalties and taxes, creating a budget surplus. The state could also tap the millions of dollars set aside to forward fund education. And as a last resort, Alaska has a budget reserve account. In fact, many people here think the greater impact could be to the consumer, just like in the rest of America.
At a Fairbanks gas station, Diana Cylus(ph) fuels up her minivan. She fears the pipeline shutdown will mean higher heating bills, especially in a few months, when temperatures of 20 below will be the norm. And Cylus says the price of goods could go up, hitting rural areas hardest.
Ms. DIANA CYLUS (Resident, Fairbanks): Well, I have noticed in the stores a lot of things rising, the produce and stuff like that. We import a lot of stuff, so it will affect it when they have to pay more to get things over here, you know, whether it's on a boat or a plane or a truck. So it's going to affect us all the way around.
CASEY: There could be another ripple affect. The prized Permanent Fund, which pays out the yearly dividend checks, was started with oil money. Some still goes in, but most of the fund's billions now come from investments. Executive director Michael Burns says its fate really rides on the stock market.
Mr. MICHAEL BURNS (The Permanent Fund): The challenge to the fund, rather than the lack of royalty money coming in, is what this might to do the national stock markets. The markets have not reacted very favorably to the shutting down of this and what it might do to oil prices and the affect on the economy.
CHADWICK: Economist Greg Erickson says even if Alaskans don't immediately feel the affects of the BP shutdown, they are thinking about it. He says that may ultimately have unpredictable consequences.
Mr. ERICKSON: Might change their attitude towards development, might change their attitude towards the oil companies. All those things could have significant impacts on the state.
CASEY: In the end, the impact may be political. The governor faces a serious challenge in the Republican primary later this month. Murkowski's opponents say he's too cozy with the oil industry. Alaskans will soon decide if he is or not, even if they can't shake their own oil addiction. For NPR News, I'm Libby Casey in Fairbanks.