Perspectives on Business and Economics, Vol. 40

THE GAY AND DOUGLAS LANE JOURNAL OF THE LEHIGH UNIVERSITY MARTINDALE CENTER STUDENT ASSOCIATES Perspectives on Business and Economics is published by the Martindale Center for the Study of Private Enterprise. Rauch Business Center, 621 Taylor St., Lehigh University, Bethlehem, PA 18015. NEW FRONTIERS FOR ALASKA Stephen Cutcliffe, Ph.D. Editor Editorial Board Alberto J. Lamadrid L., Ph.D. Todd A. Watkins, Ph.D. Michelle LeMaster, Ph.D. Richard N. Weisman, Ph.D. Andrew Ward, Ph.D. George P. White, Ph.D. Perspectives on Business and Economics Volume 40 2022

ii MARTINDALE CENTER FOR THE STUDY OF PRIVATE ENTERPRISE CENTER STAFF Todd A. Watkins, Ph.D. Executive Director Judith A. McDonald, Ph.D. Associate Director Andrew Ward, Ph.D. Associate Director Trisha Alexy Program Manager Melissa M. Gallagher Administrative Coordinator J. Richard Aronson, Ph.D. Founder & Director Emeritus Founded in 1980 thanks to a generous endowment from Elizabeth Fairchild Martindale and Harry Turner Martindale '27, the Martindale Center for the Study of Private Enterprise is an interdisciplinary resource in Lehigh University’s College of Business. The Center engages students, faculty, and the business and policy communities in active inquiry, tackling questions central to understanding and fostering sustainable private enterprises and inclusive economic systems throughout the world. MARTINDALE CENTER PUBLICATIONS Periodicals • Perspectives on Business and Economics (annual) • Martindale Retrospectives • Martindale Discussion Paper Series • Martindale Center Policy Briefs Books • I.W. Lieberman, P. DiLeo, T.A. Watkins, and A. Kanze, eds., The Future of Microfinance (Brookings, 2020) • T.A. Watkins, Introduction to Microfinance (World Scientific, 2018) • J.R. Aronson, H.L. Parmet, and R.J. Thornton, eds., Variations in Economic Analysis (Springer, 2010) • T.A. Watkins and K. Hicks, eds., Moving Beyond Storytelling: Emerging Research in Microfinance (Emerald, 2009) • I.W. Lieberman and D.J. Kopf, eds., Privatization in Transition Economies: The Ongoing Story (Elsevier, 2008) • K. Fabian, ed., Globalization: Perspectives from Central and Eastern Europe (Elsevier, 2007) • J. Laible and H.J. Barkey, eds., European Responses to Globalization: Resistance, Adaptation and Alternatives (Elsevier, 2006) • V. Munley, R. Thornton, and J.R. Aronson, eds., The Irish Economy in Transition (Elsevier, 2002) • F. Gunter and C. Callahan, eds., Colombia: An Opening Economy (JAI, 1999) • D. Greenaway and J. Whalley, eds., “Symposium on Liberalisation and Adjustment in Latin America and Eastern Europe,” in The World Economy (Blackwell Publishers, 1994) • A. King, T. Hyclak, R. Thornton, and S. McMahon, eds., North American Health Policy in the 1990s (John Wiley & Sons, 1993) • A. O’Brien and R. Thornton, eds., The Economic Consequences of American Education (JAI, 1993) • A. Cohen and F. Gunter, eds., The Colombian Economy: Issues of Trade and Development (Westview Press, 1992) • D. Greenaway, R. Hine, A. O’Brien, and R. Thornton, eds., Global Protectionism (Macmillan, 1991) • E. Schwartz and G. Vasconcellos, eds., Restructuring the Thrift Industry: What Can We Learn from the British and Canadian Models? (1989) • D. Greenaway, T. Hyclak, and R. Thornton, eds., Economic Aspects of Regional Trading Arrangements (Wheatsheaf Press, 1989) • R. Thornton, T. Hyclak, and J. Aronson, eds., Canada at the Crossroads: Essays on Canadian Political Economy (JAI, 1988) • R. Thornton and J. Aronson, eds., Forging New Relationships among Business, Labor, and Government (JAI, 1986) • R. Thornton, ed., Schumpeter, Keynes, and Marx: A Centennial Celebration (1984) • R. Thornton, A. Ott, and J.R. Aronson, eds., Reindustrialization: Implications for U.S. Industrial Policy (JAI, 1984) For information on Martindale Center publications and past issues of Perspectives, visit

iii PERSPECTIVES Perspectives on Business and Economics is the journal of the Martindale Student Associates Honors Program founded and run by the Martindale Center for the Study of Private Enterprise at Lehigh University. A faculty panel selects 12 of Lehigh’s finest undergraduate students to become Martindale Student Associates. Each student undertakes research focusing on an aspect of the economy and business environment of a foreign nation or state and prepares an article for publication. The country or state changes each year. Alaska is a place of breathtaking beauty, rich in topics important to the US economy—a compelling opportunity for study during the pandemic. Orientation seminars with academic and industry leaders introduced the cohort to potential research topics. During the 14-day trip in August, the students learned about the Alaskan economy, Permanent Fund, project management in an arctic environment, education, land rights for indigenous communities, port security, cultural life of native Alaskans, wind turbines, peony and (legal) marijuana industries, tourism, politics and budget issues, marine life research, Valdez Marine Terminal management and oil spill, Trans-Alaska Pipeline System (TAPS), permafrost, gold mining, geothermal technology, rural Alaska, health care system, and climate change. By bus, boat, and train, the group covered 1057 miles within Alaska. The Martindale Alaska cohort continued their investigations during a visit to Washington, D.C., in late October. Students met with Congressman Don Young’s staff (R-Alaska); Alaska Public Media correspondent Liz Ruskin; and research fellows at the Energy Security and Climate Change Program of the Center for Strategic & International Studies. This journal is the culmination of the students’ research and hard work. Special Thanks The Martindale Center acknowledges the critical role played by alumni, parents, friends, and the many experts in Alaska who gave generously of their time and expertise as advisors and speakers to help make the 2021–2022 program and Volume 40 of this journal a success. We first must thank Olga Stewart '05 '06, senior environmental engineer at Geosyntec Consultants in Anchorage and Martindale alum (Spain), for her assistance throughout program planning, an informative session on the history of the Aleutian campaign and the cleanup of WWII sites in Alaska, and writing this volume’s introduction. Lehigh alumni Mike Cook '60, Dr. Marie Lowe '91, and Dr. Matthew Cullin '06, '09G, shared wisdom on their specialties with the students and helped make contacts. Also, a big thank you to Dr. Joseph Mixsell '67 '73G (in memoriam) and his wife Dr. LuAnn Piccard for hosting a dinner smorgasbord. Professor Piccard, chair of the project management department at the University of Alaska Anchorage, also arranged a meeting with arctic project management experts. Sincere thanks to Dr. Chad Briggs, former professor of international relations at Lehigh and current director of public policy and administration, College of Business and Public Policy, University of Alaska Anchorage. He hosted the group at the university, spoke about Alaska international security issues, led a hike, and provided connections to community leaders. Thanks too to those speakers: Willie Hensley, former U.S. Senator; Alaska state representatives Zack Fields and Liz Snyder; and Diana Hirshberg, vice-president academic at University of the Arctic. We also thank Lauren Mason, director of educational programs, Boys & Girls Clubs Alaska, for hosting lunch and sessions on Alaska’s educational system and income inequality. Special appreciation to Jason Bickling, former executive director of the Seward Chamber of Commerce, for connecting our group to tours and speakers there. Christy Terry, Seward mayor and manager of the Alaska Railroad Corporation Seward Terminal Reserve, gave a fabulous port tour. Kate Dugan, Valdez community and public relations manager for Alaska Pipeline Company, arranged speakers on safety practices and operations for Valdez Marine Terminal and TAPS. Thanks

iv also to Jeff Streit, TAPS veteran and supervisor at the Glennallen Response Base, for missing afternoon meetings to give a tour of Pump Station 11 on the way to Fairbanks. Sincere thanks to Scott McCrea, president and CEO, Explore Fairbanks, for hosting at the Morris Thompson Cultural and Visitors Center and his suggestions for speakers. Joshua Verhagen, mayor of Nenana, deserves thanks for a tour of the town and discussing life in rural Alaska. And, a huge thank you to Rachel Gold from Alaska Geographic for the educational hike in Denali, exploring issues surrounding climate change. Finally, Anna Hipkiss, bus driver from Premier Alaska Tours, narrated the many long rides. We appreciate her passion for Alaska and care for the safety of the group. David Arnold Brooks Banker Kevin Berry Weston Branshaw Maile Branson Jim Brewers Zack Brown Chris Conlon Amy Cook Jeffry Cook Sharon Cook Adia Cotter Krystal Crawford Rinah Fifield Anna Frank Neal Fried Bryan Friedrichs Steve Gebert Darla Graham Britta Hamre Sara Harriger Dave Haugen Victoria Herrmann Jeff Hetrick Dewey Hoffman Rhonda Hubbard Alana Humphrey Marjorie Illingworth Ron Illingworth Jim Jager Alexander James Chris Jimenez Bernie Karl Laura Koepsell Gary Larsen Lisa Mahan Michael Mahmood Stephen Naimoli Brian O’Leary Carmen Olmos Darren Prokop Patricia Relay Ilaura Reeves Jordan Reeves Laura Schneider Diana Sevier Dale Shaw Kat Sorensen Tom Tougas Niko Tsafos David van den Berg Jesse von Stein Maria Williams Peter Winfrey The Martindale Center thanks the following individuals: The Martindale Center thanks the following organizations: Alaska Communications Alaska Gasline Development Corporation Alaska Native Heritage Center Alaska Pipeline Service Company Alutiiq Pride Marine Institute Alaska Public Lands Information Center–Fairbanks Alaska Safety Alliance Arctic Institute Chena Hot Springs Cook Inlet Region, Inc. Doyon Foundation Eagle River Nature Center Exit Marine F/V Kruzof FedEx Fire Island Wind, Chugach Electric Association Gold Daughters Good Titrations Greater Fairbanks Community Hospital Foundation Hotel 360 J&R Alaska Fish Sales Lazy Otter Charter Major Marine Tours Murie Science and Learning Center National Park Service Nenana Visitor Center North Pole Peonies OBI Seafoods Port of Alaska Standing Together Against Rape Alaska Department of Labor & Workforce Development Story Works Alaska Tanana Chiefs Conference U.S. Army Corp of Engineers Valdez Museum VISTA The Martindale Student Associates thank Trisha Alexy for organizing the itinerary and topic sessions; faculty mentors, Professors Lamadrid, LeMaster, Ward, Watkins, Weisman, and White, for guidance on research and writing; and Professor Emeritus Stephen Cutcliffe and Nancy Watkins for their editorial rigor and patience. The students also thank the faculty spouses for support and friendship throughout. On behalf of the Martindale community of students, alumni, faculty, staff, and friends, we express immense appreciation to Douglas Lane '67 and Gay Lane for their support of this journal and, finally, to Professor Emeritus J. Richard Aronson for founding the program and creating such an enduring legacy at Lehigh. Todd A. Watkins, Ph.D. Executive Director, Martindale Center Stephen Cutcliffe, Ph.D. Editor

v THE MARTINDALE CENTER FOR THE STUDY OF PRIVATE ENTERPRISE RECOGNIZES AND THANKS OUR MAJOR CONTRIBUTORS FOR THEIR GENEROUS SUPPORT J. Richard Aronson '87PG '15GP and Judith L. Aronson '80G '87PG '15GP Alan S. Brodherson '86 Fairchild-Martindale Foundation Faith R. Glazier '87 '19P and Robert A. Weisstuch '85 '19P Jay H. Golding '67 and Susan Golding Stephen F. Goldmann '66 Donald M. Gruhn '49 and Judy Gruhn Leo Guthart Barry C. Harris '70 and Sandra Harris Peter F. Harter '90 David Heidecorn '78 '11P and Deborah S. Heidecorn '78 '11P Frederick H. Jamieson '74 and Jane P. Jamieson '75 Mark S. Kaufman '53 and Carole Kaufmann Edward R. Klein '67 '68G '01P and Rosalyn F. Klein '01P Michael D. Krauss '83 and Dara Lynn Krauss Jeffrey A. Laborsky '99 and Melissa Laborsky '99 Douglas Lane '67 '90P and Gay Lane '90P Rina S. Pertusi '85 '14P and William G. Pertusi '83 '14P Rodolfo Segovia '89P '91P and Silvia Segovia '89P '91P Sarat Sethi '92 and Kanika Priya Sethi Steven R. Shoemate '85 Sidney J. Silver '57 '59G '81P '93P '15GP '18GP and Margaret Silver '81P '93P '15GP '18GP James B. Swenson '59 '15GP '17GP and Roberta H. Swenson '15GP '17GP Maria E. Taber '93 and Mark D. Taber Ferdinand Thun '56 and Elizabeth Thun Kenneth R. Woodcock '65 and Dorothy Woodcock Allen M. Yurko '73 and Gayle Yurko

vi THE MARTINDALE CENTER FOR THE STUDY OF PRIVATE ENTERPRISE THANKS THE FOLLOWING DONORS FOR THEIR VALUED SUPPORT (FY2018–FY2022) Luis A. Arcentales '98 '00G Richard W. Barsness and Dorothea L. Barsness Devon J. Battaglia '01 '03 and Irene L. Battaglia '04 Elizabeth H. Beatty '84 '16P Elizabeth L. Benko '01 and Hrvoje Benko '01 Jason J. Benkoski '98 James R. Berger '76 '07P Thomas A. Berglund '82 and Rosemarie Fiorilli '83 Sharon P. Bernstein '77 and Joseph Bernstein Whitney L. Bernstein '15 '16G Christopher J. Berzin '10 Kenneth D. Blanchette '10 Margaret C. Buell '88 '93G '17P '19P and Stephen G. Buell '70 '71G '77G '17P '19P Thomas F. Burke, Jr. '93 and Sharon Burke John M. Burton '15P and Karen M. Burton '15P Robert M. Cahill '84 '23P and Mary Beth Cahill '23P Taylor C. Carroll '17 Laura G. Chan '17 Erin L. Collette '15 '16G Megan E. Colville '12 Anais Concepcion '10 Michael J. Connor '80 '14P and Lee Ann Lusardi Connor '79 '14P Sacha Connor '00 Christine M. Croft '95 Christopher L. Croteau '92 and Lena Croteau Brian P. Cunningham '09 '10 and Danielle M. Spar Cunningham '10 Christopher J. Cunningham '03 and Lori A. Shuler-Cunningham '03 '04G David Danko '17 Billie M. Davis '02 '03G Ian M. Davis '18 Michelle M. Davis '86 and Scott Davis Kristin S. Deliso '11 Nicole R. Dobson '96 Joleen R. Doverspike '99 '01G and Joshua C. Doverspike '99 Alix E. Eggerding '04 Andrea J. Englander '05 Caitlyn H. Esposito '09 and Daniel V. Esposito '06 Exit Planning Institute Andrew C. Fiala '92 and Ehren Weidenkeller Justin L. Frankel '96 Jenifer Gilio Alexander Glass-Hardenbergh '16 Steven M. Glassman '04 '05G Benjamin O. Golden '94 Daniel A. Grande '11 and Jordan McKinley Milton H. Grannatt III '68 '69G '72G '75G and Patricia S. Grannatt '72G Nicholas J. Greybush '11 Shaan Gurnani '16 Tristan A. Heffler '18 Marie E. Helmold '81 Phillip Hernandez '19 Mary J. Hill Rosemary M. Hilley '78G '03P and John L. Hilley '03P Logan A. Hodges '16 Katherine Hodsdon '11 Jeffrey T. Horvath '92 Christopher M. Jewell '03 Christine M. Joachim '96 Andrew J. John '06 '07G and Soo Hooi Oh '06 '07 Muhammad Ariff Kamarudin '12 Jonathan M. Kamenear '07 and Heather Kamenear Carolyn Kaplan '02 '03G and Rudyard D. Kaplan '02 Andrew R. Lauden '93 and Trisha W. Lauden '93 Kelly Lear Nordby '90 Cynthia L. Learn '87 Ira W. Lieberman '64 '94P and Phyllis Lieberman '94P Grace H. Lin '19 Nicholas A. Lynch '05 '07G

vii LEHIGH UNIVERSITY AFFILIATIONS KEY: 'Yr: Undergraduate degree year 'G: Graduate degree year 'H: Honorary degree year 'P: Child’s undergraduate degree year 'PG: Child’s graduate degree year 'GP: Grandchild’s degree year 'W: Late spouse’s degree year Toni A. Marraccini '09 Betsy M. Martindale '90 and Wight Martindale III '85 Veronica D. McKinny '18 Norman J. Merksamer '52 '84P (deceased) and Geraldine Merksamer '52W '84P Alexander A. Niewiarowski '15 Karen A. O’Donnell VanderGoot '99 and Matt R. VanderGoot Raymond Ojserkis '91 Katherine M. Oliver '14 '15G Christina Pak '15 Marc C. Palmer '10 Erika R. Papaccioli '03 Roger S. Penske '59 '82P and Kathryn Penske Catherine Y. Preysner '16 Stacey L. Rantala '93 and Brian S. Birtell '93 Laura O. Rheinauer '03 '04G Gretchen A. Rice '11G Karen J. Richard '93 Shauna G. Richman '83 Daniel E. Rosenthal '92 '21P and Michelle H. Rosenthal '92 '21P Kathleen N. Ryan '13 Kristin E. Sargent '02 Elizabeth L. Schnabolk '08 and Stuart D. Schnabolk '09 Sheila C. Schottland '05 and David Schottland Curtis S. Schuelein '81 Bruce M. Serchuk '89 and Anita Soucy Allison A. Shearman '07 Jonathan P. Skinner '20P and Karen K. Skinner '20P Richard S. Slayton '89G Tyler A. Sloan '15 David A. Slomsky '95 Paul E. Smith '61 '63 '93P and Carol A. Smith '93P J. James Spinner '73 and Karen Spinner Caitlin M. Stein '08 and Andrew C. Stein '08 Olga M. Stewart '05 '06 J. Nicholas Strasser '01 and Rosanne Facchini Karen L. Stuckey '75 '10P and Henry W. Seduski, Jr. '10P Jasmine E. Surti '12G Connie D. Svoboda '99 Sue Nee Tan '09 Tyler A. Tate '04 '05G William J. Tronoski '92 and Anastasia M. Tronoski '92 Andrew M. Tye '13 Beth E. Vallen '00 and Kenneth J. Vallen Jon P. Van Order '94 Jade B. Van Streepen '15 M. Jeremy Walsh '08 Jeffrey S. Wantman '00 and Sara Wantman Katherine L. Warren '02 and Michael S. Warren '02 Kirk M. Warshaw '80 '07P '11P and Anna R. Warshaw '07P '11P Edmond A. Watters III '61 '66G '74G Ashley E. Weber-Pickard '00 Richard N. Weisman '00P and Melody Weisman '81G '00P Caroline F. Weisstuch '19 Cynthia E. Welton '94 and Griffith J. Welton '88 Beth M. Wilson '18P Lindsay I. Wilson '18 Cathy E. Withers '14 '15G Stephen V. Zanias '05 '07G

viii NEW FRONTIERS FOR ALASKA Volume 40 2022 INTRODUCTION Olga Stewart........................................................................................................................................ x NAVIGATING ALASKA’S FISCAL CRISIS: A FRAMEWORK FOR A SUSTAINABLE FUTURE Lidya Yalew Bekele.............................................................................................................................. 1 Alaska is known for its resource-driven economy and depended on oil tax revenues to cover expenses through the 2010s. However, due to declining oil production and lower prices, Alaska has faced budget deficits since 2013. In response, the state relied on its savings to close the gap. This article explores a balanced approach to counter the budget challenges, one that entails reallocation of the draw from the Permanent Fund, reduced state spending, and new revenue streams. ALASKA’S RENEWABLE ENERGY POTENTIAL: OVERCOMING CHALLENGES Jessica A. Franolic............................................................................................................................... 10 Alaska has great potential for private and public development of renewable energy; the most promising resources are geothermal, wind, tidal, and solar. Three clear applications are transmission to the Railbelt grid, on-site use of high-energy production, and on-site use of low-energy production in remote communities. Alaska’s most significant obstacles to development are land ownership and remoteness. With research and planning, overcoming these challenges becomes an achievable step toward resource development. THE DIGITAL DIVIDE: INTERNET IN ALASKA John Alexander Carr............................................................................................................................ 19 Alaska faces great challenges, given its geography and sparse population, that limit the development of broadband technology throughout the state. With internet connectivity growing more important for education, business, and communication, its development is vital for Alaska’s future success. This article examines the current state of broadband technology in Alaska and the plans proposed by the government and private organizations to solve the internet connectivity problem. HARNESSING UNIQUENESS: SMALL BUSINESS GROWTH IN ALASKA FOR ECONOMIC DIVERSIFICATION Michael G. Nardelli.............................................................................................................................. 28 The decline of the oil industry in Alaska has caused a large deficit in the state economy. Small, highgrowth businesses have the opportunity to diversify and contribute to a larger portion of the state economy. This article explores the unique circumstances in Alaska that cause barriers to growth of small business but also create niche sectors and opportunities that have potential for many of these entities to thrive. ALASKA’S NEW FRONTIER: ENERGY-INTENSIVE COMPUTING Nathaniel Robert Alter........................................................................................................................ 36 Alaska has incredible potential to become a leading region of the world for energy-intensive computing. The state can take advantage, as other arctic locales have done, of the renewable energy potential and attractively cool temperatures for data centers and related industries. Through policies and partnerships, Alaska can use its natural resources to create a new frontier in the energy-intensive computing market. WALKING ON THIN ICE: EDUCATION CHALLENGES IN ALASKA Clare Fonstein. .................................................................................................................................... 44 Alaska faces challenges in providing public K–12 education to the state’s youth. Despite spending more per student than other states, Alaska schools are understaffed, lack proper resources, and score comparatively low on national standardized assessments. With the expansion of existing programs and implementation of new structures, the challenges can be mitigated to provide the best education possible for the students of Alaska. This article explores the root causes of Alaska’s education challenges and options for improvement.

ix ALASKAN KELP: GROWING A NEW INDUSTRY Helen C. Tynes..................................................................................................................................... 54 Alaska has set its sights on growing its mariculture industry to $100M in 20 years. Within this young industry, kelp will play an important role in reaching this goal. Not only would farming kelp bring needed economic activity, but also kelp offers key environmental benefits and can even be used for carbon capture. Further support and programming for farmers are needed as well as new efforts to get kelp on Americans’ plates. CLIMATE RELOCATION IN ALASKA: A FRAMEWORK FOR EFFICIENCY Melissa J. Hertzberg............................................................................................................................ 63 Climate change threatens the sustainability of Native Alaskan villages. The need for climate relocation of certain communities exposes the inefficiencies and complexities of the current framework. This article presents a village case study identifying each component of the relocation process and highlights the needs for improvement. It presents recommendations for relocation methodology and practice in order to streamline the process. CONTEMPORARY IMPLICATIONS OF THE 1971 ALASKA NATIVE CLAIMS SETTLEMENT ACT Adrian De Vera Suarez. ....................................................................................................................... 72 The Alaska Native Claims Settlement Act of 1971 (ANCSA) was created in order to provide economic prosperity for Alaska Natives. However, the modern needs of Alaska Natives have drastically changed and so must the act. This article proposes amendments to ANCSA, namely, the expansion of subsistence living rights; a deeper examination of Alaska Native land ownership; and the adoption of sustainable development approaches that take into account the community’s economic, social, and environmental needs. CONSEQUENCES OF PERMAFROST MELTING ON ALASKA’S INFRASTRUCTURE Sakshi Acharya.................................................................................................................................... 79 Increasing temperatures pose a severe threat to Alaska, as most of its infrastructure is built on the frozen layer of ground called permafrost. Through case studies, this article explores the economic damage permafrost melting causes and then recommends approaches to address the effects, including permafrost monitoring, infrastructure maintenance, and innovative replacement. DEADLY SKIES: AVIATION IN ALASKA Griffin Alexander Fox.......................................................................................................................... 87 Alaska relies on small aircraft to move both people and essential goods and services around the vast state. Despite aviation’s importance and ubiquity, it is an incredibly risky endeavor. Alaska is one of the most dangerous states to fly in, with a disproportionately high percentage of crashes and deaths. This article explores the challenges of Alaskan aviation and what can be done to improve safety and save lives. GONE FISHING: PRESERVING ALASKAN TRADITION IN NEW WATERS Thomas Perillo.................................................................................................................................... 95 Alaska’s seafood products are recognized globally for their high quality derived from pristine waters. However, climate change and fluctuation in aquatic variables add challenges for management councils. As the relationship between these changes and the effects on marine species is still not entirely known, changes to fishery management are necessary to allow for dynamic oversight as updated research becomes available. Transition to adaptive management can preserve both economic value and the tradition of the state’s commercial fisheries.

x Although Alaska may not be the foreign economy of other volumes of Perspectives, it certainly can feel that way within the context of the United States. As a prior Martindale student who moved to Alaska soon after graduating from Lehigh, I was thrilled to be able to help brainstorm ideas for research, the visit, speakers, and economic pinch points. The questions and interest from the students when I presented during the introductory speaker series showed me a group keen to learn about Alaska and its economy. Their chosen topics show that they engaged with a wide variety of issues important to the state. Having the Martindale students focus their unique perspectives on Alaska has generated an interesting series of articles. The analyses provided in this volume are an intersection of the challenges and opportunities facing the state that interest the next generation. How they view economic potential provides useful insight for our leaders. Climate change, sustainability, renewable resources, and technology are at the forefront of how these students believe Alaska can move forward. We should take note: the diversification of economic opportunities is critical to Alaska’s future. As one article details, overreliance on the extractive industries of oil, gas, and mining has led to instability in our state budget, endangering public resources. Developing a more sustainable budget for the long term will require a broader approach. Alaska has long been considered a frontier, and we take pride in doing things a little differently. The students have identified some unique market opportunities with promise beyond the status quo. These include mariculture, in the form of kelp harvesting; fisheries, by using adaptive management in changing waters; computing, specifically the prospect of energy-intensive data centers; and renewable energy, in the form of geothermal power generation. Each of these industries is still in its infancy, with creativity and ingenuity driving small businesses to try out new ideas. As another student reports, harnessing the ingenuity and creativity that many Alaskans consider part of our frontier character may be a key component to economic diversification. While there is considerable potential for Alaska, the students also identified some key roadblocks on the path toward a more diversified, sustainable economy. Education, the foundation to a strong economy, faces challenges in teacher recruitment, higher education availability, and student engagement. Challenges with education are exacerbated by a digital divide from lack of internet access in many areas. Transportation, which is critical to keeping the largest state in the US connected, relies heavily on aircraft and faces challenges with safety. Physical infrastructure and entire villages are facing damage due to climate change. The students have tackled these roadblocks with perceptive and welcome suggestions. I am thankful that these students have turned their attention to Alaska. Their research is timely and important. I am also grateful that they were able to travel to this great state and hope that they have been inspired to return either as tourists or workers. Olga Stewart '05 '06 Senior Environmental Engineer, Geosyntec Consultants Martindale Student Honors Program, 2004–05 (Spain) Anchorage, Alaska INTRODUCTION

Perspectives on Business and Economics, Vol. 40, 2022 1 Introduction Alaska’s total revenue has “restricted” and “unrestricted” revenue categories. The unrestricted portion of the general fund (GF) represents the revenue that may be used for any purpose, whereas the restricted portion of the GF is appropriated by the legislature to pay for specific programs, such as Medicaid, Medicare, and transportation projects. Alaska’s state revenues come from three main sources: oil-related taxes, the federal government, and investment revenue from the state’s largest savings fund, the Permanent Fund (PF). The PF was created in 1976 as a mechanism for sustaining oil revenues for future generations. Investment revenues and federal funding substantially cover the restricted state spending, whereas oil-related revenues primarily fund the unrestricted state operations spending. As a result, the state’s total revenue remains subject to volatility from both the oil market and the stock market. From the 1980s to the 2010s, oil and gas income yielded a 93% contribution to the state’s unrestricted GF, which at its peak in 2012 entailed $9.9B of $10.6B, after adjusting for inflation. But, oil contribution to state revenue has dropped dramatically since 2012, due to declining production and lower world prices. By 2019, oil tax revenues had declined to $2.7B (Walczak, 2020). As a result of this dramatic decline and lack of new revenue streams, the state has been facing budget deficit challenges every year since 2013. Alaska’s proposed budget for fiscal year (FY) 2021 was $10.18B, with $4.53B (44%) allocated to the unrestricted budget; the rest was appropriated for specific government services (Mahoney & Barnhill, 2021). The state’s projected revenue for the unrestricted GF for FY 2021 was around $1.97B. With an appropriation of about $1.09B from the percent of market value (POMV), an annual draw from the PF, the total revenue summed up to approximately $3B, indicating a budget shortage of close to $1.5B (Walczak, 2020). That shortfall summarizes Alaska’s challenge: How can the state NAVIGATING ALASKA’S FISCAL CRISIS: A FRAMEWORK FOR A SUSTAINABLE FUTURE Lidya Yalew Bekele Alaska is known for its resource-driven economy and depended on oil tax revenues to cover expenses through the 2010s. However, due to declining oil production and lower prices, Alaska has faced budget deficits since 2013. In response, the state relied on its savings to close the gap. This article explores a balanced approach to counter the budget challenges, one that entails reallocation of the draw from the Permanent Fund, reduced state spending, and new revenue streams.

2 account for about a $1.5B budget gap (15%) even after it takes a portion of its revenue from its savings, not just once, but for the foreseeable future? In response to the budget deficit, Alaska has been operating with a savings-financed budget, particularly utilizing the Constitutional Budget Reserve Fund (CBRF), to close out the budget gap (Groh, 2021). The CBRF was established in 1991 to ease problems from the variability of oil revenue due to market volatility. Deposits into the CBRF consist of settlements of back taxes and other revenues owed to the state. The legislature may appropriate funds from the CBRF to fund the operations of state government as well as close short-term deficits; even so, draws from the CBRF require a threefourths vote of each house of the legislature and must be returned to the fund later. As a result of continuous withdrawals without an offsetting inflow of cash, the CBRF has declined from $19B in 2014 to $2.7B in 2019 and is expected to be depleted by 2023 (Department of Revenue, 2021). Given that most of Alaska’s savings have been reduced to a low level, the state currently relies on the POMV draw from the PF to close out budget deficit challenges. As the CBRF comes to an end, it is important to recognize that, if the state fails to implement a solution, what happened to the CBRF also may happen to the PF earnings, as the state depends on the draw as a source of revenue. Proposed solutions to deal with these challenges include overspending PF earnings, implementing significant spending cuts, eliminating the PF dividend (PFD), reintroducing a statewide progressive income tax, and introducing a statewide sales tax. In this article, I explore the history of the PF and the economic impacts of the PFD on population groups where the dividend is considered a vital source of income. Furthermore, I explore a balanced approach between reallocation of the draw from the PF, a reduction in state spending, and new revenue streams as a potential, long-term solution. History of the Permanent Fund: 45 Years of Progress Oil production in Alaska began in 1968 on the North Slope of the state, increasing the flow of revenue into the state at an unexpected rate (Goldsmith, 2002). The Alaska PF was designed in 1976 to secure a part of the oil wealth by establishing a permanent and sustainable in- vestment portfolio that could be saved for times when oil production was no longer as high. The fund currently has $81B in savings, which is invested in bonds, stocks, real estate, and infrastructure. The PF has two parts, the Principal Account and the Earnings Reserve Account (ERA). The Principal Account is the savings account that can be spent only on income-producing investments, whereas the ERA serves as the checking account and can be used to support government services. It is utilized to distribute oil wealth dividends to eligible Alaskans through the PFD, created in 1980, to protect the intergenerational value of the fund against inflation and to support investment management and operations of the fund. Major contributions to the Principal Account come from mineral revenues, special appropriations initiated by the legislature from both the GF and the ERA, and inflation proofing. The ERA grows through the receipt of statutory net income, which is the result of investment activity, and excludes unrealized gains and losses (Alaska Permanent Fund Corporation, 2020). Withdrawals from the ERA are based on a POMV of the PF, a method designed to create a structure that ensures no more than a sustainable amount is drawn on an annual basis. The POMV draw is based on the average market value of the PF for the first five of the preceding six FYs, which is intended to create a smoothing effect over time. This formula provides a certainty of liability for managing the portfolio and a stable, predictable payout from year to year. The draw is subject to appropriation and is set in statute at 5.25% for FYs 2019–2021 and 5% from the FY 2022 onward (Alaska Permanent Fund Corporation, 2020). After the legislature enacted Senate Bill 26 (SB 26, passed in 2018), a portion of the draw from the PF earnings became unrestricted revenue beginning in FY 2019 (Alaska State Legislature, n.d.). In FY 2019, about $1.7B (63% of the total draw) was used to pay for government operations, and the remaining $1B was paid as dividends to residents. SB 26 diverged from the historical trend of treating POMV draws as restricted revenue to pay dividends according

3 to a predetermined formula. Because the legislature had already drawn heavily upon the CBRF, SB 26 was intended as a stopgap measure; nonetheless, it fails to address the underlying causes of the budget crisis (Hederman et al., 2019). From its establishment up to 2017, the Alaska PFD program has distributed close to $22B, in amounts varying from around $300 to $2100 per Alaskan per year (Guettabi, 2019). In 2021, the dividend amount was $1114 per resident, and approximately 643,000 eligible residents were estimated as having received the dividend, which resulted in about $716.3M being distributed (Kitchenman, 2021). These annual dividends have had financial implications for many Alaskans. Economic Impacts of the Permanent Fund Dividend on Rural and Native Alaskans In response to the ongoing budget challenges, the legislature has proposed eliminating the PFD in order to appropriate most of the ERA savings to cover the deficits. Based on the 2021 dividend, this option would make available approximately $716.3M toward closing the budget deficit. Nevertheless, it is critical to consider the economic impacts of the PFD on factors such as poverty rates among rural and Native Alaskans and employment. Without considering the PFD, poverty rates in urban areas have always remained much lower than poverty rates in rural Alaska. In 2015, the poverty rate for urban areas was about 12%, although the rural Alaska poverty rate averaged 20% (Berman & Reamy, 2016). This disparity can be explained by the higher cost of living in rural Alaska and the greater economic opportunities available in the urban areas. Additionally, Figure 1 shows that poverty rates, over time, for Alaska Natives have been significantly higher than for non-Native Alaskans. According to a study conducted by the University of Alaska Anchorage Institute of Social and Economic Research, the PFD reduced poverty rates in Alaska from 11.4% to 9.1% over the five years, 2011 to 2015 (Guettabi, 2019). More specifically, in rural Alaska Native/ American Indian Non-Native 0 5 10 15 20 25 30 2000 2002 2004 2006 2008 2010 2012 2014 2016 Population Below Povery Threshold (%) Figure 1 Percentages of American Indian/Native and Non-Native Alaskans Below the Poverty Threshold Source: Berman & Reamy, 2016.

4 Alaska, the PFD reduced the poverty rate from 20.4% to 16.4% in the same period (Berman & Reamy, 2016). The PFD is considered a major source of cash income for rural Alaskans due to a lack of other economic opportunities in those regions. The disparity in sources of income also results in different consumption patterns between rural Alaskans and the relatively wealthy population groups in the urban areas. Rural Alaskans tend to spend the PFD on nondurable goods to cover living expenses, while the wealthier urban population tends to save their dividends. This indicates that if the PFD were to be revoked, its impact would be significantly higher on rural Alaskans. Estimates from the study also show that the Alaska PFD boosted 15,000 to 25,000 Alaskans out of poverty on an annual basis for the period under review (Berman & Reamy, 2016). The ability to lower poverty rates is highly dependent on the size of the dividend and the state of the economy for any given year. Furthermore, the poverty rate for Native Alaskans in the rural areas is especially high. Without the PFD, one-third more Alaska Natives would have faced an income drop, placing them below the poverty threshold. The study indicates that the PFD has substantially lowered poverty rates among rural Alaska Natives, from 28% to 22% (Berman & Reamy, 2016). A similar, decreasing trend in the poverty rate also is seen when looking at Alaska’s senior population, from 5.8% without the PFD to 4.3% with the PFD (Berman & Reamy, 2016). Even though poverty rates show an increasing trend in urban Alaska, they remain below those in rural Alaska, where there are fewer employment opportunities. Given the significant impacts of the PFD on these population groups, eliminating the PFD to alleviate the budget deficit challenges will significantly increase the number of Alaskans living below the poverty line. Finding Balance: A Framework for a Sustainable Future Alaska’s budget crisis is sufficiently dire that no one solution will suffice. Focusing on a single approach would yield high taxes, deep spending cuts, or unsustainably large transfers from the POMV draw. Instead, Alaska must take a balanced route between reallocation of the draw, spending reductions, and new revenue sources. Among these options, there are no painless choices; however, a balanced approach can help ease the transition to a more stable system of funding and execution of the business of government. The state has tried to reduce spending and diversify its revenue streams, but there is more to be done to arrive at a permanent solution. Reallocation of Percent of Market Value Draw As discussed previously, SB 26 enabled Alaska to no longer restrict the draw from the PF earnings. This bill allowed the state to appropriate a significant portion of the draw to cover expenditures, lowering the fund available to pay dividends. As a permanent alternative to close the budget gap, Governor Dunleavy’s current administration has also proposed a 50/50 draw, where half the appropriated amount is dedicated to paying out PFDs and the other half is available to supplement the state budget. However, this option is shortsighted: taking this approach will enable the state to rely on savings once again at the expense of PFDs. By enacting SB 26, the state has already implemented an action to redistribute the draw between PFDs and state expenses. Taking a 50/50 approach might enable the state to once again rely on savings as a permanent solution. Instead, the state must explore options that utilize savings for emergencies instead of as a primary solution. Spending Reductions Alaska’s spending continued to grow even after a large revenue decline occurred starting at the end of the 2000s. Between FY 2009 and FY 2019, the budget for agency operations increased by just under 30%, or an average of about 3% each year. Over the same decade, inflation averaged 1.73% per year, and the population grew an average of 0.4% per year. If policy makers had kept spending in line with inflation and population growth, the agency operations portion of the budget would have grown an average of roughly 2.11% per year (instead of 3% per year) and saved the state over $551M over 10 years, more than one-third of its current budget

5 deficit (Hederman et al., 2019). Even with such a cautious spending policy, Alaska would have been left with a billion-dollar deficit, so more cuts are still needed. Rather than scale back spending when oil and investment revenues began to fall, Alaska dipped into savings, reduced resident dividends, and found alternative ways to avoid spending cuts. Current spending habits threaten the state’s present and future economic well-being; aside from helping to close the deficit, disciplined spending will enable the state to use new revenue sources wisely and in an accountable manner. In 1982, Alaskan adopted a constitutional amendment (the Alaska Limitation on State Budget Appropriations Amendment, also known as Measure 4), which set an annual base budgetary spending level of $2.5B, to be adjusted as needed to account for inflation and population growth. That amount has since grown, to $10.5B in FY 2020 (Tilton, 2020). Nonetheless, the cap has not been effective at restraining spending, as the state did not have high enough revenue to even spend as much as the amount dictated by the spending cap. In other words, revenue itself was restraining the spending, not the spending cap. Therefore, a constitutional spending cap with more stringent limitations should be implemented to establish a balance among taxes, the ERA, and spending restraint. Governor Mike Dunleavy called a special legislative session on October 4, 2021, to consider Senate Joint Resolution 6/House Joint Resolution 5, an amendment to update the constitutional spending cap, but it has not yet been passed into law (Steininger & Schultz, 2021). As part of the long-term solution to closing the deficit, the state needs to prioritize enacting either this or an alternative amendment that will cap spending. New Revenue Sources: Attempted Solutions and Political Tension Even though the concept of new revenue streams is unpopular, the state has long since reached the point of inevitability. In considering new revenue options, policy makers should prioritize a revenue source that is stable and predictable (criteria that the current revenue sources lack). Therefore, a reliable tax structure and its impact on the state’s economy should be explored. Alaska adopted an income tax pre-statehood in 1949, originally set at 10% of federal income tax liability, rising to 16% by 1961. Following the enactment of the federal Tax Revenue Act of 1964, commonly known as the Kennedy tax cut, an adjustment was made to keep Alaska’s rates tied to the old, higher federal rates. This convoluted approach gave way to an independent graduated rate tax in 1975, with an astonishingly high, top marginal rate of 14.5%, but the tax was repealed outright in 1980 as oil tax revenues poured in. A first attempt at introducing new revenue occurred in 2017, the final year of Governor William Walker’s four-year administration. In April, the Alaska House of Representatives voted to implement a progressive state income tax for the first time in four decades when it passed House Bill (HB) 115, 22–17, entirely along caucus lines, with the Democrat-led majority voting yes and the Republican minority voting no (Brooks, 2017). HB 115 (also known as the State Revenue Restructuring Act) aimed to reduce budget volatility by diversifying the revenue sources. The bill focused on restructuring the PF earnings to 4.75% of the market value to protect the fund and on introducing a progressive income tax, based on 15% of the amount residents pay to the federal government (Alaska State Legislature, 2017). The tax structure was also meant to collect revenues from nonresidents to externalize the tax burden according to income level. The Alaska Department of Revenue estimated that if fully implemented, HB 115 would have generated $687M per year for state services. In addition to spending from the Alaska PF investment earnings, cuts to the state subsidy of oil and gas drilling, and modest budget cuts, the House plan was anticipated to balance the state budget by 2020. Not too long after in May, the Alaska Senate voted 15–4 to kill the proposal, ensuring Alaska’s multibillion-dollar deficit would not be solved that year. Most of those in opposition said they refused to raise taxes on Alaskans during an economic recession. “The Senate enthusiastically ended the discussion, at least for this year, on the idea of penalizing them for having a job,” Senate

6 President Pete Kelly, R-Fairbanks, said after the vote, adding, “It’s not good for the economy, it’s not good for Alaska, it’s not good for our future. Most of all, it’s not needed” (Brooks, 2017). Governor Dunleavey was elected in 2018 based on campaign promises of full PFDs, including backpay for the amounts over the capped dividends during the Walker administration, and a balanced state budget by cutting spending alone. Dunleavey’s first budget for FY 2020 presented to the legislature accomplished just that, reducing state spending by 25%. The legislature fought many of these cuts, with Dunleavy ultimately vetoing those that were reinstated, and the legislature was unable to override all the vetoes. In July 2019, an effort to recall the governor on the basis that his “sudden, severe, and sometimes illegal budget cuts have caused tremendous harm to Alaska and Alaskans” was launched (Braunlich, 2020). Supporters needed to gather 71,252 signatures to require a recall election; even so, the campaign announced on August 25, 2021, that it was dropping the recall effort because the campaign was short of the required signatures, having collected only 62,373 as of August 21 (Ballotpedia, n.d.). The committee explained that collecting signatures during the pandemic was difficult and that the decision to halt the recall effort was strategic and wise (Bohrer, 2021). In general, the past eight years have included a range of policy options through both executive and legislative bodies to address Alaska’s budget challenges. With the extreme market volatility of the oil industry and long-term decline in oil production, new revenue sources are inevitable. What Next? Learn To Love Taxation Among the proposed solutions to generate new revenue streams, a statewide sales tax and a progressive income tax are the top two options. Though either of these options could make a significant contribution toward closing Alaska’s budget gap, their impacts on Alaskan residents and the long-term sustainability of the tax structure can vary. The progressivity of any income tax would be critical for low- to middle-income Alaskan population groups. A study conducted by the Institute of Social and Economic Research shows that a progressive income tax would allow four of every five Alaska residents to pay less than they would pay if a broad-based sales tax were implemented, regardless of the amount of revenue that the state might try to raise (Institute on Taxation and Economic Policy [ITEP], 2016). The study assumes that an income tax would be calculated as a percentage of federal tax liability, while a sales tax would apply to all retail expenditures, except for food at home, health care, education, and shelter. Thus, a progressive income tax would allow the state to collect a significant share of the revenue from a few households with the highest incomes, with the contributions needed from the rest of Alaskan households being relatively lower. Alaska has witnessed increased income inequality over the years similarly to the rest of the US. The inflation-adjusted incomes earned by the bottom 99% of Alaskans went down by 18% between 1979 and 2007, while income for the top 1% increased by 119% after adjusting for inflation (ITEP, 2016). If past trends can be used to estimate where Alaska is headed, a personal income tax could be effective and sustainable in terms of generating revenue and rebalancing income inequality. A common point of discussion raised against income taxes is the possibility of hindering long-term economic growth by discouraging people from working hard to avoid higher tax brackets, thus decreasing spending and disincentivizing savings. Certainly, all the proposed solutions have corresponding tradeoffs, but the ideal solution should be focused on minimizing impacts on most Alaskan residents. In addition, some of the tax burden paid by the highest income population will be offset by the PFD they would continue to receive. A statewide sales tax would have its attractions as well. Because a sales tax would be collected largely by retailers instead of individuals, tax administrators would be able to deal with fewer players, which is advantageous in a large, sparsely populated state, as administration and enforcement can be expensive. Sales taxes also would be imposed on consumption rather than labor as opposed to income tax, meaning their impact on longterm economic growth might be smaller and collections less volatile. The biggest benefit