Sen. Robert Myers: Why can’t we just drill our way out of this mess?

By SEN. ROBERT MYERS

March 3, 2026 – In my last article, I wrote about the true state of Alaska’s economy. On top of that poor performance, we have the state government’s financial woes. This coming year, we’re looking at a budget deficit somewhere in the neighborhood of $1.8 billion. That would likely be filled by continuing to draw down the Permanent Fund dividend, dropping it even lower than the $1,000 from last year. That’s not counting any additional spending that the legislature might add this year or the usual escalators like negotiated employee contracts.

A common refrain among Republicans is that we can fix both of these problems with more resource development. I refer to this as the “return to the 1980s” plan. We could put people to work, refill the state coffers, and pay a statutory dividend (or at least larger than the most recent ones).

On a side note, there are a lot of Democrats who effectively argue the same plan but with oil taxes rather than oil production or other development. From an economic standpoint, the plan of resource development is partially correct. We should have more resource development to boost our economy. But from the perspective of the state budget, it is completely wrong.

Starting with oil as the largest component of the value of both our resources in general and state taxes in general, the simple fact is that the oil business has changed. The fracking revolution that hit the industry about twenty years ago drastically altered both the amount of oil available and the business of getting it out of the ground.

I don’t want to go into all of the details here, but the short version is that the competitiveness of Alaska vs the Lower 48 has changed. Fracking allows oil drillers to get their money back much quicker. Down south, frackers can make investment decisions and see their returns in weeks or months. In Alaska, we’re looking at years if not decades. Alaska is the place where we build large, long-term projects that will have to just take the price that the market offers, not a place where we can move quickly to take advantage of high prices and pull back when prices are low.

As one example, the oil pocket that both the Pikka and Willow projects are tapping into was first discovered in 2013. That oil will finally start flowing from Pikka this year and from Willow in 2029. While we are finally seeing the oil flowing through the pipeline rise for the first time since 1989, and we want to see that continue, we aren’t going back to the 1980s in large part because the business has changed. The types of projects that are viable in Alaska have drastically altered.

The results of these changes are in the following chart.

As the business has been changing, costs have gone up. As just one example from my own industry, the cost of trucking a load from Fairbanks up to Prudhoe has nearly doubled since 2020. Costs for labor, steel pipe, and other capital costs are going up. As a result, the operating deductions for oil taxes are going up. We’re going to make less money from the same amount of oil because the oil companies are making less money.

At the same time that costs are going up, we’re also getting less money because of our oil tax structure. The analyses of Willow and Pikka that were released by the state’s Department of Revenue late last year made it clear that we won’t be getting significant oil taxes from either project for nearly a decade (we will still receive corporate taxes, property taxes, and, in the case of Pikka, royalties). Does that mean that we should change our tax structure to get more money?

Maybe, maybe not. It might also mean that those types of projects end up not getting built. With the oil industry changing so that the quick cash from small projects has moved down south, that leaves Alaska in the position of depending heavily on large projects with long lead times. That is what our oil tax structure is geared towards. At the same time, raising taxes while telling industry that we want them do invest more in the state is a mixed message.

So what about growing other industries to get more money for the state? I’m all for growth of industry, but let’s be honest about what each will bring to the state coffers.  They aren’t pretty either. Mining appears to be poised to grow, both for traditional metals like gold and silver as well as rare earth elements. But the mining tax for the state is small. The larger impact is usually much more important to local communities through property taxes.

More importantly, the capacity in mining to make up for the drop in oil revenue just isn’t there. As one example, Kinross (which operates the Ft Knox mine outside of Fairbanks and the Manh Choh mine outside of Tok) recently announced they made roughly $132 million in profit in the last quarter of 2025 before accounting for taxes and royalties.

In contrast, ConocoPhillips announced it made $730 million in profit after paying $1.3 billion in taxes and royalties to the state and federal governments during the same time period. More importantly, high costs like electricity rates are making Ft Knox less attractive to future investment to keep the mine open compared to lower-cost operations in places like Nevada. That poses a challenge if we think we can make more money from mining by increasing the taxes.

Fishing is a traditional industry for the state that contributes to the state budget, but its capacity is also limited. We are facing collapsing stocks across the state, and we have families that have been fishing for generations going under or getting out. There are things we can do (mostly at the federal level) to improve the situation, but it will take years and likely still won’t contribute a significant amount more to the state’s coffers.

Outside of these industries, no other business meaningfully contributes to state revenue. Many others (like tourism) are significant sources of tax dollars for local government, but not the state. In a sense, every other industry is a net drain on state revenue because they attract people to work here who require state services such as road maintenance and public safety.

The simple version is that we cannot grow the private sector to fix our state’s fiscal situation. Every one of these things would be great for the private sector growth and would help stop the outmigration of working-age people. But under our current structure, we don’t have any mechanism that directs money out of the state’s private sector into government the way that a broad-based tax does in most states. That doesn’t fix the incentives caused by a lack of connection between the private sector and government. I absolutely want to grow our private sector, but I also want to be completely honest about what that does in our current fiscal system. It won’t bring in any significant revenue; instead, it will just add more pressure to spend.

Looking at the one industry that does significantly contribute to state revenue, let’s think about what it would mean to try to grow our oil and gas sector. Besides all of the issues with oil taxes and how long we have to wait for meaningful revenue to make it into state coffers, increasing our economy’s reliance on oil has other side effects. It leaves us dependent on outside forces like international oil prices, federal permitting, and financial decisions made by international companies far away from Alaska. It leaves us as Alaskans in a passive state at best and a victim mentality at worst.

It’s also not great for our job market. Oil is a capital-heavy industry and is becoming even more so as technology advances. Over the last decade or so, oil has contributed roughly 20% of our state’s GDP, but it only provides about 4% of our jobs.

Please do not hear what I’m not saying. I want us to drill for every barrel of oil that we can economically. We are going to be dependent on resource extraction for a while. But we need to concentrate on what we can do to expand away from straight resource extraction, whether that would mean value-added processing of our resources or completely unrelated industries. We’re not getting rid of oil and gas any more than Kansas is getting rid of farming, but we need to diversify beyond oil.

The problem is that we need to do now what we should have done 50 years ago. We hitched our wagon to oil, and, other than the creating the Permanent Fund, we didn’t acknowledge that oil would shrink eventually. It would have been easier to make these changes before we had built up both the government spending and the economic structure based on oil, but we still need to make this switch even with all of the pain that it will involve.

We have to give state government a reason to care about the economy because that is where they get their money from. We have to put our resource wealth in the hands of individuals rather than directly into the hands of government, with individuals getting scraps.

Our economy needs more people making long-term, economic decisions rather than short-term, political decisions.

Senator Robert Myers was born in Fairbanks and spent much of his young childhood at the Salchaket Roadhouse, owned by his parents. He attended the University of Alaska Fairbanks, where he studied philosophy, political science, and history. While in college, he drove for a tour company, sharing  Alaska with countless visitors. He currently drives truck and travels the Dalton Highway (Haul Road) frequently. He ran for office because he wants an Alaska his children will choose to make their home down the road. When not working for his Senate District B, North Pole, he enjoys reading, history, board games, and spending time with his wife Dawna and his five kids.

Sen. Robert Myers: Why is our state’s economy flat outside of oil and government?

Sen. Robert Myers: Why is the Permanent Fund managed for steady spending instead of maximum returns (and why we’re not Norway)?

Sen. Robert Myers: If the Permanent Fund dividend is so important, why do we keep cutting it?

Sen. Robert Myers: Why do so many Republican legislators support higher spending?

Sen. Robert Myers: With so much money in government per state resident, why don’t we build anything meaningful?

Sen. Robert Myers: Why do we spend so much money but have such poor quality services?

Sen. Robert Myers: Why is it so impossible to cut spending unless the state runs out of money?

Sen. Robert Myers: Why does Alaska hold all of the subsurface mineral rights?

Sen. Robert Myers: Why does Alaska look so good on paper, but perform so badly?