Alaska’s history in perspective: Before, things were tough, Alaskans had faith “something big would happen”

Things were not going particularly well for Alaska in the mid-1960s, just before the Prudhoe Bay oil discovery. Money was tight for the young state government. Revenue from Cook Inlet oil production was just starting to come in but Alaskans were paying heavy taxes, including an income tax.

Jobs were scarce. Military construction, fishing in coastal communities and a few mines provided mostly seasonal employment. Only Southeast Alaska had a real economy thanks to a timber industry strong at the time. Native Alaskans in rural communities lived in poverty, at least in terms of cash income.

The state budget had less than $100 million a year to spend and when a major flood hit Fairbanks in 1967 the state had no reserves for the emergency, recalls Mike Bradner, a state legislator at the time. The Legislature had to enact a temporary tax increase on Cook Inlet oil to help Fairbanks cope.

Statehood, gained in 1959, had set up expectations, but they were slow to be realized. “Alaskans still had faith – they felt something ‘big’ would happen,” said Judy Brady, then a Fairbanks resident.

Oil exploration was underway on the North Slope, however, and in 1968 drilling began at Prudhoe Bay on a prospect that some geologists felt earlier to be not promising.

They were wrong. Atlantic Richfield, Humble Oil and BP found the largest oil field in North America. Alaskans were excited, but they really didn’t understand its significance.

“We didn’t know what it meant, and how could we?” Brady said. “We knew about mining, timber and fishing. We were storekeepers,” she said.

The scale of the discovery didn’t hit home until a state lease sale in September 1969 that auctioned Prudhoe Bay tracts not bid on earlier. It brought in $900 million, an astounding sum at the time.

Alaskans’ response was cautious but people realized basic public services – water and sewer, roads, and better schools – might now be possible. The Legislature convened a blue-ribbon committee of Alaskans, coordinated by the Brookings Institute, to map out a plan to use the new oil wealth.

The conference produced ideas the Legislature adopted, including a school “foundation” program to share state money with cash-strapped local schools; a student loan program; revenue-sharing with local municipalities and a “longevity bonus” for elderly Alaskans. Most of these still exist in modified forms.

Bill Egan became governor in 1970 for a second time. Being notoriously tight-fisted, Egan fended off calls to spend the $900 million on development projects.

“Egan ran the state like he ran his general store in Valdez. He was very careful in watching money coming in and going out,” said Eric Wolfforth, Egan’s Commissioner of Revenue in 1971. “We had to sell him whenever we wanted to make a business trip.”

Egan did loan money, however, to help new Alaska Native corporations formed by the 1971 Alaska Native Claims Settlement Act get organized.

Wohlforth and others were still able to lay the foundations for economic growth, however, mostly by establishing independent state corporations that could borrow on Wall Street to finance Alaska projects. By then Prudhoe was discovered, and the state had credit.

The Alaska Housing Finance Corp. started in 1971 with a modest state investment to help leverage out-of-state money for home loans. The Municipal Bond Bank Authority came in 1975, allowing local governments to pool their bond sales with state coordination, which brought lower interest rates. The Alaska Industrial Development and Export Corp. was founded to help business and private infrastructure projects.

By 1975 Alaskans sensed that huge oil revenues would appear once Prudhoe Bay started up. Legislators worried they would not be able to withstand constituents’ pressures to spend the money.

“The idea of a Permanent Fund, to get some of the money into a savings account, was debated in the 1960s,” said Bradner. But this time it happened. A constitutional amendment creating the Permanent Fund was approved in 1976.

There were indeed demands for projects, and programs did happen after Prudhoe Bay was bringing revenues to the treasury, but now part of the money would be saved.

Thanks to Alaskans’ foresight, the Permanent Fund and the “alphabet soup” of state development agencies remain strong today, a permanent legacy.

Tim Bradner is an Anchorage-based business writer