Gov. Palin's political future tied to Alaska economy

"It's the economy, stupid," is a phrase from Bill Clinton's campaign "war room" which has become a familiar part of the political lexicon. There's a lot of truth in it. Office holders are judged on the relative health of the economy in their jurisdictions whether they have any control over it or not. Perception is everything.

Case in point - the McCain-Palin ticket was doomed by a financial crisis which was a harbinger of the economic downturn in which the nation now finds itself. Sen. John McCain was perceived more as part of the problem than part of the solution. Had he taken a principled stand in opposition to the financial bailout, some analysts believe that the results of the 2008 election could have been different. Indeed, public opinion polls showed the McCain-Palin ticket actually enjoying a modest lead until the bottom fell out of the financial market. It may not have made enough of a difference to catapult McCain into the White House, but we will never know. One thing is for certain. The Arizona Senator did not help the cause of his ticket by suspending his campaign, returning to Washington and taking basically the same stance as his opponent on the financial bailout.

A large part of how Sarah Palin's first term as governor will be judged depends on Alaska's economic fortunes. Her state's economy hasn't been hit as hard as some others, but the 49th state has not endured the recession without some problems. However, there are some signs that Alaska's economy may be headed for an upturn.

The first indication is the unemployment rate. A recessionary economy loses jobs, and that has been an increasing trend nationwide. In Alaska, however, the seasonally adjusted unemployment rate, which was at or near the national rate, fell to 8 percent for the month of April. It's a seasonal decline, as Alaska typically adds construction and tourism jobs this time of year, and the governor can take no more credit for the rebound than she could be blamed for the decline. But remember, perception is everything. If Alaska can just manage a lower unemployment rate than the national average, it will be seen as a positive for Gov. Palin.

By vetoing $80.3 million from the state budget, even including $28.6 million in federal stimulus energy funds, Alaska's governor is again staking her claim to fiscal conservatism. Part of the reason for the better than 80% approval ratings Gov. Palin enjoyed prior to campaigning for John McCain can be directly traced to the spending vetoes she made in her first year in office. In the midst of the current recession, she is taking the prudent course by demonstrating fiscal restraint as governor.

Another factor over which Gov. Palin has no control is the stock market. But the recent rebound in stock prices should make a positive contribution to her political success. An improving stock market has made a difference of billions of dollars to the Alaska Permanent Fund. Not only is this likely to increase dividends in future years, but it also may ensure that Alaskans will be able to cash a dividend check this year. Though still below its peak of over $40 billion prior to last year's market slide, the fund had recovered as of Wednesday back up to $30.4 billion. Voters with dividend dollars in their wallets are happier voters than those without.

But the factor that may have an even greater impact on how Sarah Palin's stewardship of Alaska is perceived is the price of oil. Since the state's funding is derived not by taxing its citizens and small businesses but from oil revenues, Alaska's fortunes are closely tied to the price of oil. And the price of North Slope crude has risen 40 percent in just the past month. Closing at $60.19 a barrel Wednesday, it’s the first time the barrel price of Alaskan oil has surpassed the $60 mark in more than six months.

There are several reasons for the rise in oil prices. A new report from the U.S. Energy Department released Wednesday showed that crude oil stockpiles declined by 2.1 million barrels for the week ending last Friday. Refinery fires, optimism in the equities markets, variations in the strength of the dollar and the advent of the "driving season" with the Memorial Day holiday are some of the other contributing factors.

Generally speaking, crude oil prices in the $70 to $80 range are what Alaska needs. It allows the state to to refrain from making withdrawals from its $6 billion savings account and eliminates the need for draconian budget measures. It is also the range cited by the oil companies as the point at which they spend money on investments, resource replacement and ramped-up production. At $60, Alaska isn't quite there yet, but things look much brighter at this price point than they did when oil prices bottomed out in the first quarter. 

The price of oil is just one more factor over which Gov. Palin has no control. But the prudent steps she and the legislature had previously taken to set aside billions in a "rainy day" fund and the fiscal restraint she is showing in dealing with Alaska's budget bode well for a positive verdict ultimately for her first term as governor. This should send her approval ratings back up and propel her towards a second term by a margin of votes sufficient enough to be seen as comfortable at the least. Should she harbor ambitions for national political office, as many believe she does, all of this should work in her favor.

- JP