Don’t Confuse Alaska’s State Government Budget with the Alaska Economy

If you listen to the rhetoric in Juneau, the focus appears to be on the State government budget and legislators working to maximize the dollars that flow to Juneau.  That amount has been growing significantly over the past several years and has led to large spending increases that seemingly put government budgets on an unsustainable path.  Oil production continues to decline and the high production tax rates at the current high prices are leading companies to invest more elsewhere.

It’s important to not confuse the State government budget with the Alaska economy.  The State and Federal budget only account for under 10% each of our total gross state product, and the private sector accounts for about 81%.  We need to broaden our focus so that we are not looking through the prism of Juneau, rather what’s best for the overall economy.  This includes high-paying jobs in the private sector, opportunities for construction and service-based industries, and infrastructure development projects. 

Capital investments from the large natural resource companies are what drive our economy, and our largest industry is oil and gas.  Uncompetitive tax structures may bring in large State revenues in the short term, but dampen private sector investments in the long run and hurt the largest part of Alaska’s economy.  Government revenues are a result of a successful economy; not its purpose.  If the private sector is thriving, there will be plenty of options for the government to obtain the revenues it needs for operations.

We recently spoke at Northrim Bank’s annual economic luncheons in Fairbanks and Anchorage with an update on our economy and the opportunities before us.  We were joined by Bob Heinrich of ConocoPhillips who presented their challenges and opportunities in Alaska.  Click Here to view the presentation on Alaska’s economy.

Comments

[Mark Edwards]

Norway has been producing significantly more oil than Alaska for nearly three decades. At its peak, nearly 3.5 million barrels per day and they maintained over 3 million bpd for a decade. So at times they were producing 5 times the amount of Alaska. Also, Norway is the Federal entity in this equation, whereas Alaska only receives the state royalty on state lands. We are not the recipient of the Federal tax portion. So you would have to include Alaska plus the US government for a fair comparison. Alaska also chooses to save a portion of the royalty and spend the production taxes for current operating and capital budgets to pay for state government services. Alaska residents end up paying less than 10% of the cost of their state government general fund budget.

[Kerwin Tschetter]

How is it possible that Norway's “oil fund,” is at $710 Billion while our Alaska Permant fund is stuck at $40 Billion?