The Institute of Social and Economic Research (ISER) has published the update for the State of Alaska’s Maximum Sustainable Yield for FY16. Each year, Dr. Scott Goldsmith outlines the amount the state can afford to spend as part of the general fund. This outlines how much the state can spend without risking valuable petroleum assets.
For FY16, Goldsmith predicts that the state can spend $4.5 billion, which is less than the $5 billion that he predicted last year. The sustainable spending level is lower than last year due to the decrease in expected oil revenues. Goldsmith notes that the state should be moving towards sustainable spending due to the drop in oil revenues. “Budget cuts will affect the economy, which relies heavily on state money – so the cuts should be gradual rather than precipitous.”
The FY16 update has an interactive model that helps readers understand Alaska’s fiscal challenges and see the implications of different assumptions about state revenues and fiscal policies. Download the model at www.iser.uaa.alaska.edu/
The state is currently over spending what can be sustained in the future. This issue is top of mind due to the significant drop in oil prices during the last half of 2014. Goldsmith’s model recognizes ups and downs and the spending is still too high to maintain. If the state does not move towards sustainable spending, the Permanent Fund will be depleted. The Permanent Fund comprises the largest part of the state’s nest egg. As with any fiscal changes, the longer the state waits, the harder the changes become. It is much easier to make small changes, than it is to make sweeping cuts across the whole budget.
The state budget must be brought to a sustainable level soon and Goldsmith provides a strong case for the maximum sustainable yield in the FY16 update.
For further information about Maximum Sustainable Yield, visit: http://www.iser.uaa.alaska.edu/Publications/webnote/2015_01-WebNote19-2016MSYandMODEL.pdf
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