By Mouhcine Guettabi, assistant professor of economics, Institute of Social and Economic Research, UAA
When oil prices were high, the state government collected billions of dollars in oil revenues every year—and it shared a lot of that money with Alaska’s local governments. State aid helps pay for general government expenses and school operations, as well as municipal bond debt for school construction. And in the years when oil revenues were high, the state also paid for hundreds of local capital projects.
But since 2013, much lower oil prices have left the state with a huge hole in its budget, and in the most recent years the state has been cutting aid to local governments. In 2015, for example, the legislature put a 5-year moratorium on paying any share of new school bond debt, and in 2017 the governor vetoed part of the state reimbursement for existing debt. The state’s community assistance program (formerly called revenue sharing) in the most recent fiscal year was about half what it had been two years earlier. The state capital budget has shrunk to a small fraction of what it was a few years back.
How vulnerable are Alaska’s local governments to continuing cuts in state aid? In the summer of 2017, I analyzed how much Alaska’s 19 borough governments rely on state aid. The analysis looked at changes in state aid to borough governments between 2000 and 2015. It found:
- Boroughs as a group depended twice as much on state dollars in 2015 as they had in 2005. The average share of borough revenues coming from the state increased from 12% to 28% over that decade. But among individual boroughs, that share varied widely. On average from 2000 through 2015, the share of revenues from the state varied from 4% in Anchorage—which has a far bigger tax base than any other borough—to more than 35% in several boroughs with small tax bases.
- State aid also helps support local government jobs—which in turn are important to local economies. In 2015, local government jobs made up roughly 8% to 10% of all jobs in the larger urban areas, but as much as 60% of all jobs in more remote places.
- If borough governments had to replace the state dollars they received in 2015 with local tax dollars, residents of individual boroughs would have to pay anywhere from $250 to nearly $5,000 per person in additional taxes.
This research was funded in part by a grant from Northrim Bank. Download the report, A Regional Assessment of Borough Government Finances and Employment (PDF, 1.8MB). If you have questions, get in touch with Mouhcine Guettabi at [email protected] or 907-786-5496.
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