Alaskanomics

Is Alaska on a path it can't sustain? "Growing spending and falling revenues are creating a widening fiscal gap," according to ISER.

The University of Alaska's Institute of Social and Economic Research (ISER) recently published the FY 2014 Update on the Maximum Sustainable Yield. In this update, Scott Goldsmith writes that Alaska's state government can afford to spend about $5.5 billion in fiscal year 2014, based on the petroleum net egg of about $149 billion.  ISER presents the latest estimates of the maximum amount Alaska can spend while maintaining a sustainable budget. 

"Right now, the state is on a path it can't sustain," writes Goldsmith.  "Growing spending and falling revenues are creating a widening fiscal gap." 

Right now it looks like the state continues to increase spending, even though estimates are pointing toward a looming fiscal crunch after 2023.  According to Goldsmith, the state should save more and restrict the rate of spending growth - and start doing it now.  It's estimated that if Alaska had $117 billion in cash reserves and the Permanent fund by 2023, we would be on a sustainable path far into the future.  The reality is that today we have half that much in financial assets.  

To read the full report, click here.

October 12 summary of recent economic news for Alaska

In energy news, Alaska Governor Sean Parnell issued a press release October 3 outlining progress by Alaska's three major oil producers in advancing an Alaska LNG project. The letter from the producers and TransCanada estimates total project costs at $45 to $65 million. The news received extensive coverage, from Bloomberg, Reuters and others. Meanwhile, Cheniere Energy in Louisiana made a deal to sell LNG at Henry Hub pricing, which undercuts potential long term LNG contracts based on the price of oil. Shell, which started drilling in the Chukchi Sea in early September, began drilling in the Beaufort Sea on October 3. Baker Hughes released September rig count data showing Alaska with 6 land rigs and 1 offshore rigs working, one more than the August count. Golden Valley Electric (GVEA) and the EPA signed a consent decree to allow GVEA to restart the Healy Clean Coal Plant. GVEA's timeline to restart the plant is 18-24 months. On October 4, Alaskans received a total of $567 million in Alaska Permanent Fund dividends. Yesterday, Alaska Airlines ordered 50 new Boeing aircraft worth $5 billion.

For "maximum sustainable yield" of Alaska's oil resources, ISER research shows state budget is $1.2 billion too high

In a web note published this month by the University of Alaska Anchorage Institute of Social and Economic Research (ISER), economist Scott Goldsmith examines the concept of "maximum sustainable yield" applied to Alaska's petroleum resources. With oil production dropping, and state General Fund spending growing 8% per year, the state's savings accounts - perhaps including the $40 billion Permanent Fund - will be the only funds available to make up the difference.

Given the "revenue generating capacity" of Alaska's economy, Goldsmith writes that state spending is too high and growing too fast. The General Fund budget must be adjusted downward, but the amount of the adjustment depends on many factors:

• How Alaska's citizens choose to share the state's petroleum wealth with future generations
• The amount of money yet to be collected from future oil and gas production
• What the state's financial investments will earn
• How the Permanent Fund principal and earnings will be used in a fiscal plan

The web note's analysis shows that Alaska's FY2013 budget (the budget approved by the legislature in April 2012 that runs from July 1, 2012 through June 30, 2013) is $1.2 billion too high for "maximum sustainable yield."

 

 

Oil accounts for 92% of Alaska's general fund spending; highest percentage in history

A new report by Scott Goldsmith for the UAA Institute of Social and Economic Research (ISER) analyzes Alaska's oil revenues and spending since Alaska North Slope oil began flowing through the Trans Alaska Pipeline.

The state has collected $170 billion in oil revenues since 1977 (in today's dollars), and $141 billion of those revenues were initially deposited into the General Fund - accounting for 85% of General Fund revenues since 1977. For 2012, the share was 92% - the highest share ever.

With no personal income or sales tax, and limited revenues from non-petroleum sources, Alaska is highly dependent on one source, and a handful of taxpayers, to fund state government. 

Alaska's Population Turnover Among Highest in Nation; 30,000 arrived, fewer left in 2010

The April 2012 issue of Alaska Economic Trends, published by the Alaska Department of Labor, analyzes Alaska's "highly migratory" population with data from several sources - the Alaska Permanent Fund Dividend, IRS data, and census data. IRS data, from addresses on federal tax returns, shows that 30,000 people moved to Alaska from 2009 to 2010, and about 27,000 moved out of Alaska. The states with the highest number of residents moving to Alaska include:

• Washington with 2,804
• California, with 2,674
• Texas, with 2,266
• Florida, with 1,292

The article also notes that Alaska consistently attracts more people in the 21 to 35 age range than it loses, and 72% of 18-year-old PFD applicants are still in Alaska five years later. About 38% of Alaskans were born here, up from 31% in 1960 - but that is much lower than the national average of 59%.