Alaskanomics

A most unusual recession

By: Ralph Townsend

 

The recent economic news in Alaska and the US has been dominated by two stories:  the challenges that firms confront in hiring, despite significant unemployment, and supply chain disruptions.  These events lead to the obvious question: Why is this recession so different?

The current recession was born in a uniquely explosive burst.  The unemployment rate jumped more than 10%, from 4.4% to 14.8%, in the single month between March and April of 2020.   But the fiscal response to this recession was equally unique and decisive.  On March 27, 2020, before that disastrous April had even started, Congress enacted the $2.2 trillion CARES Act by essentially unanimous agreement. 

Additional rounds of stimulus have brought the total to $5.2 trillion.  The federal stimulus ultimately included an extra $300/week for unemployment benefits, extension of unemployment benefits to gig workers, the Payroll Protection Program, three rounds of stimulus checks totaling $3,200 per person, an enhanced child tax credit, and large transfers to states, communities, tribes, and non-profits.  Similar fiscal response by governments around the world also avoided a world-wide recession that could have dragged the US economy down.  By October 2021, the unemployment rate had fallen to 4.6%, despite the resurgence of the delta variant. 

The starkly different experiences in the Great Recession highlight the uniqueness of the current recession.  The pain of the Great Recession developed gradually, but inexorably, over 2 years as unemployment increased from 4.4% in May 2007 to 10.0% in October 2009.   It took almost 2 years for Congress to enact the American Recovery and Reinvestment Act (ARRA) in February 2009.  The lack of bi-partisan support for ARRA (only three Republican Senators voted for the bill) reflects the equivocal nature of support for that recovery plan.  There is wide agreement among economists that ARRA was “too little, too late.”  Recovery from the Great Recession was painfully slow:  It took almost a decade, until February 2017, until unemployment returned to 4.4%. 

The decisive and immediate fiscal response gave this pandemic recession a truly distinctive feature:  personal income and wealth increased significantly during the recession, even though unemployment jumped a historic 10% in a single month.   Total personal income increased by 6.9% from 2019 to 2020.  This robust growth has continued into 2021, with reported third quarter personal income now 11.9% ahead of what it was in 2019.  Family wealth has also increased significantly.  The S&P 500 Index is up 42% from February 1, 2020, to November 1, 2021, which will fuel large retirement income gains for those with defined contribution pension assets.  The S&P Case-Shiller Home Price Index is up 24% from February 2020 to August 2021, so families with homes have gained significant equity.  Data from the New York Federal Reserve Bank indicates that credit card debt balances fell 14% between the fourth quarter of 2019 and the third quarter of 2021, so families are also reducing the liability side of their personal balance sheets.  Of course, the total figures hide the deeper information that a sizable portion of the population has been very negatively impacted by the pandemic recession.  The median earnings data, which excludes transfers like unemployment and the stimulus checks, provide a clear sense of the unevenness of the impact of the recession.  While the median earnings of all workers fell 1.2% between 2019 and 2020, the median earnings of those working full-time increased a very substantial 6.9%.  And for many of those with full-time jobs, the shift to at-home work meant fewer job-related expenses.

The strong wealth and cash position of many American families probably explains part of current challenges for employers in labor markets.  A key factor for labor markets has been the decline in labor force participation rate, from 63.3% in February 2020 to 61.6% in October 2021.  While this 1.7% decline may not seem large, labor force participation normally is very stable, and this decline is historically unprecedented.  Two important forces are driving that decline.  First, the labor force participation for older workers, who are part of the baby boom generation that has dominated the work force for fifty years, declined significantly.  This is not unusual during recessions; older workers who lose their jobs opt for retirement in all recessions.  But the combination of serious coronavirus risk for older workers and the substantial gains for defined contribution retirement plans provides both a push and pull for those considering retirement.  Second, employees are understandably reluctant to return to some workplaces because of continuing coronavirus risks, confrontations with co-workers and customers over vaccines or masks, and childcare challenges.  Given strong balance sheets and cash reserves, some families can afford to sit on the sidelines for a few months while these forces resolve themselves.  And while the empirical evidence is thin, there is widespread talk of a “Great Reassessment” of work/family balance and personal life goals.  Finally, many are pleased that tight labor markets are raising the incomes of non-college-educated workers for the first time in a generation.

The higher income for families has also contributed to the current pandemic supply chain disruptions in two ways.  First, the level of demand for goods and services has not fallen, but there are fewer workers to produce those goods and services.  Second, families have changed what they want during this pandemic.  The demand for services like dining out and entertainment have been replaced by demand for goods like food to prepare at home, sporting goods, and electronic equipment.  Families where both adults and children are spending more time at home are looking for larger, more comfortable homes.  Those additional physical goods need to be produced and delivered to customers.  Much of that production is in Asia, which has also been impacted by the pandemic.  The supply chains were simply not large enough to absorb this surge in demand for goods, and transportation firms face their own labor market challenges.  Small changes and disruptions that firms previously had the resiliency to manage are cascading into serious disruptions.  It will take time for the economy to adjust to those changes and to work through the supply chain issues.

For those thinking about the next step in the fiscal response to this recession, looking back to experiences in previous recessions may be of limited value.  The strong growth in income and wealth have made this a truly unique recession.  And whether the pandemic recedes or resurges will greatly influence the immediate future of the economy.  Repeated surges like the delta variant will keep employees on the sidelines and will continue to tilt the mix of goods and services demanded by consumers.  If stimulus is withdrawn and new variants of the virus emerge, do we risk the long tail of economic pain that we saw in the Great Recession?  And while both the Biden administration and the Federal Reserve insist that the current inflationary pressures are transitory, there is the underlying fact that the US economy is expecting more goods from a workforce that is reduced in the US and in much of the world.  The very uneven pain of this recession leads to questions about whether the appropriate stimulus going ahead needs to be better targeted at those whose incomes have actually declined.  Looking further down the road, is reform of childcare delivery required to reverse the decline in labor force participation?  Fiscal and monetary authorities are peering through a very cloudy crystal ball caused by a very unique recession.

On the Alaska budget: A historical comparison

By Mouhcine Guettabi, PhD

In this brief, we summarize the state’s unrestricted general fund revenues, agency operations spending, and capital budget spending between fiscal years 1975 and 2021. The severe decline in oil prices in 2015 resulted in a significant revenue decline which has then resulted in spending reductions at both the agency operation level and the capital budget. For fiscal year 2021, capital spending per person will be the third lowest since 1975 and Agency Operations will be the sixth lowest in real dollars.

Alaska’s revenue picture over the years

Alaska’s unrestricted general fund revenues have considerably fluctuated over the years largely due to changes in oil prices and production. When evaluating the revenue picture and assessing the real value of the state’s inflows, it is important to account for both population and inflation as the population has significantly increased and the value of a dollar decreases over time. In figure 1, we show that the state’s revenues inclusive of the permanent fund draw will be $2,920 per person in fiscal year 2021. The historical average between 1975 and 2021 stands at $3,659 dollars per person which is $729 above this year’s revenues. Additionally, it is obvious from the graph below that failure to account for inflation provides a very misleading picture.

Figure 1

Agency operations:

    Next, we evaluate agency operations per person. We find that Average real per capita agency operations between 1975 and 2021 is $6,158 dollars.  In FY 2021, real agency operations per capita spending is expected to be $4,971 which will be the 6th lowest since 1975. That spending level is $1,187 per person below the average.

Figure 2

Capital spending

    Average per capita capital spending in nominal terms between 1975 and 2021 is $696.9. Once we adjust for inflation, we find that the average capital spending is $1,152.  Fiscal year 2021 per capita capital spending level in real dollars will be the third lowest since 1975. It is now $979.23 per person below the average. In real terms, it is expected to be $172.97 per capita in FY 2021. Capital spending per person has declined from $829 to $184 per person between 2015 and 2021. That represents a $644.64 decline per person.

Figure 3

Takeaways:

It is clear from the three graphs above that Alaska’s revenues, agency operations, and capital spending are well below historical averages. Absent new revenues, the state’s revenue picture is unlikely to change in the near future which makes maintaining the current services and paying a statutory dividend unsustainable.

Alaska's Economy and Budget

By: Mouhcine Guettabi, PhD

A year in review:

In 2019, the Alaska economy emerged from a 3-year recession after losing more than 11,000 jobs between 2015 and 2018. The recovery has, however, been modest as employment averaged 0.4% or 1,400 more jobs between January and November 2019 relative to the same period last year.  Oil & Gas and Construction have led this growth as they averaged 510 and 720 more jobs, respectively. It is also important to note that the recovery has been uneven. While we only have borough level data until the month of June, figure 1 shows that a considerable number of boroughs/census areas were still losing jobs as of June 2019.

Figure 1: Employment changes at the borough level between June 2018 and June 2019 (Click graphic to enlarge)

At this pace of recovery, it will take more than 8 years for the Alaska economy to return to pre-2015 employment levels. The economy’s health is partially dependent on government spending, taxation, and dividend decisions. Based on the budget finalized in August 2019, the unrestricted general fund was reduced by $462 million dollars. However, according to proposed budget issued on December 11^th, 2019, the FY 2020 will have a supplemental budget of 225 million dollars mainly consisting of Medicaid and Fire related spending. These two pieces of information tell us that the unrestricted general fund budget was reduced by $237 million dollars.  From an employment perspective, state government in 2019 averaged about 240 fewer jobs than in 2018 with losses accelerating after July due to University layoffs. As of now, we do not have data to determine the economic consequences from the ferry service cuts. In the next two sections, we turn our attention to the budget for FY 2021 and our employment forecast.

Alaska’s revenue and proposed budget

According to the Alaska Department of revenue, the unrestricted general fund revenue will total $5.059 billion dollars with 62.12% coming from the permanent fund draw. This revenue is before accounting for any dividend distributions. On the appropriation side, the proposed budget for FY2021 includes $4.396 billion dollars for the operating budget, $135.6 million dollars for the capital budget. It also includes paying out a statutory dividend which would require $2.005 billion dollars. Using these figures, the preliminary shortfall for FY 2021 is supposed to be $1.547 billion dollars which is expected to be withdrawn from the Constitutional Budget Reserve (CBR). It is important to note that using such a withdrawal would leave only $542.4 million dollars in the savings account.

Figure 2: Alaska’s sources of revenue for FY 2021 (Click graphic to enlarge)

According the Department of Revenue’s forecast, the state unrestricted revenues between 2019 and 2029 will be between 5 and 6 billion dollars making the deficit a structural and not a temporary issue. Additionally, as we show in figure 3 the share of revenues coming the permanent fund withdrawal will represent around 2/3 of the state’s revenues going forward.

Figure 3: Share of revenues by source (Click graphic to enlarge)

What do we expect for the economy in 2020 and beyond?

Absent significant negative shocks, we anticipate the Alaska economy to continue its slow recovery. For 2020, employment is expected to grow at around 0.7% which amounts about 2,200 jobs. This continued growth will be once again driven by North Slope activity along with construction activity. Additionally, the strength of the national economy will continue to bolster Leisure and Hospitality and the general tourism industry. Healthcare, education will face some uncertainty as they are significant parts of the budget and therefore will be susceptible to possible cuts.  Additionally, state and local government will be a drag on the economy as the state continues to deal with fiscal pressure.

Figure 4: Employment forecast 2019-2025 (Click graphic to enlarge)

Future Investments

According to the state's Office of Management and Budget, the state already has a backlog of $2 billion in deferred maintenance, which is growing by $150 million to $400 million annually. To get a sense of the decline in capital spending, we examine how capital spending per capita has changed over time. In figure 5, we show that the average capital spending between 1975 and 2021 is $1,152. For fiscal year 2021, per capita capital spending in real dollars is expected to be $172.97 will be the third lowest since 1975. Between 2015 and 2021, the decline in capital amounts to more than $600 per person.

Figure 5: Per Capita Capital Spending between 1975 and 2021 in Real Dollars (Click graphic to enlarge)

Economic Impacts of the Vetoes on the Alaska Economy

By Mouhcine Guettabi and Nolan Klouda

On June 28, 2019 Governor Mike Dunleavy announced line-item vetoes totaling $409 million from the State of Alaska budget for Fiscal Year 2020. These vetoes include significant cuts to the University of Alaska, Medicaid, payments to local governments, public assistance programs, state personnel headcounts, and numerous other categories. The full consequences of these cuts on the state economy, fiscal health, population, and policy outcomes will take years to develop. In this paper, we provide the short term impacts of the cuts, how they interact with the current state of the economy, and a descriptive outlook of the some of the future effects. We find the cuts will result in more than 4,000 jobs lost in the short run and will therefore return the Alaska economy into recession. While the short term losses represent a considerable negative shock to the economy, the consequences of these cuts on long term development could be even more pronounced.

Presentation give to Anchorage Chamber of Commerce July 8, 2019

Full report

What does the future hold for the Alaska economy?

By Mouhcine Guettabi, 

The U.S. economy is convincingly in an expansionary phase, and is nearing peak growth rates for the current business cycle. Job creation has been consistently strong for an extended period, and unemployment rates have now returned to pre-recession levels. Recent stock market volatility has, however, raised questions about the near term outlook for the U.S. and other large economies. The health of the U.S. economy is important for Alaska not just because residents from other states visit Alaska, and purchase goods made in state but the state's most important financial asset - the permanent fund- is widely invested and therefore sensitive to nationwide shocks. During this national economic resurgence, the Alaska economy has experienced multi-year job declines and is in the midst of its longest recession to date. In fact the state was growing slowly even before the drop in oil prices. To be exact, between 2010 and 2015 the Alaska economy grew, on average, at 0.92%. Since the start of the recession, the state lost 1.82% of its jobs in 2016 and another 1.25% in 2017. The graph below shows our forecast between 2018 and 2025 for the state. It is important to note that we assume 60 dollar oil prices and only moderate state government employment reductions. Large budget reductions have the potential to change these outlooks drastically.

We expect employment to decline by 0.8% in 2018 and anticipate positive growth in 2019 equaling 0.793%. Between 2019 and 2025, we anticipate employment growth to average 0.68% per year. We also provide forecasts for Anchorage, Fairbanks, Juneau, and the Matanuska-Susitna Borough.

 

Anchorage:

We anticipate that the Anchorage economy will track the state as it has in the last decade:

Anchorage grew, on average, at 0.74% per year between 2010 and 2015. Since the start of the recession, Anchorage lost 1.909% in 2016 and 1.30% in 2017. The Anchorage economy is expected to evolve similarly to the state as a whole which is not surprising given that it represents half of the labor market. Specifically, we anticipate growth to average 0.64% per year between 2019 and 2025.

 

Fairbanks:

The Fairbanks economy is expected to outperform the state for the next few years:

Fairbanks grew, on average, at 0.29% per year between 2010 and 2015. Since the start of the recession, Fairbanks lost 1.58% in 2016 and 0.55% in 2017.We anticipate that the Fairbanks economy will outperform the state between 2019 and 2022 as a result of the boost of activity caused by the F-35 related construction. The average growth between 2019 and 2025 will be 1.062%.

 

Juneau

Due to its dependence on state government, we expect the Juneau economy to grow slower than the state average.

Juneau grew, on average, at 0.39% per year between 2010 and 2015. Since the start of the recession, Juneau lost 0.27% in 2016 and another 0.96% in 2017.We anticipate that the Juneau economy will grow slower than the state. Specifically, we expect the average growth rate between 2019 and 2025 per year to be 0.08%.

 

Matanuska-Susitna Borough:

Similar to the last decade, we anticipate that the Matanuska- Susitna Borough will continue outperforming the state.

 

Matanuska-Susitna Borough grew, on average, at 2.82% between 2010 and 2015. Since the start of the recession, the Matsu grew by 2% in 2016 and lost 0.343% in 2017.We anticipate that the Matanuska-Susitna Borough to continue outperforming the state. Between 2019 and 2025, growth will average 1.22% per year.

 

Please join us on January 9^th when a team of economists will discuss economic forecasts and the role of the permanent fund going forward. Click for more information. 

A regional assessment of the recession from 2016-2018

By Mouhcine Guettabi

A short brief on the regional dimension of the Alaska recession, part 1.

This most recession was driven by the severe decline in oil prices which caused a contraction of both government and private sector spending. Since the start of the recession, the state has lost upwards of 13,000 jobs. The state is comprised of 19 boroughs and 10 census areas which have different economic bases and varying levels of exposure to the oil industry and state government spending. Using employment data between June 2015 and June 2018, we show how each borough/census area has fared in each of the three years since the onset of the recession.

First year of the recession: June 2015 to June 2016

 

Of the 29 boroughs/census areas in Alaska, 19 experienced negative growth between June 2015 and June 2016. Below we list some of the main takeaways:

 

 – The North Slope borough given its dependence on oil jobs unsurprisingly experienced the most significant employment decline. Its employment decreased by 14.3% between 2015 and 2016.

– Of the 10 boroughs/census areas that experienced positive growth, the most impressive growth occurred at 13.73% in Haines borough. Bristol Bay and Hoonah-Angoon also experienced double digit growth rates.

 – Six boroughs experienced job declines that exceeded 5%. Those boroughs are North Slope, Sitka, Aleutians East, Lake and Peninsula, Bethel, and Yakutat.

 

Second year of the recession: June 2016 to June 2017

 

Between June 2016 and June 2017, 15 of the 29 boroughs/census areas experienced negative growth. Below we list some of the main takeaways:

– Unlike 2015-2016, the borough with the most negative growth was Yakutat Borough at -12.81%. Six boroughs/census areas experienced employment declines of 5% or larger.

– On the other side of the spectrum, Bristol Bay experienced a 38.16% increase in employment with Lake and Peninsula borough experiencing the second most significant growth at 16.70%. Five boroughs/census areas experienced growth exceeding 5%.

Third year of the recession: June 2017 to June 2018

 

Between June 2017 and June 2018, similar to the previous year, 15 of the 29 boroughs/census areas experienced negative growth. Below we list some of the main takeaways:

– Aleutians East experienced the most severe decline at 17.8% with Kusilvak losing 11.8% of its jobs.

– Lake and Peninsula and Yukon Boroughs experienced double digit growth rates.

– It is important to note that five of the boroughs/census areas that experienced negative growth in 2016-2017 turned around the following year. Those five boroughs are Yakutat, Valdez, Hoonah, Southeast Fairbanks, and Dillingham.

How do oil prices influence Alaska and other energy-dependent states?

By Mouhcine Guettabi

-How did we get here?

The Alaska economy is heavily dependent on the oil sector both in terms of private sector jobs and government funding. Since the rapid decline in oil prices, it has experienced a prolonged recession with declines in employment across most sectors. Before the end of 2014, oil prices were elevated for a long period of time when the price exceeded 100 dollars for multiple months. However, starting June 2014, oil prices experienced a deep drop averaging only $54.26 in the 4 years since. This is much lower than the $84.47 they averaged between 2006 and July 2014. While oil prices started declining in June of 2014, the first month of negative employment growth did not occur until October 2015. The state has essentially lost jobs in every month since that initial decline. This has also resulted in a precipitous drop in government revenues, which has forced the state to use savings to fill the fiscal gap. To gain perspective on the depth and severity of the Alaska experience, we attempt to compare the recessions across states and understand the features of the states which fared best and worst.

-Where are we now?

The Alaska recession has cost the state 12,500 jobs between July 2015 and July 2018. Oil and Gas, Alaska’s most important economic base, has shrunk in size. As of June 2018, it was 75.5% of its size in June 2014. April and May 2018 showed the first job gains in the sector in three years but the June employment numbers were slightly lower than 2017.

The graph above shows that employment declined by 2.2% from June 2015 to June 2016, 0.82% from June 2016 to June 2017, and 0.60% from June 2017 to June 2018. The cumulative declines in private sector employment from June 2015 to June 2018 amounted to 9,900 jobs.

It would be a mistake to characterize the small improvements we are observing in Oil and Gas, Professional and Business services, and Construction as signs of a recovery because those sectors are still considerably smaller than they were in 2014. To be exact, as of June 2018 Oil and Gas employment was 75.5% of its level in 2014, Professional and Business services was 91.6% of what it was in 2014, and construction was 86.4% of what it was in 2014. After examining all these sectors, it appears that the Alaska economy is still weak and while the losses have slowed in the initially affected sectors (Oil and Gas, Professional and Business services, and Construction), there is still significant weakness in the retail sector. In general, it would be safe to think about the economy entering the end phase of the recession with the losses now concentrated in the household dependent sectors which are typically lower paying but are indicative of household spending behavior and general confidence. It is unlikely that we will see significant growth or a recovery of the jobs lost as the government still has a non-negligible deficit and oil prices remain too low to spur a significant improvement in hiring in Oil and Gas. These two sectors are typically the catalysts of Alaska recovery and with both of them weakened, it is best to think about the state re-entering a period of low to no growth.

-How does Alaska’s recession compare to that of other energy states?

Only six of the thirteen energy states experienced economy-wide job losses. Those states are Alaska, Louisiana, North Dakota, Oklahoma, and Wyoming, and West Virginia. West Virginia’s situation is slightly different as it had been undergoing economic decline well before this most recent recession. The figure below shows the path of decline for each of the six states. We see that North Dakota and Wyoming both experienced employment declines in 2015 while the rest were still experiencing growth. Of interest is that every state in this group experienced the most severe decline between 2015 and 2016. Also, Louisiana and Oklahoma are the only two states whose employment levels in 2018 exceed those of 2014. Wyoming seems to be on the rebound as it has had a strong first portion of 2018. The table below shows that the cumulative declines across the hardest hit five states are substantial. In terms of share of employment, Wyoming and North Dakota lead the way with Alaska being third.

 

How many jobs did each state lose when the recession was at its worst?[1]

[1] We only count job losses after the beginning of the recession in each of the states.

Next, we identify the first month of negative growth for each state to determine when the recession started and then we add up the total number of months of negative growth for each of the energy states. Alaska has now had 34 months of negative growth, Wyoming experienced 27 months of decline before turning the corner, and North Dakota had 37 months of negative before June when it had it first month of growth.

Length of the recession across oil states

Alaska’s vulnerability has stemmed from both a private and public sector dependence. The most recent decision to rely on non-oil revenues to fund a portion of the government expenditures bodes well for future economic resilience to oil shocks.

-Where does this leave us?

In general, our analysis shows that the states most dependent on oil revenues both through the private sector and government revenues are the ones to have had the longest recessions. The decision in Alaska to fund a portion of government services from non-oil revenues should partially shelter the economy from future oil price drops. All the indicator variables we evaluate point to Alaska being in the tail end of the recession but the recovery of the jobs lost will be elusive as both the oil sector and the government sector are considerably smaller than they were four years ago. The future of Alaska economic development will rest on the success of the traditional basic sectors, the pursuit of new opportunities, and on whether the state can address its leaky bucket by ensuring that more of the value generated in Alaska stays in state. That will require evaluating opportunities where import substitution is possible and ensuring there is a qualified workforce that can take advantage of employment opportunities.

You can access the full report here: https://iseralaska.org/publications/?id=1725

Effects of PFDs on Poverty Among Rural Alaska Natives

A new article in the journal World Development, by Matthew Berman, professor of economics at ISER, examines how the Permanent Fund dividend (PFD) has reduced poverty among the 60,000 or so Alaska Natives living in small, isolated communities far off the road system. PFDs are cash payments the state government makes to virtually all Alaska residents every year.
 
Rural Alaska Natives are much more likely than other Alaskans to be poor, mostly because jobs are scarce in remote areas. They also face considerably higher living costs, which compounds the problem. The author found:

• Without PFDs, more than 28% of rural Alaska Natives would have fallen below the poverty line from 2011-2015, compared with about 11% among all Alaskans. With PFDs, poverty dropped to about 22% among rural Alaska Natives and 9% among all Alaskans.

• But those recent rates are higher than in 2000, when PFDs reduced poverty to 14% among rural Alaska Natives and about 6.5% among all Alaskans. PFDs have become less effective at reducing poverty, partly because PFDs didn't grow as fast as inflation. But also, more Alaskans now have incomes that fall further below the poverty line—so it takes more to lift them out of poverty.

• There is no evidence that the PFD discourages Alaskans from working. Census data show that labor force participation in Alaska is higher than the national average, for both men and women and in every age group, despite the scarcity of jobs in many rural areas.

This article is open access. Download "Resource rents, universal basic income, and poverty among Alaska’s Indigenous peoples," by Matthew Berman, in World Development, Volume 106. If you have questions, get in touch with the author at [email protected].

How is the State Dealing with the Shortfall in Pension Systems?

A new paper by Cliff Groh, in collaboration with ISER faculty, looks at how the state government has dealt so far with a very big problem: the state's two largest retirement systems for public employees don't have enough money to cover future costs of pensions and benefits for state and local employees when they retire. The author also discusses options the state might consider for dealing with the shortfall as time goes on.  

Public pension systems are protected in Alaska's constitution, and since discovering the shortfall in 2003, the state has made special contributions of nearly $7 billion to the retirement systems. But analysts believe it will take billions more dollars in the coming years to balance the funds. That poses a major challenge for the state, in this time of big budget deficits, as well as for local governments, which also need to help pay for the unfunded liability.  

Besides making special contributions to the retirement funds, the state also moved to hold down its future liabilities by changing, in 2006, to a defined-contribution plan for new employees. That meant new employees would not have traditional pensions when they retired but rather individual retirement savings accounts, funded with a share of their wages and an employer contribution. 

The full paper, History and Options Regarding the Unfunded Liabilities of Alaska’s Public Employees’ and Teachers’ Retirement Systems, and a summary, discuss more about what the state has done—and might do—to deal with the pension shortfall, in the face of the ongoing serious squeeze on the state's finances.

If you have questions, get in touch with Cliff Groh at [email protected].

How Does Alaska’s Spending Compare?

By Mouhcine Guettabi,

Alaskans have been arguing for years about how much the state should be spending, ever since low oil prices gouged a big hole in the budget. A new paper by ISER researchers Mouhcine Guettabi, Trang Tran, and Linda Leask aims to give some context to that debate, by looking at state spending in several ways.
 
• In 2015, the most recent year for which cross-state data is available, state and local spending per person in Alaska was twice the national average. But much of that gap is due to Alaska's unique spending programs (PFDs being the largest but not the only one), higher living costs, and federal grants that are twice the U.S. average per person. 
 
• Wyoming, another oil-producing state with a small population, spent more per person than Alaska in 2015, if you take into account Alaska's unique spending programs and higher living costs. Per-person spending in North Dakota—another oil-producer with a small population— was within 15% of Alaska's.
 
• Over the 20-year period from 1992 to 2015, Alaska's real (adjusted for inflation) state and local spending per person grew 50%—considerably slower than the U.S. average of 73%, and much slower than the 100% growth in Wyoming and 116% growth in North Dakota. That was because during most of that period low oil prices constrained growth in Alaska. It was only in the last part of that period, when oil prices were high, that Alaska's spending grew twice as fast as the national average.
 
• Alaska's real per person spending from the Unrestricted General Fund—which pays for most general government functions—moves up and down sharply with higher or lower oil prices. That spending peaked in 1982, during the first state oil-revenue boom, and was second highest in 2013, during the most recent oil-revenue boom. But in 2004 and the current fiscal year, with much lower oil prices, real state spending per person is not much different from what it was in 1975.

Download the paper, How Does Spending in Alaska Compare? (PDF, 784KB) A grant from Northrim Bank helped fund this research. If you have questions, get in touch with Mouhcine Guettabi, assistant professor of economics at ISER, at [email protected].