Alaska’s Fiscal Frontier Springs Forward
In March the Alaska Legislature passed a nearly $9 billion FY17 Operating Budget and reduced the deficit by less than half a billion dollars. As we spring forward on the fiscal frontier there’s still work to be done and consequences to comprehend. Luckily, we have some great thinkers continuing the quest to educate and inform us. Gunnar Knapp, Mouhcine Guettabi, and Matthew Berman of the Institute of Social and Economic Research at the University of Alaska Anchorage wrote a Draft Report of the Economic Impacts of Alaska Fiscal Options. It’s required reading. Here’s an excerpt and a chart from the report found online at iser.uaa.alaska.edu.
- The relative impacts of different fiscal options would vary for different regions of Alaska because income distribution varies between regions and because the economies of different regions vary in their relative dependence on state-funded jobs and services and on the trade and service industries which would be affected by the multiplier impacts of fiscal options.
- Within a few years we will have to greatly reduce the deficit. Reducing the deficit will significantly impact Alaska’s economy, regardless of how or when we do it. Fully closing the deficit in one year would have a large impact on an economy already weakened by oil industry job cuts and past cuts to state capital spending. But not making significant progress towards reducing the deficit would also have large negative impacts including increased business and consumer uncertainty, reduced private investment, and further downgrading of Alaska’s credit rating.
- Our economic adjustment to lower oil revenues will be smoother if we substantially reduce the deficit this year and also clearly demonstrate to Alaskans, businesses, and investors that we will make the necessary further changes to spending, revenues, and uses of Permanent Fund earnings to achieve sustainable state finances, reduce uncertainty about future state spending and how we will pay for it, and build confidence in Alaska’s fiscal future.
- Alaska’s fiscal options would impact Alaska’s economy and society in many important ways beyond the short-term economic impacts which we estimated for this study. We should base our fiscal choices not only on their short-term economic impacts but also on their longer-term impacts on Alaska’s economy and society over time.
The folks at ISER have packed a wealth of information into the report, and we’ve packed a wealth of information into the April issue. The team at Alaska Business Monthly has put together another really great magazine—enjoy!
—Susan Harrington, Managing Editor
This article first appeared in the April 2016 print edition of Alaska Business Monthly.