Governor’s Vetoes Likely to Halt or Reverse Alaska’s Economic Recovery

ISER’s Mouhcine Guettabi gave a presentation on the economic impacts of Governor Dunleavy’s veto of $409 million from the state budget at the Anchorage Chamber of Commerce’s “Make it Monday,” telling the audience that employment losses from cuts will exceed any gains that have been realized during Alaska’s fragile economic recovery of the last few months.

The vetoes come as Alaska is turning the corner on a 3-year recession from 2015 to 2018 that cost the state more than 12,400 jobs. Since October 2018, employment has been positive, averaging about 1,325 jobs a month more than the previous year. Still, the level of employment as of May 2019 is 11,600 below what it was in May 2015.

More than 60 percent of the cuts are in three categories: University (31.73 percent), Medicaid/Mental Health (20.27 percent), and School bond reimbursements (12 percent). The cuts will result in more than 4,000 jobs lost in the short run and will return the Alaska economy into recession, Guettabi told the audience.

Short-term losses represent a considerable negative shock, however the long-term consequences could be even more pronounced, according to the presentation.

University of Alaska (UA) direct losses (1,300) alone will offset any gains from other sectors and return Alaska to a recession. For the economy to avoid this recession, it would have to grow 4,000 jobs per month from non-affected sectors. That level of job gain has not happened since May 2014 when the economy grew by 3,900 jobs relative to May 2013.

The last recession was long, but not deep, Guettabi told the audience. Many jobs lost since 2015 were held by non-locals – non-resident employment in the oil sector is around 30 percent – people who did not own property.

Jobs in state government or the university are held by residents who often own homes and send children to local schools. Additionally, the majority of university employees compete in national markets. When they are laid off, they will not be taking other jobs in Alaska, they will need to leave to find employment in their fields. The likelihood of out-migration is high, which can affect housing prices.

Cuts to the university budget will also likely impact the labor market, making it difficult for Alaska employers to hire skilled graduates. The long-term negative impacts on enrollment, degrees, and certificates will cause school graduates to leave the state to further their education, many of whom will not return. In the Anchorage Economic Development Corporation’s Business Confidence Index, four of the top ten barriers described by businesses relate to workforce cost and availability.

In addition to the presentation, Guettabi and Nolan Klouda, executive director of the University of Alaska Center for Economic Development produced a short paper on the impacts of the cuts.