Impact of Budget Cuts on Alaska Economy: Short-Term Effects & Long-Term Future

1. Budget options: What are the short-term effects?Fairbanks Chamber of CommerceMay 7, 2019 Ralph Townsend Director Institute of Social and Economic Research

3. Source: AK Dept. of Labor and Workforce Development

4. Source: Mouchine Guettabi, ISER

5. Source: Mouhcine Guettabi, ISER

6. Source: Mouhcine Guettabi, ISER

7. Source: Mouhcine Guettabi, ISER

8. Job losses during recession 20152018Loss/Gain Total 339,100 327,700 -11,400 Oil & Gas 14,800 9,400 - 5,400 Construction 17,800 15,800 - 2,000 Retail 36,700 35,800 - 900 S & L Gov’t. 67,100 65,600 - 1,500 Health Care 34,300 38,000 + 5,700

9. The budget cuts and the economy First, separate cuts from transfers. Approx: • $650 million from operations • $520 million revenue shift from local to state • $500 million in federal (Medicaid) matching Source: Legislative Finance

10. Estimating short-run job impacts ISER 2016 report: “Short-Run Economic Impact of Alaska Fiscal Options” by Guettabi, Knapp and Berman. • $100 million of spending cuts cause 1000 job losses in short run. • $100 million of PFD cuts or tax increases cause about 700 job losses in short run.

11. Summary of budget job impacts Job losses/gains due to: State and local spending reductions - 12,000 Federal (Medicaid) matching cuts - 5,000 Losses - 17,000 Gains from full PFD and “pay back” +10,000 Net loss - 7,000

12. Source: APFC

13. PFD, Percent of Market Value (POMV), and Earnings Reserve (ER) • Earnings Reserve contains “realized income.” • PFD and POMV can only be paid from ER. No ER = no PFD and no POMV. • “Inflation-proofing” • ER has $18.4 B. • Senate Finance: move $12 B from ER. Leaves about $5 B (less than 2 years of POMV.)

14. Deferred…but still there… • The capital budget/deferred maintenance • Gradually increasing pension liabilities • Oil tax credit liability of $1 B

15. The $B question: How to manage oil price fluctuations? A suggestion: Build a balanced budget at $65 oil. Use a “rainy day fund” to manage above and below $65 oil.

16. Demographics and Alaska’s Economic Future Source: AK Dept. of Labor and Workforce Dev.

17. Overall growth by 2045 Source: AK Population Projections 2017-2045 Middle +100,00 (Low -100,000) (High +385,000) 66% of growth in Mat-SU 20% of growth in Anchorage

18. Alaska is getting older, and quickly. Source: AK Dept. of Labor and Workforce Development % of population over 65 YearUS Alaska 1980 11 % 3 % 1990 13 % 4 % 2000 12 % 5 % 2010 13 % 7 % 2017 16 % 11 % 2030 20 % 17 %

19. Health care spending per capita US Alaska 1991 $ 2672 $ 2558 2014 $ 8045 $11,064

20. Alaska’s economic future: 2016-17 P-12 Enrollment Source: AK DEED

22. Source: Alaska Population Projections 2017-45

23. Summary—Short run --Economy starting to grow. Large cuts risk return to recession. --No agreement on path to sustainable state budget. --Earnings Reserve mechanics not fully appreciated.

24. Summary—long run --Economy shaped by new demographic context: • Flat population. • Getting older fast. • Workforce depends upon non-white growth. --How will our decisions about state spending priorities shape Alaska’s future?

25. Fairbanks Chamber of CommerceMay 7, 2019 Institute of Social and Economic Research Publications, Collaborations, Projects: www.iseralaska.org