Putting Alaska’s fiscal crisis in context

There’s a sign on the wall at Bubba’s Burgers in Kauai, a place my family likes to crash on holiday. It says “Our burgers are good, fast and cheap.  Pick two.”

That’s sort of a truism that can be applied to health care in general. For a system that seeks to pursue a low cost, high quality and highly accessible model, it strikes me there is no way to get three. As a society, we have to pick two.

Sadly, in America today, we are lucky if we get one of those three.

It strikes me that there is a lesson in all of this for Alaska’s state government these days.

 

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One can argue with good intention and good will about the size of the budget deficit, the appropriate use of public dollars, and the level of taxation that will efficiently meet society’s needs.

But, it seems to me that, like health care in general, many Alaskans would like a government that delivers high quality services, that is accessible to most residents, and does so with as small a state tax burden as possible.

And, like health care, Alaska policymakers will have to pick two. They won’t get three.

Sadly, they’ll be lucky if they get one.

There are a lot of variables at play in Alaska’s fiscal crisis. But, I think it’s worth highlighting one:  by at least one set of measures, Alaskans get more state government for a smaller amount of tax outlay by its residents than any other state in the country.

In fact, it appears Alaskans pay less in state tax dollars than any other state’s residents in the country – yet they have the largest government spending per capita of any state.

This doesn’t even count the rebate that comes in the form of the PFD.

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According to the Kaiser Family Foundation, Alaska has the highest level of state spending per capita, well ahead of second place Delaware by 19 percent.  According to analysis by Governing Magazine, of all 50 states in the country, Alaska has the highest number of state employees per capita at 245 per 10,000 Alaskans. The state is 29 percent higher than second place, Delaware again, which has 190 FTE per 10,000.  These are jobs that run the ferries like the one your brother has, the university where your daughter is going to study, and the Frontier Home where your mother stays.

That changes a little when local government jobs are added. Alaska falls to second place, behind Wyoming but ahead of New York, when all state and local jobs per capita are added together.

That examines the expenditure side of the fiscal challenge. Here’s another way to look at it: from the view of tax collections.

Based on a comparison of FY 2015 data by the Tax Policy Center, Alaska has the 7th lowest state and local tax collected per capita of any state.  However, much of this is collected from oil revenues rather than residents.

According to this week’s Spring Revenue Forecast, 79 percent of the total state FY 2018 (excluding local) unrestricted general fund (UGF) revenues come from petroleum, or $1.9 billion of the state’s $2.4 billion UGF.

Notably, if you’re waiting for oil prices to return so that you can avoid having to pay more in taxes, the Spring Revenue forecast has bad news for you: this is as good as it gets.

FY 2019 UGF petroleum revenues are forecast to hit $2.14 billion. From 2020 to 2028, they will never hit that level of return again. Revenues only get over $2 million one more time in the forecast – in 2028.

In other words, if we exclude petroleum dollars, it’s possible Alaska has the lowest state and local tax burden placed on individuals of any state in the nation. In Wyoming, another extraction state that pulls significant revenue from oil and gas, residents there contribute about 44 percent of tax revenues through the sales tax alone, not counting other non-petroleum/non-energy sources of revenue. This compares to Alaska where all non-petroleum sources of UGF revenue equal about 21 percent.

Put together, that gives Alaska the highest level of state government spending per capita at arguably the lowest tax burden for residents of any state in the country.

Alaskans get a lot of government for very little outlay.

Any narrowing of that otherwise wide gap between expenditures and state resident tax dollars will reduce the return on Alaska’s nominal investment.

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Many of the Alaskans I’ve talked with give Gov. Dunleavy some credit for calling into question Alaska’s state budget. In general, they recognize the fiscal challenge facing the state, and recognize that some belt tightening is in order.

They recognize also that Alaska is more dependent on government tax dollars to drive the economy than others states. From the Department of Defense to Medicaid, from the University of Alaska system to the port system, cuts to federal and state government spending will ripple through Alaska’s economy with far greater impact than in almost any other state in the Union.

The question is whether Alaskans will pay to keep the status quo level of services, either through a tax increase or through cuts in the PFD, or whether they would like to see services pared back significantly.

Of the three options – raising taxes, cutting the PFD, or cutting services – Gov. Dunleavy has chosen to cut services.

I can’t say whether that’s the right solution or not. What’s clear, though, is that getting the largest set of government services for the lowest level of tax investments is a luxury Alaska probably can’t continue to afford.