Alaska faces an unprecedented budgetary challenge with a potential deficit of $4 billion for the next fiscal year. The good news is we have many options available to us to meet this challenge and the bad news is they are all miserable in one way or another. The best we can do is to pick the least harmful set of choices.
A report by the Institute of Social and Economic Research at the University of Alaska Anchorage presented to the Legislature last week is a big help in making these choices. I commend this report to anyone who wants to help craft the best solution to our budgetary challenge. It does not have all the answers nor does it offer a silver bullet, but it does give some very useful data in finding a solution that will have the least short-term negative impact on our economy, keep the most jobs here in Alaska, and position us for a faster recovery to a more robust long-term economy.
This report, Economic Impacts of Alaska Fiscal Options, was commissioned by the state Department of Revenue and Office of Management and Budget, and was written by ISER professors Gunnar Knapp, Matt Berman, and Mouhcine Guettabi. Because the report covers many options and combinations of those options, it is quite complex and contains many tables with lots of numbers that can be hard to digest. To simplify and make the results a little more clear, I focused on the case of achieving a $2 billion deficit reduction and converted the job loss and income reduction estimates into an index, which I have dubbed the "misery index."
For job losses I divided the numbers by 5,000, and for income reduction I divided by 1 million so each impact is represented as a number between 1 and 4. The sum of the job loss index and the income loss index is the misery index. The smaller the index, the lower the misery associated with that choice. For example, if we filled $2 billion of the budget deficit using an income tax and saving less, the misery index associated with that particular choice is 2.6; whereas, the index for filling that deficit using spending cuts and dividend cuts is 6.2 — over twice as much misery.
As the report authors note, there are other significant factors to consider, so by themselves these job and economic impact estimates are not sufficient to make the choice about how to balance the budget. However, they do point out not all of the choices are equally miserable and, in particular, one of the least miserable is the income tax.
Another interesting result is some choices, like the "cut only" ones, take more dollars out of the economy in terms of lost income than they contribute to closing the deficit. Finally, the authors point out the only option that has no short-term impact on jobs or income is the "save less" option; however, it does have impact on future generations. An example of "save less" would be to cease inflation proofing the Permanent Fund.
To fill this massive budget hole, it is clear we need to use all of the major options available to us: some use of the earnings of the fund (save less), some broad-based tax (income or sales), and some careful cuts (dividend and services). This report should help inform finding the best solutionis balanced, sustainable, predictable and the least miserable.
Dr. John Davies is a former student and faculty member at the UAF Geophysical Institute, state seismologist at the Division of Geological and Geophysical Surveys, member of the Alaska House of Representatives, and research director at the Cold Climate Housing Research Center. He currently serves as the presiding officer of the Fairbanks North Star Borough Assembly and treasurer of the University of Alaska Board of Regents. This commentary is his personal statement and does not necessarily represent anyone else.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary@alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com or click here to submit via any web browser.