Gov. Mike Dunleavy’s massive proposed cuts to Alaska’s budget would mean thousands more job losses in a state that has been in a recession for years, some economists say.
The cuts proposed by the governor for the fiscal year 2020 amount to about $900 million, when taking into account his plan to fully fund Alaskans’ Permanent Fund dividend checks. He is opposed to adding new taxes as part of his plan.
Every $100 million in state budget cuts results in an estimated loss of about 1,000 jobs, said Mouhcine Guettabi, an associate professor of economics at the University of Alaska Anchorage Institute of Social and Economic Research.
Alaska has a budget deficit and has been in an economic recession since late 2015. The state has lost about 12,700 jobs in that time. In January, economists projected Alaska would have small job gains this year after three years of consecutive losses.
Alaska had the highest seasonally adjusted unemployment rate in the nation in December, at 6.3 percent.
“The economy is still extremely vulnerable," Guettabi said. “You’re putting an immense amount of pressure on an economy that was trying to come out of a recession.” Now, he said, the expectation is that the recession will last longer.
In a 2016 study, ISER found that “anything the state does to reduce the deficit will cost the economy jobs and money.” Cutting the state workforce and broad-based state cuts had the highest number of estimated job losses compared to other methods of reducing the deficit, such as taxes or cuts to the Permanent Fund dividend, the study found.
Dunleavy’s proposal is “the beginning of the journey for this budget,” he said in a televised news conference Wednesday to present his plan to bring spending in line with revenue. The budget still needs to go through the Legislature for approval.
“Part of the platform that I ran on as a candidate was to fix this budget,” Dunleavy said. “We’re going to fix this budget this year.”
Jeremy Price, Dunleavy’s deputy chief of staff, said the governor “believes that Alaskans should be choosing how to spend their money, not the government." He also cited the $14 billion in savings the state spent under the previous administration.
“Alaskans don’t have a lot of options left at this point in time. ... So, we’re out of time and we’re out of money,” Price said.
In its annual employment forecast last month, the Alaska Department of Labor and Workforce Development projected Alaska would gain a modest 1,400 jobs in 2019 after three years of job losses. Those numbers didn’t take into account state government cuts on the scale of what the governor has put forward.
Dunleavy’s budget proposal would mean a “clear net loss” of jobs, said Jonathan King, economist and owner of Anchorage firm Halcyon Consulting.
“Any cut that’s greater than $100 million in terms of state spending is probably enough to wipe out that 1,400 projected job growth,” he said.
A cornerstone of Dunleavy’s platform in his run for governor was a plan to restore the full Permanent Fund dividend after it was capped for three years. ISER’s study found that cutting the PFD to reduce the deficit would result in hundreds of jobs lost for every $100 million of deficit reduction.
“What’s undoubtedly clear is there are very real trade-offs, and I think that’s been made apparent those higher dividends come at the costs of these reductions,” said Guettabi.
Ed King, chief economist with the state’s Office of Management and Budget, stressed that any tools used to solve the state’s deficit at this point would have some negative impact.
“When you listened to the governor’s campaign, you know he was against the tax, he wanted a full PFD, and he’s really worried about injuring the ability for future Alaskans to get their dividends,” he said. “When you take those tools off the table, the only thing that you’re left with is budget cuts, right? And so that’s where we’re at.”
About 1,300 University of Alaska faculty and staff could lose their jobs as a result of the cuts, university system president Jim Johnsen said Wednesday. The university system faces a 40 percent budget cut, or $134 million.
The governor’s proposal “will lead to thousands of lost jobs in the health care sector, which will have huge ripple effects on the state’s economy,” Alaska State Hospital and Nursing Home Association CEO Becky Hultberg said in a statement Wednesday afternoon that called Dunleavy’s budget “outrageous.”
Health care is one of the areas with the biggest cut by dollar value under the governor’s proposal.
“During the recent recession, health care was one of the few industries adding jobs,” Hultberg said in the statement. “To willingly damage one of the only growing industries in the state will plunge Alaska back into recession."
Price said he wasn’t surprised that the group was upset by the proposal.
“The bottom line here is the governor believes that this balanced budget will keep money in the hands of Alaskans, whereas it appears ASHNHA wants to take the money from Alaskans’ pockets and fund their bottom line," he said.
Ed King, with OMB, said he expects the only immediate job loss impact would be isolated to state government positions. New budget documents The Associated Press reported on Thursday show Dunleavy is proposing to cut nearly 460 state positions.
Asked about Johnsen’s and Hultberg’s comments on job impacts, Ed King said: “It’s possible. We don’t know how everything will shake out. Nothing is going to happen immediately. It’s going to take time for all these impacts to ripple through the economy.”
Matthew Berman, another professor of economics at ISER, said Dunleavy is right “that we can’t keep running these big deficits without consequences.” But, he said, heavy cuts on education and health care would likely affect highly skilled and educated workers who will find opportunities elsewhere.
“It’s sacrificing the needs of the future to meet the needs of the present,” Berman said of Dunleavy’s proposal. “Education and health care, that’s building — that’s investment in the future.”
The economic impact of the cuts and the higher PFDs infusing more cash into the economy are on “different scales of magnitude," Guettabi said.
Another research paper he has worked on at ISER but which has yet to be published estimated that a $1,000 increase in the size of the dividend increases the probability of employment among men by 1.8 percent in the months following the disbursement. ISER estimates that a $1,000 PFD increase per person also leads to “a reduction of 0.9 hours per week among employed women” during those months.
“The additional PFDs, of course, will have a short-term positive effect on the economy, but we are taking a sizable amount of money out of it,” he said.
The exact amount of federal matching funds the state might lose associated with the proposed cuts has yet to be known, said Jonathan King.
“If we’re also giving up federal funds, you can just tack that right on top,” he said. The uncertainty over the budget in coming months is also detrimental to the economy, he said.
Many of the previous job losses in the current recession were incurred by nonresidents who worked in the oil and gas sector, Guettabi said. Potential losses from these proposed cuts would be different.
“The losses will be absorbed by people that work here and live here,” he said.