State budget cuts ‘eliminate any chance’ of economic recovery in Anchorage, AEDC forecast says

Any optimism earlier this year that the economy of Alaska’s largest city would recover from a downturn has been wiped away by state budget cuts, the Anchorage Economic Development Corp. said Wednesday.

Those cuts “essentially eliminate any chance of economic recovery and in fact promise to keep the local economy in recession for two to three more years,” AEDC said in an annual economic forecast released Wednesday and presented to a room full of business leaders at the Dena’ina Civic and Convention Center downtown.

“As we look ahead, while the news is not all bad, sources of renewal in the economy cannot compensate for the damage being done by Alaska’s ongoing policy-induced recession,” according to the report, which was compiled by Anchorage consulting firm the McDowell Group.

The state as a whole only recently started to gain jobs back after three years of losses, and the shape of the economy is still fragile. In January, AEDC projected Anchorage would see a net jobs gain in 2019 after years of declines. That is no longer the expectation.

[Dunleavy’s budget vetoes would pull Alaska back into a recession, economist says]

In June, Gov. Mike Dunleavy vetoed $444 million from the state operating budget. Both the House and Senate passed a measure earlier this week restoring much of the money the governor had vetoed, but Dunleavy called the bill a “disappointment” and has indicated he doesn’t support adding most of the money back.

“The implications of the state government’s current path of significant budget cuts will have a ripple effect in Anchorage,” AEDC President Bill Popp said in an interview earlier this week.

Dunleavy spokesman Matt Shuckerow did not respond Wednesday to an email asking about the governor’s reaction to AEDC’s forecast.

Anchorage is expected to see a net loss of 700 jobs in 2019 compared to last year, the group’s outlook said. A bigger loss of about 1,000 jobs would be expected in calendar year 2020 as proposed budget cuts for that fiscal year take full effect, AEDC said.

“What we are forecasting ⁠— and here it is, folks ⁠— three more years of recession,” Popp told the packed convention center room Wednesday. The audience was quiet after he said that, save for one person letting out a whistle.

Expected job losses will likely result in further population decline in Anchorage, the forecast said, projecting a loss of about 1,000 residents this year and 1,500 next year.

Massive budget cuts to the University of Alaska system would be “particularly damaging” for the local economy.

“In addition to harmful near-term economic impacts, significant cuts to the university system will stunt Alaska’s continuing efforts to build a high-quality, resident workforce,” the report said. “Many Alaskan students and instructors may well seek more secure opportunities elsewhere in the country.”

Popp stressed that the economic forecast could change based on what lawmakers decide.

“There are any number of variables at play. They are all pretty much rooted in the policy decisions that are under debate in Juneau,” he said.

Alaska’s recent recession, the longest in state history, started in the last quarter of 2015. That downturn was largely driven by a staggering drop in oil prices. Since October, Alaska has started showing job growth again, though those gains have been small.

The construction, oil and gas, and hospitality sectors in Anchorage saw some job growth in the first half of 2019 compared to the same time last year. But those “glimmers of good news will not be enough to shine through the dark economic clouds forming from Alaska’s budget gridlock," AEDC’s report said.

For years, health care has been a bright spot in the Anchorage economy as other industries have shed thousands of jobs. Now, cuts to Medicaid are likely to bring the first decline the city has seen in health care employment in a decade, according to the forecast.

The report does not take into account potential cuts in next year’s budget cycle, Popp said.

Assuming no further cuts from the state’s fiscal year 2021 budget, the report said, “Anchorage employment losses will moderate by 2021, when a decline of about 200 jobs is forecast. We see stability at best in 2022, with no net change in employment, again with the critical caveat about future state budgets.”

Economists have said Dunleavy’s vetoes to the state budget will result in job losses for Alaska overall.