Lawmakers are divided on what to do about Alaska’s fiscal crisis.
Some want to continue to shrink the size of state government, but this week there was pushback over how additional cuts would affect the economy.
This week two state lawmakers voiced very different opinions on government spending. Their comments illustrate the depth of the divide over Alaska’s fiscal and economic crisis.
“Do you want a state where people move from? Or do you want a state where people want to live? That’s the question this year. If you’re just going to cut a billion dollars and sort of play to the sound bite game, you’re going to cause a 10-year recession, just admit that to your constituents,” said Rep. Les Gara earlier this week at a press conference.
Gara got his numbers from Northern Economics, a private consulting firm in Anchorage that presented to the Legislature in early February.
Jonathan King, the firm’s vice president, said that a 10-year recession isn’t really accurate, but that additional budget cuts will have an impact on the state’s economy.
“Whether or not we’ll be in recession, that’s not clear, but what is clear is that if we cut that billion dollars we end up at a lower level of employment, and that’s probably worth about 10,000 jobs additional in losses above the 24 to 25,000 jobs that we expect to lose from 2015 to 2018 or 2019,” he explained.
The other scenarios that King modeled don’t look great either. Neither broad-based taxes nor changes to the Permanent Fund dividend will save the state from a few more years of steady job losses and recession.
Sen. Mike Dunleavy is shopping around his own fiscal plan. It’s even more aggressive than the Senate’s budget proposal, which would cut the budget by about $750 million.
“You can reduce this budget. You can eliminate programs. You can reduce spending. I’m not going to pretend that it’s not going to be politically difficult, because you will have constituent groups attached to some of these programs … And that should be a lesson for all of us that it’s a lot easier to grow government than it is to reduce it,” he said at a hearing in the Senate State Affairs Committee on Feb. 23.
Dunleavy’s proposal calls for $1.1 billion in cuts, which is about a 25 percent reduction from current spending. That’s essentially the scenario that King said would cost the state an additional 10,000 jobs.
“It’s a gradual reduction, which is important. It’s not $1.1 billion in one year, because I think all of us would agree that that would be a shock to the economy. That would be very serious and it could be detrimental. So what this plan does is it gradually reduces the spend in government over four years,” Dunleavy said, acknowledging the role that government spending plays in Alaska’s economy.
The senator’s proposal would keep the Permanent Fund dividend intact, which he said is an important part of generating economic activity.
Whichever plan the Legislature adopts, things don’t look good for Alaska’s economy according to King.
“When we talked with the Legislature in the last couple weeks we were asked, ‘How do you stop this recession in its tracks?’ And unfortunately that is largely out of the hands of the state at this point,” he said. “Really the only thing that can turn us around is a substantial injection of money into the economy. And if you look at the Alaska economy that has traditionally come from one of two things: government or the world oil market.”
According to King, Alaska’s economy will continue to shrink under any scenario. The question is: By how much?
