Lawmakers want to know more about impact of proposed budget cuts

Senate Finance Committee members hear testimony from Mouhcine Guettabi of the Institute of Social and Economic Research, March 7, 2019. (Photo by Andrew Kitchenman/KTOO and Alaska Public Media)

Senate Finance Committee members hear testimony from Mouhcine Guettabi of the Institute of Social and Economic Research on Thursday. (Photo by Andrew Kitchenman/KTOO and Alaska Public Media)

Alaska lawmakers have many questions about how potential budget cuts may affect the state’s economy. They got some answers this week, but they still face a lot of uncertainty as they decide how deeply to cut funding for government services and permanent fund dividends — or whether to reopen a debate on taxes.

Members of the House and Senate finance committees and members of Gov. Mike Dunleavy’s administration haven’t been on the same page this week about the level of economic analysis lawmakers can expect.

North Pole Republican Rep. Tammie Wilson said the Legislature can’t do its job without more analysis from the administration.

“We might as well put numbers up all over the room and take a dart and shoot at it and hope that we’re right, because without having that analysis being done by the person who’s proposing the budget, that’s exactly what we’re going to do,” she said.

Bethel Democratic Sen. Lyman Hoffman said the administration should analyze multiple options for how to close the state’s $1.6 billion budget gap.

“We are not being given those options when we are requesting them of the administration, which seems to me (means) that our hands are tied behind our backs,” he said. 

Dunleavy’s budget director Donna Arduin said the Legislature must first put forward its own proposal.

“Once you have a full budget proposal, (chief economist) Mr. (Ed) King can analyze it in the same way he’s analyzed the governor’s proposal,” she said.

Hoffman was looking for more, saying: “Thank you very much for that non-answer.”

King told reporters that lawmakers should recognize the benefits of giving Alaskans the full permanent fund dividend under state law. It’s estimated to be $3,000 this year, compared with $1,600 last year.

“You also need to look at what happens when we give Alaskans more money, and how their quality of life is improved, and how, when they go out into the economy and when they go out and spend that money, what the impact on local business is,” he said.

King acknowledged that Dunleavy’s budget proposal will lead to fewer jobs.

“I don’t see how I could say that there couldn’t be,” he said.

But King said lawmakers should consider the alternative of not closing the budget gap.

“It isn’t just something we can nibble around the edges at,” he said. “It isn’t something that, we just need to get through this year, and then we’ll be OK. This is a real problem that requires a real solution.”

An alternative view came from Mouhcine Guettabi, an economist with the Institute of Social and Economic Research, or ISER, at the University of Alaska Anchorage.

Guettabi used a 2016 report developed by ISER to estimate that Dunleavy’s proposal would eliminate a little less than 17,000 jobs in the short term. But it would offset that with more than 5,000 short-term jobs from higher PFDs and a little less than 5,000 short-term jobs from paying residents the amounts cut from dividends three years ago.

The upshot? A loss of about 7,000 jobs. But Guettabi said that doesn’t say what kinds of jobs are gained or lost, or what the long-term effect will be.

“I was expecting the recession to end in 2019,” he said. “Now, as a result of these changes, I don’t know when that will happen, but it appears that the recession will go on longer because of this negative pressure on employment in the short run.”

Guettabi cautioned lawmakers against doing too much too fast.

“It has to be a combination of things and it hopefully is done over multiple years to avoid doing damage to the economy and to tell investors that there is a long (term) fiscal structure in place,” he said. 

Administration officials noted that past increases and decreases in state spending weren’t associated with the changes in employment that ISER forecast. But Guettabi said his estimates are based on a substantial amount of research.

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