How Alaska Does Money
Without touching their $50 billion in the bank, they can still pay their residents to live there
Alaska does money like no other state. Because of a $4 billion deficit lawmakers have recently considered altering some of the features that make the state’s budgeting process so unique. After failing to broker a deal on the budget last May during the regular session, and then failing to reach an agreement after four special sessions, the lawmakers recently adjourned a fifth.
Here’s how Alaska does money.
With 2.9 billion barrels in their reserve, Alaska is the third most oil-rich state in the country, falling just behind Texas and North Dakota. About a third of the jobs throughout the state, around 110,000, are tied to the industry.
Because of the recent downturn of the oil market, prices are the lowest they’ve been since the 1990s. Considering the state’s heavy reliance on the industry, its deficit is largely attributed to this plunge. Another industry that provides revenue, albeit to a much smaller extent, is metal mining, and although metal stocks are currently strong, they are notorious amongst investors for their volatility.
The Permanent Fund
This fund is what allows Alaskan residents to receive their famous annual checks from the government, as long as they meet two pieces of criteria: living in the state for the full calendar year, and not being incarcerated or convicted of a felony during the twelve months leading up to the check.
In the face of the budget crisis some lawmakers have proposed cutting into the fund, which, considering its size, seems like an almost inconsequential solution, but as Alana Semuels discusses in this article from The Atlantic, residents generally oppose the idea.
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The Permanent Fund was created by a constitutional amendment in 1976 at a time when the state was making so much money from oil revenues it didn’t know what to do with it.
The state government does not tap into the fund; it only spends the earnings that it creates through various stocks, real estate, and bonds. And it is with that profit that they distribute a chunk to residents throughout the state. In 2015, the payout amounted to $2,072 per person. Although they aren’t using the fund itself, the state senate did recently pass legislation agreeing to reduce the dividend to $1000.
The state’s unwillingness to bail itself entirely does come as a bit of a surprise. Alaska has an untouched $50 billion saved, after all, and the alternative option involves cutting back on spending in vital areas, which usually leads to backlash. Here are the results of slashing $600 million from spending last July, for example.
It decreased the capital budget, which is used to build roads and schools, and cut back education spending and marine ferry service. As part of the cuts, the Alaska Bureau of Investigations shut down its four-person Cold Case unit. But it soon became clear that the state couldn’t cut its way out of its budget problems, since even those relatively small cuts were extremely unpopular. School children and teachers protested education cuts outside state legislative buildings in April, and some even staged a sit-in. After an uproar after funding to a state homelessness program was cut, Governor Bill Walker, an independent, restored some of the cuts.* Residents of Cordova, a town only accessible by plane or boat, rallied against cuts to the Marine Highway, a ferry system linking Alaska’s coastal communities.
If the Alaskan government had withdrawn this amount from the Permanent Fund, it would have comprised about 1 percent of its entire sum. Granted, as a solution extracting money from the fund like that would not be sustainable, especially given that if the world continues to expand in its transition to more renewable energy sources and we truly are headed towards the “end of the Oil Age,” revenues from oil will be evermore insufficient in the future.
In the meantime, however, it does seem like reaching underneath the mattress to access the funds should be temporarily considered, especially if it means avoiding tangible harm to Alaskans. Opposition to the idea is starting to sound less like stinginess and more like paranoia.
Then again, the “stinginess” theory, partly exemplified by the unwillingness to tap into the Permanent Fund, is validated further by the fact that Alaskans don’t even deal with an income tax or a sales tax. They don’t pay either. Well, actually, Alaska has no state-level sales tax, but it does allow local municipalities to impose a retail-level tax, of which the average across the state is about 1.69 percent. But compared to states with a sales tax, that’s not too significant a burden. Four of the state’s nineteen boroughs also don’t even levy a property tax.
These favorable tax policies are all due to the state’s heavy taxation on natural resource extraction, as in oil and mining, which contributes the most substantial revenue to the state.
All things considered, if you don’t mind isolation and the cold and the occasional grizzly, Alaska is not such a bad place to live, at least for the time being.