Calculated from data published in State of Alaska Annual Financial Reports

Calculated from data published in State of Alaska Annual Financial Reports

More information: Maximum Sustainable Yield: Wealth Management for the “Owner State” - ISER Aug. 2012  Good Times Are Ending ADN 7/28/12 Worriesome Trend: Oil Prices below level the State Needs FDNM 6/14/12 Intro to Alaska's Economy - ISER Feb. 2012 Shops Empty as Oil Production Declines - AJOC 3/22/12 Understanding Alaska's Budget, State of Alaska House Special Committee on Fiscal Policy

Alaska Budgets Have Run Amok

Since the mid 2000s, Alaska state budgets have exploded. From fiscal 2005 to 2012, general fund operating and capital expenditures (not including savings and permanent fund dividends) have grown from $5 billion to $8.5 billion ~ an increase of 71 percent. High oil prices and a willingness on the part of lawmakers to let spending leap upward along with crude oil prices brought on this rapid growth.

These impressive spending increases have involved both operating budgets and capital budgets. Some large spending categories – such as the state University system and general government -- have nearly doubled from their mid-decade levels as shown in the nearby graph. All departments have grown substantially.

Capital expenditures have ballooned even more than operating expenses, from $621 million in 2006 to nearly $1.7 billion in 2012, a whopping 170 percent jump.  And this does not even include federal funds.

Even after adjusting for inflation and population increases, the spending growth is alarming. For example, on a per capita basis (spending per person), general fund expenditures expanded from $7,500 per Alaska resident in 2005 to approximately $12,000 last year, for a growth of 80% over seven years. Even before the increases, Alaska was the highest spending state in the U.S. on a per person basis. After the spending surge, our dubious distinction as the national leader in that measure has only become more pronounced.

As Alaska budgets grow ever higher and less sustainable, our danger of facing another devastating economic meltdown akin what we saw in the 1980’s continues to grow.  Residents who lived in Alaska during the 1980s remember what happened during those years.

Much like in recent years, state budgets had ballooned between the late 1970s and the mid 1980s. But in 1986, the binge abruptly ended. Oil prices nose-dived and the State faced a sudden financial and economic crisis.

Capital budgets were slashed, operating budgets were trimmed, and the economic boom of 1981-1985 turned quickly into the collapse of 1986-1988. During those years, residential housing and commercial property values fell dramatically, business failures skyrocketed, large numbers of people walked away from their mortgages, eight of the state’s fourteen commercial banks collapsed, and federal banking and housing regulators became the largest real estate owners in Alaska.

This time, there is every reason to fear that the collapse could be just as profound as it was in the 1980s. It may or may not be as sudden, and would certainly not look exactly the same as it did in the late 1980s. However it could last longer and be more difficult to recover from because Alaska has far lower oil production, a less appealing tax structure with which to spur new production, and a growing tendency within its population to oppose promising new economic development projects.

Therefore, virtually every non-federal employee, business owner and property owner in Alaska is being put at financial risk by the budget trends of the past six years.