Alaska has the highest level of state spending, but that’s not the whole story

One of the issues dividing Alaska’s legislators is the level of state spending. Some lawmakers want to continue to cut spending before considering introducing or raising taxes, or making long-term cuts to Permanent Fund dividends. Others are concerned about the loss of services and the effect on the state’s economy from deeper cuts. So, how high is Alaska’s spending? It’s a complicated issue.

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This chart shows state spending and revenue over the past 11 years. It was prepared by the Alaska Division of Legislative Finance.
This chart shows state spending and revenue over the past 11 years. It was prepared by the Alaska Division of Legislative Finance.

Here are some of the voices of House members on the day they left Juneau after an abbreviated special session that failed to address Gov. Bill Walker’s fiscal plan.

“This governor wants to pay for big government,” Craig Johnson said. “He wants the PFD to sustain a bloated government.”

“The biggest threat to the Permanent Fund and to the dividend is big government,” Lora Reinbold said.

“It’s a spending problem,” Wes Keller said. “We have – Alaska has a spending problem. We have a huge spending problem.”

“Until we address the inefficiencies – the waste – then we don’t have a right to take the people’s money,” Liz Vazquez said.

There’s some evidence to back up assertions that Alaska has a high level of spending. As recently as 2013, Alaska spent more than a third (38 percent) more per resident than any other state on combined state and local spending.

If you focus just on state spending, Alaska spent more than twice as much per resident in 2014 than all but 11 other states.

In three broad categories, education, higher education and corrections, Alaska spent the most per resident. It also was second in public assistance (after Massachusetts) and transportation (after North Dakota). And it was seventh in Medicaid spending.

But just focusing on state spending doesn’t tell the whole story. That’s because many states require local government to provide services that Alaska’s state government provides.

Demographics and policy choices also play a role, according to Brian Sigritz, director of state fiscal studies for the National Association of State Budge Officers in Washington.

“Overall, there’s definitely a lot of variations in what states spend money on, and how much state support goes to various different areas of the state budget,” Sigritz said.

And things have changed dramatically in the past four years. The portion of the state budget controlled by the Legislature has dropped by 45 percent, while the amount spent on state agencies has fallen by 10 percent. These drops were even more dramatic if you account for population growth and inflation.

But even with these changes, the amount of proposed state spending directly controlled by the Legislature was projected to be nearly 25 percent more per person than any other state in the current fiscal year.

There are also factors that are unique to Alaska. That’s what Governor Walker pointed to when asked why state spending was the highest per capita.

“You know, it’s not very complicated as far as on a per-capita basis, we’re the largest state in the union – one fifth of the entire United States and we have the smallest, one of the smallest populations,” Walker said. “If you do the simple math, it’s always going to come out – we’re spread all over the state and so, you know, on a per-capita basis, versus Rhode Island versus Alaska, you’re going to see a significant difference. But you got to apply logic to that equation a little bit as well.”

Economist Gunnar Knapp recently stepped down as director of the University of Alaska Anchorage’s Institute for Social and Economic Research. He says the state’s large amount of natural resources, unusually high healthcare costs, and  the challenge of providing services to isolated, low-income communities contribute to higher spending.

“It’s not a simple question to say, oh because we spend more than other states, we must be wasteful,” Knapp said.

But Knapp also said that the oil and gas revenue that used to flow into the state’s coffers – and that bounced back after previous recessions – is staying low. This puts Alaska’s government into a new position – being forced to decide whether residents will accept lower spending in areas like education or lower PFDs or higher taxes.

“Really, for the first time since oil started flowing, we’re going to face that question in a big way, where we’re going to realize that we’re going to have to make hard choices,” Knapp said.

The primary election in three weeks, and the general election in November may provide a signal from voters about what they want the Legislature to do.