Panic Never Works - Alaska Permanent Capital Management


Panic Never Works

These daysjonathan_king-200x288, if you’re an economist in Alaska, the question you are most likely to be asked by someone you meet is “Should I sell my home?” While it’s nice to feel like people want your opinion, it’s a little unnerving when you’re being asked, in a dead serious manner, what someone should do with what is likely their single largest asset. We’re all unnerved by Alaska’s fiscal and economic situation, but it helps to look at the facts, both disturbing and fortifying, before we hit the sell button.

  • Alaska’s general fund government revenues have fallen by more than 90 percent from roughly $10 billion in FY 2012 to less than $1 billion for FY 2016 (the current fiscal year).
  • Alaska’s general fund spending has fallen from nearly $8 billion just 3 years ago to an estimated $4.5 billion next year for FY 2017.
  • In spite of this decline and large employment losses in the oil and gas, construction, university education, and state government sectors, overall employment in Alaska is flat from last year at this time. Increased diversification in our economy is helping make up for the downturn in our traditional powerhouse sectors.
  • We are two years into the oil price decline and we haven’t officially entered a recession and aren’t likely to until the middle of 2016. In 2008/2009, we were in recession within six months of the oil price collapse.
  • Alaska is rich in not just natural assets but financial assets as well. The permanent fund currently sits at $53 billion and the Constitutional Budget Reserve sits at more than $8 billion. For you scorekeepers at home, that’s $61 billion with a “B” or nearly 14 times next year’s likely general fund budget.
  • Alaskans as a whole carry the lowest state and local tax burdens in the country. If we paid a modest income tax, a modest sales tax, and gave up a portion of the Permanent Fund Dividend, we would still have the lowest burden in the country and we’d close the current fiscal gap.

Yes, the Alaska economy is hurting, some Alaskan families are hurting, and we’re likely to officially hit a recession this year. However, Alaska’s economy has held up remarkably well given the degree to which oil prices and state revenues have fallen. Who would have imagined that two years into an oil price collapse we would have near record high overall employment for the first quarter of the year? While that’s great news, we can’t expect it to continue without a long-term fiscal solution that stabilizes our exposure to the commodity price rollercoaster. This solution means controlling spending and generating diversified revenues over the long run. Fortunately, we have the power to right our own ship if we work together and craft a fiscal plan that provides greater stability and better shares the burden across all Alaskans.

All of us should take a deep breath before we hit the sell button on homes, (let alone Alaska), as panic has never solved a problem.

Jonathan King

Jonathan King is Vice President and Senior Economist at Northern Economics. Jonathan has been a professional economics consultant for 20 years, specializing in both fisheries and land use issues he also has a strong presence in projects involving surveys, rural transportation, aviation, taxation, forecasting, and customer satisfaction. For more information about Northern Economics you may visit their website.


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