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Alaska’s budget basics
According to the National Association of State Budget Officers (NASBO), Alaska’s total expenditures in fiscal year (FY) 2020 were $12.6 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2020 were $2.3 trillion, ranging from $4.7 billion in Wyoming to $337.7 billion in California.
Each state allocates spending and taxes differently among different levels of governments, and local governments often administer programs with state funds, so combined state and local government data show a more complete picture of individual benefits and contributions when comparing states.
Per the US Census Bureau, Alaska’s combined state and local direct general expenditures were $12.7 billion in FY 2017 (the most recent year census data were available), or $17,198 per capita. (Census data exclude “business-like” activities such as utilities and transfers between state and local governments.) National per capita direct general expenditures were $9,446.
Alaska’s largest spending areas per capita were public welfare ($3,483) and elementary and secondary education ($3,172). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals. Per capita spending is useful for state comparisons but is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices. Further, per capita spending is often relatively high in states such as Alaska that have low populations and lots of space. Delivering services over large areas can drive up costs, and low density prevents states from taking advantage of economies of scale.
Alaska’s combined state and local general revenues were $11.6 billion in FY 2017, or $15,721 per capita. National per capita general revenues were $9,592. Alaska does not levy a general sales tax or an individual income tax. However, some localities levy general sales taxes. After federal transfers, Alaska’s largest sources of per capita revenue were charges ($2,206), such as state university tuition and highway tolls, and property taxes ($2,120). Alaska also collects a relatively large amount of revenue from severance taxes, which are taxes on the extraction of natural resources such as oil and natural gas. Alaska’s per capita severance tax revenue was $790 in 2017. Severance tax revenue is extremely volatile and can quickly rise and fall with the price and production of natural resources.
Governor Mike Dunleavy, a Republican, was elected in 2018 with 51 percent of the vote. The next gubernatorial election is in 2022.
Alaska has a divided government. Although Republicans hold a majority of the seats in the House of Representatives (21 Republicans to 15 Democrats, with 4 independents), the speaker is an elected Republican who represents a coalition of mostly Democratic and independent lawmakers. Republicans control the Senate (13 Republicans to 7 Democrats). All Alaska House seats are on the ballot in 2022 because representatives serve two-year terms. Senators serve four-year terms; roughly half the senatorial seats are on the ballot in 2022, and the other half will be up for election in 2024.
Alaska’s budget institutions, rules, and constraints
Alaska uses an annual budget. The legislature must pass and the governor must sign a balanced budget, and deficits cannot be carried into the following year. Alaska further limits spending growth according to population growth and inflation. The limit does not apply to the state’s Permanent Fund or capital projects. Otherwise, the state must amend its constitution to exceed the limitation. Alaska limits its total debt service (but not its total authorized debt).
(Note: Some states have informal budget institutions that constrain overall spending growth or a specific expenditure’s growth.)
Alaska’s recent fiscal debates
- Alaska relies heavily on tax revenue from oil and gas production. In fact, severance tax revenue provided more than 70 percent of the state’s tax collections in some years. The influx of revenue from oil and gas production allowed the state to eliminate its individual income tax in 1980, and the state has never levied a general sales tax. Although residents enjoy a very low tax burden, this also means the state’s revenue is heavily dependent on oil and gas production and thus extremely volatile. When the price of crude oil crashed from over $100 per barrel in 2014 to $40 per barrel in 2017, so too did the state’s unrestricted general fund tax revenue: from $3.4 billion in 2014 to $462 million in 2017. Despite massive budget deficits in these years, proposals to levy an individual income tax, a payroll tax, and a general sales tax all failed. Instead, the state borrowed heavily—the balance of the state’s Constitutional Budget Reserve fell from over $10 billion in 2015 to under $2 billion in 2019—and made deep spending cuts to balance its budgets.
- Alaska’s severance tax revenue also supports the Alaska Permanent Fund Dividend. This unique program puts some of the state’s severance tax revenue into a state-owned investment fund and then sends each eligible Alaska resident an annual payment simply for living in the state. The 2018 dividend (paid in 2019) is $1,600. However, the legislature borrowed from the fund (for the first time) in 2018 (SB 26) to bridge a budget gap. As a result, the dividend payment is currently below the statutory calculation. Governor Mike Dunleavy agreed to the lower dividend in 2019, but he has pledged to end borrowing from the Permanent Fund and return payments to the statutory calculation.
- A major focus of Governor Dunleavy’s 2019 budget (discussed more in the next section) was his proposed cuts for the University of Alaska. Dunleavy’s original proposal called for reducing the university’s funding by over $100 million in the next fiscal year. The legislature all but omitted these cuts from their budget and limited the university’s funding reduction to only $5 million. However, Dunleavy vetoed this and approved a one-year $130 million cut, or 41 percent of the university’s state funding, in the budget he ultimately signed. Advocates for the University of Alaska pressed the legislature to override the veto—the system’s president said the cuts would “strike an institutional and reputational blow from which we may likely never recover”—but those efforts failed. But facing increased public pushback, the governor eventually limited the budget cuts to $70 million over three years.
Alaska’s current budget
Governor Dunleavy released his FY 2021 budget proposal in December 2019. His proposal included a higher Alaska Permanent Fund Dividend check (previous budget problems had lowered this payment) and reductions in state expenditures to help close the state’s budget deficit.
Alaska enacted its FY 2021 budget in April 2020. The governor signed the budget even though the legislature did not agree to the higher dividend payment. Governor Dunleavey also used several line item vetoes to further reduce spending by $210 million. Overall, the enacted budget appropriated $4.5 billion in unrestricted general fund (UGF) spending (i.e., not including the Permanent Fund), a 5.8 percent decline in UGF spending compared with the FY 2020 budget. Total state spending was $10.1 billion, a 5.5 percent decline from FY 2020. The enacted budget forecast a 27 percent decline in UGF revenues for fiscal 2021 compared to fiscal 2020, and a budget gap of $960 million.
Governor Dunleavy released his FY 2022 budget in December 2020 and gave his State of the State address in February 2021. His budget proposal again asked for a higher dividend payment and recommended further spending cuts. The governor’s proposed UGF spending ($4.25 billion) and total spending ($8.9 billion) were both lower than the enacted spending in FY 2021 and what the governor had proposed before the pandemic. Governor Dunleavy also proposed a number of long-term fiscal constraints, including a spending cap and requirement for voter approval of tax increases. He did not propose any tax increases, but did offer support for legalized gambling.
For more on Alaska’s budget, see
Alaska’s economic trends
Alaska’s per capita income (per the Bureau of Economic Analysis) was $62,102 in 2019, ranking 10th among the states. It was above the national average of $56,663, but below the Far West regional average of $64,252. The state’s median household income (five-year estimate) was $76,715 in 2018, ranking fifth among the states and above the national average of $60,293. Alaska’s poverty rate was 10.8 percent in 2018 (five-year estimate), below the national rate of 14.1 percent.
Although Alaska’s averages tell a story about the entire state, Alaska is composed of diverse localities. For example, the city of Fairbanks’s median household income was $61,665, and its poverty rate was 11.5 percent; the city of Juneau’s median household income was $88,213, and its poverty rate was 7.9 percent.
Alaska’s unemployment rate has historically been above the national average, but it was below the national average following the Great Recession. In recent years, however, Alaska’s unemployment rate has been among the highest in the country. (See how COVID-19 is affecting state employment and earnings data.)