Alaska

State Fiscal Briefs

March 2020

Alaska’s budget basics

According to the National Association of State Budget Officers (NASBO), Alaska’s total expenditures in fiscal year (FY) 2019 were $11.7 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2019 were $2.1 trillion, ranging from $4.5 billion in South Dakota to $311.3 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 $17,200 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 $9,449.

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 $15,723 per capita. National per capita general revenues were $9,573. 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.

Alaska’s politics

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 (23 Republicans to 15 Democrats, with 2 independents), the speaker is an elected Democrat (he switched his registration to “undeclared”) who is supported by a coalition of Democratic, Republican, and independent lawmakers. Republicans control the Senate (13 Republicans to 7 Democrats). All Alaska House seats are on the ballot in 2020 because representatives serve two-year terms. Senators serve four-year terms; roughly half the senatorial seats are on the ballot in 2020, and the other half will be up for election in 2022.

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 amended FY 2020 budget in February 2019. (The budget is “amended” because it builds on and changes the FY 2020 budget released in December 2018 by his predecessor, Governor Bill Walker, before he left office.) Dunleavy’s proposed unrestricted general fund spending (i.e., not including the Permanent Fund) was nearly 25 percent lower than Walker’s proposal: $3.6 billion versus $4.7 billion. Dunleavy’s budget cuts were an attempt to bridge a $1.6 billion budget gap without any borrowing or significant revenue increases. “We built a balanced budget in which expenditures do not exceed revenues; a budget that shows Alaskans the realities of where we are and the tough choices that have to be made,” said Dunleavy in the introduction to a summary of his budget. This included cuts to Medicaid, Temporary Assistance for Needy Families (TANF), K-12 education, and higher education, plus eliminating over 600 full-time state employees.

The legislature’s enacted budget landed in between the two governor’s proposals, appropriating $4.4 billion for the unrestricted general fund. However, Governor Dunleavy used line-item vetoes to cut another $400 million from their budget. (See this table from the Office of Management and Budget for a comparison of all three budgets.) The legislature attempted but failed to override his vetoes.

Governor Dunleavy released his proposed FY 2021 budget and gave his 2020 state of the state address in January 2020.

For more on Alaska’s budget, see