Economy / Fiscal Policy

Alaska's state government could spend $4.5 billion for general expenses this year and every year long into the future, without depleting the state's petroleum assets. That's the most recent estimate of sustainable General Fund spending by Scott Goldsmith, professor emeritus of economics at ISER. He began estimating that sustainable spending level in 2012, adjusting it annually with changes in the size of state petroleum assets. He currently estimates those assets (consisting of savings accounts and expected revenues from future petroleum production) at $135 billion.

Falling oil prices over the past several months have added to the fiscal challenge Alaska’s state government already faced: North Slope oil production, which has largely paid for government operations since the 1970s, is less than a third of what it once was. Gunnar Knapp, ISER’s director, and Cliff Groh, the chair of Alaska Common Ground, are planning a series of presentations to help Alaskans understand the state’s fiscal situation. Their presentations at ISER are the first in that series, and they encourage the audience to ask questions and offer suggestions for improvement. Gunnar Knapp describes the fiscal situation, providing an overview of the state’s revenues, expenditures, and savings. Cliff Groh discusses the challenges that situation poses and outline the options for dealing with them. They do not advocate for any specific option or course of action, but rather they hope to help set the stage for an informed discussion among Alaskans.

Alaska Common Ground and ISER recently sponsored a non-partisan public forum, with analysts from government, the University of Alaska, and private industry discussing choices the state government will likely face as pressure on the state budget increases. Oil from Alaska’s North Slope has supported the state’s government and economy for decades. But oil production has been dropping—at the same time population and state spending have been growing and the government’s debt obligations, pension liabilities, and other costs have been increasing. Now you can watch panel discussions from the October 4 forum on Alaska Common Ground's website.

Alaskans will soon vote on whether to keep the state's new oil production tax, known as SB 21, that went into effect this year, or to go back to the previous tax, called Alaska's Clear and Equitable Share (ACES). A new analysis by Matthew Berman, professor of economics at ISER, looks broadly at how the new tax compares with the tax it replaced, examining not only how future state revenues might differ under the two systems, but also other differences—how the two compare with older production tax regimes and how government-industry relationships vary under the two systems. He finds that SB 21 has a number of drawbacks, compared with earlier systems, including its administrative complexity and its low effective tax rate for new oil—which means that the state's percentage share of the value of the oil is likely to decline over time. He identifies the one major problem with ACES as its high effective tax rates, which could hamper new investment. Overall, Dr. Berman concludes that the tax system in place before ACES—the Petroleum Profits Tax, replaced by ACES in 2007—is arguably a better fit for Alaska, because it had neither the high tax rates of ACES nor the administrative complexity of SB 21. Download the full analysis, Comparing Alaska's Oil Production Taxes: Incentives and Assumptions (PDF, 684KB). If you have questions, get in touch with Gunnar Knapp, ISER's director, at gpknapp@uaa.alaska.edu or 907-786-7717.

In the primary election scheduled for August 19, Alaskans will vote on whether to keep or repeal the new state oil-production tax system, commonly known as Senate Bill (SB) 21. Alaska Common Ground and several co-sponsors (including ISER) are holding a forum on the oil-tax referendum on July 23, in the Wilda Marston Theatre of Anchorage's Loussac Library, from 7 p.m. to 9 p.m. The forum is free and open to the public. Speaking in favor of repealing the new tax will be Bill Wielechowski, a state senator from Anchorage, and Gregg Erickson, a long-time Alaska economist. Supporting the new system will be Brad Keithley, an oil and gas policy consultant, and Roger Marks, a veteran petroleum economist. ISER's director, Gunnar Knapp, will moderate the discussion. Alaska Common Ground is a non-profit organization that brings Alaskans together to talk about Alaska public policy issues. For more information, go to www.akcommonground.org or call 907-952-3353.

Updated on June 27, 2014 On Friday, June 27, Scott Goldsmith, professor emeritus of economics at ISER, will host a technical workshop, open to the public, to discuss the model used in his recent analysis (pdf, 2.6MB) of future revenues under the state’s old method of taxing oil production, called ACES, and the new method that went into effect in January, known as SB21 or MAPA. When: Friday, June 27, 2 p.m. to 4 p.m. Where: UAA Consortium Library, Room 307. Parking is free on UAA campus this week. Available for download: Analysis (pdf, 2.6MB) Analysis model (.xlsx, 234KB) Presentation - May 1, 2014 (pdf, 3.95MB) to the Resource Development Council Presentation - June 25, 2014 (pdf, 3.45MB) to Commonwealth North If you are planning on attending the workshop, please RSVP by calling (907) 786-7710 so we know how many to expect.

Residents of the Mat-Su Borough north of Anchorage say they would be willing to pay substantial amounts for actions that help protect things that drew them to the area in the first place—including salmon streams, local farmland, and opportunities for recreation and hunting. That's the main finding of a recent survey ISER economist Tobias Schwörer conducted of borough residents. The survey asked respondents to choose among different hypothetical future land-use and development alternatives, with different costs assigned to each alternative. By their choices, the respondents put dollar values on actions that would help protect non-market resources, like healthy salmon runs and public easements for hiking or snowmachine trails. These dollar amounts are hypothetical—no one was actually asked to pay anything—but they are still important measures of what borough residents value and consider worth paying for. The survey was done for The Nature Conservancy, with funding from the Bullitt Foundation, the Gordon and Betty Moore Foundation, and the U.S. Fish and Wildlife Service. Read the 4-page summary of survey results, and see technical documentation of the survey and analysis of data. For more information, get in touch with Tobias Schwörer at tschwoerer@alaska.edu.

Reinhold Sackmann, Dr. rer.pol. habil., is Full Professor for Sociology, Dynamic Analysis of Social Structure, at the University of Halle-Wittenberg. His fields of research are life course analysis, sociology of education and coping with demographic change. He talks about how after accelerated population growth in the last two centuries, in a number of European and East Asian countries there are signs of a stagnant, sometimes shrinking population that is getting older and more heterogeneous. What are the effects of this new situation? Is there scope to modify effects of these new trends? Dr. Sackmann conducted a longitudinal data analysis of German school systems from 1995-2010, which shows that demographic change has had a profound effect on the institutional system of the education system, which for a long time was seen as a path dependent system that could not be transformed by political reforms.