Download - Understanding Alaska State Finances
Understanding Alaska State Finances
Institute of Social and Economic ResearchUniversity of Alaska Anchorage
February 20, 2003
ISER 04/22/23
Topic 1.1 Where does the money come from?
State Budget by Source, FY'02
State Unrestricted
Funds35%
Federal Funds31%
Permanent Fund Earnings
20%
State Restricted
Funds14%
Total: $7.4 billion
1/3 of the state budget is state general purpose funds.
1/3 is federal matching funds.
Source: Legislative Finance, Summary of Appropriations FY02/03
ISER 04/22/23
Topic 1.2 Where do state unrestricted funds come from?
State Unrestricted Fund Sources, FY'02 Draw from
CBR32%
Oil54%
Rents and Royalties
0%
Program Receipts &
Other7%
Non-oil Taxes7%
Total: $2.5 billion
More than 1/2 were from oil
1/3 came from the Constitutional Budget Reserve
Source: Legislative Finance, Summary of Appropriations FY02/03 – includes supplementals
ISER 04/22/23
Topic 2.1: How does the state spend the money?
More than half of all state spending is for general government operations
Source: Legislative Finance, Summary of Appropriations FY02/03
State Spending FY02, All Sources
Operations57%Capital
19%
Permanent Fund Dividends
& Inflation Proofing
20%
Debt & Other 4%
Total: $7.4 Billion
ISER 04/22/23
Topic 2.2: What is in the operating budget?
1/3 of the operating budget is for education.
Source: Legislative Finance
Total: $4.5 billion (State and Federal Funds)
State Operating Budget FY02
University of Alaska11%
Education and Early Development
21%
Natural Resource Management
5%Public Safety
8%Health and Social
Services30%
General Government9%
Labor and Community Development
5%
Debt Service and Special Appropriations
6%
Transportation & Public Facilities
5%
ISER 04/22/23
Topic 2.3: What are the largest operating programs?
FY02 Operating Budget -- Ten Largest Programs
0 100 200 300 400 500 600 700 800
Medicaid Services
K-12 Foundation Support
University of Alaska
Public Assistance
Corrections
Public Health Services
Teaching and Learning Support
Public Assistance Admin
Marine Highway System
Highways and Aviation
Millions of dollars
State General Fund
Federal
Other Restricted Funds
Source: Legislative Finance and ISER
ISER 04/22/23
Topic 3: Who gets the money? Two thirds of total state spending (all
funds) goes directly to Alaska businesses, households and local governments.
Source: ISER
Type of Spending, FY99
Purchases from Alaska Businesses
27%
Payments to Households
25%
State Payroll18%
Grants to Local Governments and
Non-Profits15%
Debt Service and Other15%
ISER 04/22/23
Topic 4.1: How has state spending changed over time?
Source: Legislative Finance
State Spending, 1982-2002
$0$1,000$2,000$3,000$4,000$5,000$6,000$7,000$8,000
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002Fiscal year
Milli
ons
of
Dolla
rs
Permanent Fund DividendsFederal FundsState Restricted FundsState Unrestricted General Funds
ISER 04/22/23
Topic 4.2: How has real, per person state spending changed?
When we adjust for inflation and population growth, the state’s
buying power (excluding PFDs and federal funds) has declined 14% since
1992
Source: ISER
$0
$5,000
$10,000
$15,000
$20,000
$25,000
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Fiscal Year
Rea
l per
Cap
ita S
pend
ing
14%
ISER 04/22/23
Topic 5.1: Why is there a budget deficit?
80% of unrestricted revenues are from oil Oil revenues are declining
Source: Legislative Finance and Alaska Department of Revenue
State Unrestricted GF Revenues and Spending
0.0
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
6,000.0
Fiscal Year
Mill
ions
of D
olla
rs
Deficit Spending
Oil Revenues
Non-oil Revenues
ISER 04/22/23
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 2019Year
Bar
rels
per
Day
Topic 5.2: Why are oil revenues declining?
NPRA
Other NS
Northstar
Colville R
Badami
Duck Island
GPMcIntyre
Milne Pt
KRU.IPA+Sat
PBU.IPA+Sat
Cook Inlet
Source: Alaska Department of Natural Resources
Prudhoe Bay
Kuparuk
Oil Production 1969 - 2022
ISER 04/22/23
Topic 6.1: How does the state cover the deficit?
The budget deficit has been covered by funds withdrawn from the Constitutional Budget Reserve Fund.
The CBR has $2 billion.
Source: Alaska Department of Revenue
ISER 04/22/23
Topic 6.2: When will the CBR run out of money?
Source: Alaska Department of Revenue Fall 2002 Revenue Sources
Projected Budget Deficits and CBR Balances
0
500
1000
1500
2000
2500
3000
2003 2004 2005 2006 2007 2008 2009 2010
Fiscal Year
Mill
ions
of D
olla
rs
Budget Deficit
CBR Balance
ISER 04/22/23
Topic 7: What can we do about the deficit?
Budget cuts Economic development Business or excise taxes or
user fees Permanent Fund earnings Sales or income taxes
ISER 04/22/23
Topic 8.1: What would happen if we just cut the budget?
The $900 million deficit is 1/3 of the state General Fund budget
Small cuts will not close the gap Large cuts would eliminate
essential services and entitlements
Source: ISER
ISER 04/22/23
Topic 8.2: How would cuts affect the state’s economy?
On average, every $1 million in state budget cuts will cost: $900 thousand in federal funds;10 state and local government jobs
8 private sector jobs.
Source: ISER
ISER 04/22/23
Topic 9.1: Will economic development solve the problem?
Other than oil, Alaska resource industries are small and marginal
ISER 04/22/23
Topic 9.2: How much does a new job cost government?
New jobs cost state and local governments more than they generate in tax revenues.
ISER 04/22/23
Topic 9.3: What about raising oil revenues ?
A ten percent increase in production by 2010 might raise $100 million in revenues
New discoveries take years to produce The state receives less than half as
much production tax per barrel of new oil as from Prudhoe Bay
Major new taxes would discourage investment in new fields
ISER 04/22/23
Topic 10: Can we raise user fees and excise taxes?
Increasing excise taxes and user fees would raise less than $100 million.
Source: Revenue Sources Spring 2002, with ISER calculations
(in millions)Raise gas taxes to match Rhode Island $63.0Levy cruise ship passenger fees of $25 $17.5Increase user fees five percent $16.0
Total new revenues $96.5
ISER 04/22/23
Topic 11.1: What about using earnings from the Permanent Fund?
ISER 04/22/23
Topic 11.2: What will happen to my dividend if we use PF earnings?
There are not enough earnings to inflation proof the principal, fill the fiscal gap AND pay dividends.
Source: Alaska Department of Revenue and ISER
Projected Dividend if PF Earnings Are Used
$0
$500
$1,000
$1,500
$2,000
2002 2003 2004 2005 2006 2007 2008 2009 2010
Fiscal Year
Use only $300 million
Fill whole gap
ISER 04/22/23
Topic 12.1: How much would I have to pay with a sales or income tax?
Half of Alaskans would pay less in taxes under an income tax than under a sales tax.
Source: Institute on Taxation and Economic Policy
$0
$1,000
$2,000
$3,000
$4,000
$0 $50 $100 $150Income (in thousands)
Taxe
s (in
dol
lars
)
Flat Tax on FederalTaxable Income
General Sales Tax
median income = $51,571Two Broad Based Taxes Collecting $300 Million:
ISER 04/22/23
Topic 12.2: What share of my income would I pay?
Lower income people pay a higher percentage of their income in sales taxes.
Source: Institute on Taxation and Economic Policy
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
$0 $50 $100 $150Income (in thousands)
Taxe
s as
% o
f Inc
ome
Flat Tax on FederalTaxable Income
General Sales Tax
Two Broad Based Taxes Collecting $300 Million:
median income = $51,571
ISER 04/22/23
Topic 13: How much would non-residents and the federal government pay?
Source: Institute on Taxation and Economic Policy
Alaskans who itemize can deduct state income taxes from their federal tax return.
Shares Paid by Alaskans, Non-residents and the Federal Government
$0
$100
$200
$300
$400
Sales tax Income tax
Tax
Colle
ctio
ns in
Mill
ions
Collections fromnonresidents
Reductions in federaltaxes paid by itemizers
Collections from Alaskahouseholds
ISER 04/22/23
Topic 14: How would each alternative affect the state’s economy?
Job Loss from Five Fiscal Policy Alternatives $900 million in Cuts, Taxes or PF Earnings
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Budget Cuts Sales Tax Income Tax PF Earnings PF Earnings &Income Tax
Jobs
Los
t
Source: ISER
ISER 04/22/23
Topic 15: How would you fill the fiscal gap?
Budget cuts ________Economic development and taxes on industry
________
User fees and excise taxes
________
Permanent Fund earnings
________
Sales taxes ________Income taxes ________ Total
$900 million
ISER 04/22/23
Topic 17: Where can I go for more information?
For comprehensive information, explanation and analysis, look for ISER’s forthcoming Citizen’s Guide to the Budget Web site
For current budget numbers see the Legislative Finance Web site: http://www.legfin.state.ak.us/
For revenue projections and analysis see Revenue Sources at: http://www.tax.state.ak. us/SourcesBook/SOURCES.htm