By Mouhcine Guettabi, Associate Professor of Economics
In this brief, we summarize the state’s unrestricted general fund revenues, agency operations spending, and capital budget spending between fiscal years 1975 and 2021. The severe decline in oil prices in 2015 resulted in a significant revenue decline which has then resulted in spending reductions at both the agency operation level and the capital budget. For fiscal year 2021, capital spending per person will be the third lowest since 1975 and Agency Operations will be the sixth lowest in real dollars.
Alaska’s revenue picture over the years
Alaska’s unrestricted general fund revenues have considerably fluctuated over the years largely due to changes in oil prices and production. When evaluating the revenue picture and assessing the real value of the state’s inflows, it is important to account for both population and inflation as the population has significantly increased and the value of a dollar decreases over time. In figure 1, we show that the state’s revenues inclusive of the permanent fund draw will be $2,920 per person in fiscal year 2021. The historical average between 1975 and 2021 stands at $3,659 dollars per person which is $729 above this year’s revenues. Additionally, it is obvious from the graph below that failure to account for inflation provides a very misleading picture.
Next, we evaluate agency operations per person. We find that Average real per capita agency operations between 1975 and 2021 is $6,158 dollars. In FY 2021, real agency operations per capita spending is expected to be $4,971 which will be the 6th lowest since 1975. That spending level is $1,187 per person below the average.
Average per capita capital spending in nominal terms between 1975 and 2021 is $696.9. Once we adjust for inflation, we find that the average capital spending is $1,152. Fiscal year 2021 per capita capital spending level in real dollars will be the third lowest since 1975. It is now $979.23 per person below the average. In real terms, it is expected to be $172.97 per capita in FY 2021. Capital spending per person has declined from $829 to $184 per person between 2015 and 2021. That represents a $644.64 decline per person.
It is clear from the three graphs above that Alaska’s revenues, agency operations, and capital spending are well below historical averages. Absent new revenues, the state’s revenue picture is unlikely to change in the near future which makes maintaining the current services and paying a statutory dividend unsustainable.