Transcript www.iser.uaa.alaska.edu

Understanding Alaska
State Finances
Institute of Social and Economic Research
University of Alaska Anchorage
February 20, 2003
ISER 7/7/2015
Topic 1.1
Where does the money
come from?

State Budget by Source, FY'02
1/3 of the
State
state budget
Restricted
is state
Funds
State
14%
general
Unrestricted
Funds
purpose
Permanent
35%
Fund Earnings
funds.
20%

1/3 is federal
matching
funds.
Federal Funds
31%
Source: Legislative Finance, Summary of Appropriations FY02/03
Total: $7.4 billion
ISER 7/7/2015
Where do state
unrestricted funds come from?
Topic 1.2
State Unrestricted Fund Sources, FY'02
Draw from
CBR
32%
Oil
54%
Total: $2.5 billion
Program
Receipts &
Other
7%

Rents and 
Royalties
0%
Non-oil Taxes
7%
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 7/7/2015
Topic 2.1:
How does the state
spend the money?
State Spending FY02, All Sources
Permanent
Fund Dividends
& Inflation
Proofing
20%

Debt & Other
4%
Operations
57%
Capital
19%
Total: $7.4 Billion
Source: Legislative Finance, Summary of Appropriations FY02/03
More than
half of all
state
spending is
for general
government
operations
ISER 7/7/2015
Topic 2.2:
What is in the operating
budget?
State Operating Budget FY02
General Government
9%
Labor and Community
Development
5%
Transportation & Public
Facilities
5%
Natural Resource
Management
5%
Public Safety
8%
Source: Legislative Finance
Debt Service and
Special Appropriations
6%

Education and Early
Development
21%
1/3 of the
operating
budget is for
education.
University of Alaska
11%
Health and Social
Services
30%
Total: $4.5 billion
(State and Federal Funds)
ISER 7/7/2015
Topic 2.3:
What are the largest
operating programs?
FY02 Operating Budget -- Ten Largest Programs
Millions of dollars
0
100
200
300
400
500
600
700
Medicaid Services
K-12 Foundation Support
University of Alaska
Public Assistance
Corrections
State General Fund
Public Health Services
Teaching and Learning Support
Federal
Public Assistance Admin
Marine Highway System
Highways and Aviation
Source: Legislative Finance and ISER
Other Restricted Funds
800
ISER 7/7/2015
Topic 3:

Who gets the money?
Two thirds of total state spending (all funds)
goes directly to Alaska businesses, households
and local governments.
Type of Spending, FY99
Debt Service and
Other
Grants to Local
15%
Governments and
Non-Profits
15%
State Payroll
18%
Source: ISER
Purchases from
Alaska Businesses
27%
Payments to
Households
25%
ISER 7/7/2015
Topic 4.1:
How has state spending
changed over time?
Millions of
Dollars
State Spending, 1982-2002
$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Fiscal year
Permanent Fund Dividends
Federal Funds
State Restricted Funds
State Unrestricted General Funds
Source: Legislative Finance
ISER 7/7/2015
Topic 4.2:
Real per Capita Spending
$25,000
$20,000
$15,000
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

$10,000
14%
$5,000
$0
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Source: ISER
Fiscal Year
ISER 7/7/2015
Topic 5.1:


Why is there a budget
deficit?
80% of unrestricted revenues are from oil
Oil revenues are declining
State Unrestricted GF Revenues and Spending
Millions of Dollars
6,000.0
5,000.0
Deficit Spending
Oil Revenues
Non-oil Revenues
4,000.0
3,000.0
2,000.0
1,000.0
Fiscal Year
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
0.0
Source: Legislative Finance and Alaska Department of Revenue
ISER 7/7/2015
Topic 5.2:
2,500,000
Why are oil revenues
declining?
Oil Production 1969 - 2022
NPRA
Other NS
Northstar
2,000,000
Colville R
Barrels per Day
Badami
Duck Island
GPMcIntyre
1,500,000
Milne Pt
KRU.IPA+Sat
PBU.IPA+Sat
Cook Inlet
1,000,000
Prudhoe Bay
Kuparuk
500,000
0
1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 2019
Source: Alaska Department of Natural Resources Year
ISER 7/7/2015
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 7/7/2015
Topic 6.2:
When will the CBR run
out of money?
Projected Budget Deficits and CBR Balances
Millions of Dollars
3000
Budget Deficit
2500
CBR Balance
2000
1500
1000
500
0
2003 2004 2005 2006 2007 2008 2009 2010
Fiscal Year
Source: Alaska Department of Revenue Fall 2002 Revenue Sources
ISER 7/7/2015
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 7/7/2015
Topic 8.1:
 The
What would happen if we
just cut the budget?
$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 7/7/2015
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 7/7/2015
Will economic
development solve the problem?
Topic 9.1:

Other than oil, Alaska resource
industries are small and marginal
ISER 7/7/2015
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 7/7/2015
Topic 9.3:
A
What about raising oil
revenues ?
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 7/7/2015
Topic 10:

Can we raise user fees
and excise taxes?
Increasing excise taxes and user fees
would raise less than $100 million.
Raise gas taxes to match Rhode Island
Levy cruise ship passenger fees of $25
Increase user fees five percent
Total new revenues
Source: Revenue Sources Spring 2002, with ISER calculations
(in millions)
$63.0
$17.5
$16.0
$96.5
ISER 7/7/2015
Topic 11.1:
What about using earnings
from the Permanent Fund?
ISER 7/7/2015
What will happen to my
dividend if we use PF earnings?
Topic 11.2:

There are not enough earnings to inflation proof the
principal, fill the fiscal gap AND pay dividends.
Projected Dividend if PF Earnings Are Used
$2,000
$1,500
Use only $300 million
$1,000
Fill whole gap
$500
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Alaska Department of Revenue and ISER Fiscal Year
ISER 7/7/2015
How much would I have to
pay with a sales or income tax?
Topic 12.1:
Taxes (in dollars)

Half of Alaskans would pay less in taxes
under an income tax than under a sales tax.
median income = $51,571
$4,000
Two Broad Based Taxes
Collecting $300 Million:
$3,000
$2,000
Flat Tax on Federal
Taxable Income
$1,000
General Sales Tax
$0
$0
$50
$100
Income (in thousands)
Source: Institute on Taxation and Economic Policy
$150
ISER 7/7/2015
Topic 12.2:
Taxes as % of Income

What share of my income
would I pay?
Lower income people pay a higher
percentage of their income in sales taxes.
median income = $51,571
3.0%
Two Broad Based Taxes
Collecting $300 Million:
2.5%
2.0%
1.5%
Flat Tax on Federal
Taxable Income
1.0%
General Sales Tax
0.5%
0.0%
$0
$50
Income
$100
(in thousands)
Source: Institute on Taxation and Economic Policy
$150
ISER 7/7/2015
How much would non-residents
and the federal government pay?
Topic 13:
Alaskans who itemize can deduct state
income taxes from their federal tax return.
Tax Collections in Millions

$400
Shares Paid by Alaskans, Non-residents
and the Federal Government
$300
Collections from
nonresidents
$200
Reductions in federal
taxes paid by itemizers
$100
Collections from Alaska
households
$0
Sales tax
Source: Institute on Taxation and Economic Policy
Income tax
ISER 7/7/2015
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
18,000
16,000
14,000
Jobs Lost
12,000
10,000
8,000
6,000
4,000
2,000
0
Budget Cuts
Source: ISER
Sales Tax
Income Tax
PF Earnings
PF Earnings &
Income Tax
ISER 7/7/2015
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 7/7/2015
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