How do we build the Alaska we want?

Most of us would prefer a solution to Alaska’s budget problems so that we can see a more rapid economic recovery and a more prosperous future. The ways to this solution being debated in Juneau include everything from overdrawing the Permanent Fund, no dividend, massive unspecified cuts to government, changes to oil taxes, or potential income and/or sales taxes. A short-run sustainable solution could involve some combination of approaches. A truly sustainable solution will require overcoming the disconnect between the Alaska state government’s revenue sources and changes in Alaska’s population.

Solving Alaska’s budget crisis would allow the state to start to recover from the multiple body blows its economy has taken in the last decade. A growing and prosperous Alaska will become a more attractive place to live -- more of our kids will stay here, young people will once again see it as a place to start a life, and grandparents will stay in order to be around family. All of this will lead to a growing population -- more kids in schools, more people on the roads and ferries, more need for public safety and other infrastructure. If Alaska’s revenues remain untethered to population, growth will also lead to a decline in quality of life associated with overstressed infrastructure. We’ll have solved the problem of the moment -- how to pay for the things we already consume.

The real question facing our leaders is how to build an Alaska we want to live in, that has a growing economy and provides a promising future for our children. That will require funding government in a way that responds to the number of Alaskans and their needs today and in the future. The only revenue options on the table that are responsive to the size of Alaska’s population are broad-based taxes -- income taxes, sales taxes or property taxes. Otherwise, one way or another, we will end up in the same place -- with underfunded students, overused infrastructure and unsafe communities.

We can see this disconnect in the data. Per-capita inflation adjusted spending is already at pre-oil levels. State government spending has increased, but the additional services have been consumed by population growth. The inability for services to grow with population means hidden cuts to education, public safety and necessary infrastructure.

Outside of Alaska, population growth enables economic growth. More people mean more consumers, more producers, and state revenue to provide necessary infrastructure to allow Alaskans to trade in the free market. In Alaska, economic growth is limited by the ability of the state to provide the necessary infrastructure with its fixed income.

A true solution to our budget problems will speed economic recovery. Our former colleague, Mouhcine Guettabi, estimated the cost of uncertainty is hundreds of millions of dollars in private investment. This is money that is waiting to be spent and private sector jobs waiting to be created by a Legislature and governor that find a workable compromise. A sustainable solution to the fiscal problem would enable our legislature to return to its real purpose, doing the people’s work of passing legislation to improve our communities, grow our economy and keep Alaska the freest state in the nation.

Kevin Berry, Ph.D., and Alexander James, Ph.D., are Associate Professors of Economics at UAA.

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