Alaska Progress Report

Rural energy costs up to five times higher than Anchorage

From a recently completed Commonwealth North study, Energy for a Sustainable Alaska: The Rural Conundrum: "Recent studies have demonstrated that the poorest households in rural Alaska spent up to 47% of their income on energy in 2008, more than five times their Anchorage neighbor. Given the meteoric rise in the cost of oil since then, estimates of the burden today are significantly higher.

"The Commonwealth North Rural and Alterative Energy Study Group received presentations from regional organizations on energy plans in various stages of developments. Virtually all the plans included some version of renewable energy - generally still in the early concept design stage - and interconnection of communities to that generation source. All the plans appeared to be very high cost, upward of $500 million per region, and none would dramatically lower the cost of energy without massive government subsidies.

"The Renewable Energy Fund, established in 2008, is authorized to underwrite $250-300 million of energy projects, but with projects for small communities coming in at $4-5 million each, it is likely that per-community renewable solutions will cost $2 billion statewide, and will at best keep electricity prices stable into the future. Heat and transportation fuel substitutions will greatly increase this number."

Health care spending in Alaska: $7.5 billion

Health-care spending in Alaska reached about $7.5 billion in 2010, according to new estimates by Scott Goldsmith of ISER and Mark Foster of Mark A. Foster and Associates. For comparison, that's close to half the wellhead value of all the oil produced in Alaska in 2010. The definition of health-care spending is broad, including not only spending for hospitals, doctors and medical tests, but also prescriptions, nursing homes, medical equipment and more. The researchers found the following:

• Health-care spending in Alaska increased 40 percent between 2005 and 2010, up from $5.3 billion to $7.5 billion.
• Individual Alaskans directly paid about 20 percent of the health-care bill, state and federal health programs 40 percent, and private and government employers 40 percent.
• A combination of things is driving health-care spending in Alaska and nationwide: new technology, income growth, medical-price inflation, changing insurance coverage and a growing, aging population.
• At current trends, health-care spending in Alaska could nearly double by 2020, climbing to more than $14 billion. Controlling that growth will be a big challenge.

Read the full report here.

Alaska has lowest tax burdens

The conservative Tax Foundation has released its latest Facts & Figures Handbook that "...compares the 50 states on 31 different measures of taxing and spending, including individual and corporate income tax rates, business tax climates, excise taxes, tax burdens and state spending." Alaska generally ranks at or near the bottom in terms of tax burdens. For example, we're ranked 49th for per capita state and local tax burden in FY08, with $2,871 owed per person compared to a national average of $4,283. As a percentage of state income we're ranked 50th, with a burden of 6.4% compared to a national average of 9.7%.

In general Alaska has rankings in the Foundation's book at the top or at the bottom because of (1) our lack of a state income tax, Alaska being one of seven states that do not levy one, and (2) our combination of a small population with big oil revenues, which results in things like Alaska being ranked #1 for state revenues per capita at $23,168 per person, versus a national average of $4,995.

The Tax Foundation is not known for being particularly careful with their figures. Every year they release a report called "Tax Freedom Day" that purports to identify that date on which Americans have earned enough to pay their tax bill.Fortunately, for a variety of reasons, 80% of taxpayers pay a smaller share of income in taxes than what the Foundation says is the average.

Alaska ranks high in state government employees

Geeks wallow in numbers like pigs in... well, you know. The mere fact that you're reading this means you're looking for a place to wallow. So surf on over to The National Data Book, a.k.a. the US Census Bureau's 2009 Statistical Abstract of the United States. While you're there check out the State & Local Government Finances & Employment page. Some great wallowing there.

I downloaded table 447 - State and Local Government Full-Time Equivalent Employment, by Selected Function and State: 2006. Yeah I know, exciting! Adding up the total state and government employment shows Alaska ranked third nationwide for state employees as a percent of total government employment: 44.4% in our case, versus a national average of 25.7%. That's still far below Hawaii (81.0%) and even Delaware (50.5%), but way above last place New York (20.0%) and even California (20.3%). What's that mean? Who cares, it's data!

Alaska's New Budget Released

The FY2010 budget for the year starting July 1, 2009, has been released by the governor's office. Palin claims it is a smaller budget than last year's in real terms, i.e. taking inflation into account, but that is a bit of a contortion as it does not count certain pots of money. In any case it's roughly flat. Palin seems to be cutting capital spending to support maintaining the operating budget, but at a luncheon Tuesday some legislators believed the opposite would be a better approach. Let the games begin!

Also, there's the small matter that the budget is based on revenues from oil that is selling at over $70 per barrel. It's currently selling at about half that, so that's making a lot of people nervous. If you really want to get into the nuts and bolts, check out the Citizens Guide to the Budget at ISER. It's a bit dated but still contains a lot of useful information on how we compare to other states, where the money comes from and where it goes.

Where Does Alaska's Money Come From?

And where will it be coming from? Those are the questions answered by the Revenue Sources Book, just released in its Fall 2008 edition by the Department of Revenue Tax Division: "The purpose of the semi-annual Revenue Sources Book is to provide the governor, legislature and citizens of the state a summary of our past collections of state revenue and a forecast of future revenue. Revenues are categorized into four major components: oil revenue, revenue from sources other than oil, federal revenue and investment revenue.

"Oil revenue continues to dominate the unrestricted revenue picture—and is projected to provide more than 84% of General Purpose Unrestricted Revenue through FY 2018. However, North Slope oil production is declining." Oil provided roughly $11 billion of Alaska's $13 billion in FY08 revenue. Oil revenue is a simple multiplication of barrels produced times Alaska's cut of the price per barrel. With oil production declining - the pipeline is running at less than half capacity these days - and likely to continue doing so, we'll be in a pickle eventually.

Luckily we have the Constitutional Budget Reserve, Alaska's rainy day government savings account, which we have tapped to balance the state budget in ten of the last fifteen years, most recently in 2003. We'll probably have to do it again in 2009, drawing down the $2.7 billion current balance. The good news: "Assuming forecasted oil prices and a 3% annual increase in the state budget, the CBRF is expected to last at least until December 2020." Of course, they are also predicting an average price of over $60 per barrel for the current fiscal year, and over $70 for FY09, when it's currently trading at less than $40 per barrel. So get out your grains of salt.