New year will reveal impacts to economy from budget cuts

  • The collapse in oil prices has been bad for the state budget, but lower costs for gas and heating oil have put more money in Alaskans’ pockets this year. Unemployment figures have been relatively stable over the past year, and the coming year will reveal how greatly the state economy is impacted by budget cuts and reduced employment in the oil industry.Photo/Mark Thiessen/AP

There is a strong sense of uncertainty regarding Alaska’s near term economic future in state industry circles, while basic indicators continue to show growth.

The state’s unemployment rate was 6.4 percent in November, steady from October and down very slightly from a year ago.

A 6.4 percent unemployment rate is significant for Alaska, as it hasn’t been less than 6.3 percent in the nearly 40 years the state Labor Department has tracked the metric.

Unemployment is less than 6 percent in the state’s urban hubs.

The average number of working Alaskans is up more than 2,700 over 2014, according to the department.

Historically strong commercial salmon harvests and a strong-as-ever tourism industry — more than 1.9 million visitors in 2015 spending on average more than $900 apiece — have pushed employers to add positions the last few summers.

Low oil prices wreak havoc on the state budget, but they encourage Lower 48’ers spending less on energy to travel and spend that cash in Alaska.

Disposable income has been freed up in Alaska as well, particularly for residents who heat their homes with heating oil.

Behind those metrics, however, are less optimistic numbers.

Alaska’s population growth has flattened, which could distort unemployment figures. The state had a net outmigration of about 7,500 people in fiscal year 2014, most of whom were likely working-age adults, economic experts have said.

That was offset by in-state births that kept Alaska’s population nearly perfectly flat at 735,600 from 2013 to 2014, according to the most recent data available from the state Labor Department.

A naturally transient population, combined with a healthy Lower 48 economy, can cause out-of-work Alaskans to leave the state rather than file for unemployment.

Oil and gas industry employment was down 900 jobs statewide in November from a year prior, based on preliminary Labor numbers.

In a state heavily reliant on government spending, a lot rests on what legislators and Gov. Bill Walker do to address the state’s budget deficit, growing towards $3.5 billion as oil falls to less than $35 per barrel for the first time in more than a decade.

The governor’s aggressive proposal — and similar ideas floated in the Legislature — to revamp how the state manages its revenue would provide a foundation to fund government long-term and set a clearer economic picture.

However, his plan includes industry and income taxes and likely smaller dividends that would certainly impact private spending at least a little.

And while minimal capital spending from the state will probably be the norm for at least the next few years, the producer partners and the State of Alaska will continue pumping several hundred million new dollars into the economy each year they design and ponder the Alaska LNG Project.

Oil prices have been down from a $110 per barrel peak for more 18 months; at the same time, the 30-year average price for a barrel of Alaska oil is about $50 when adjusted for inflation, which makes current prices low, but not a historical anomaly.

Alaska’s economy is slowly diversifying and the next year or two will speak volumes as to whether it has diversified enough to make the state viable without the security blanket of dominating petroleum revenue. 

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

Updated: 
01/13/2016 - 10:56am

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