Congress, over the course of two administrations, has passed relief measures totaling $6 trillion. The most recent, the American Rescue Plan, or ARP, accounts for a third. Individuals, businesses, state and local governments, schools, hospitals, and many others will see benefits from this effort in the months to come.
For each tranche of federal relief, there were – and remain – strong arguments for more targeted spending, or at least not financing it only with debt. Ultimately, however, those gave way to political considerations. Because Congress can always add to national debt, the easiest way to address competing claims for need at the federal level is by increasing the size of an aid package.
The same flexibility isn’t available at the state level, however, and decisions must become more fine-tuned when the aid reaches state and local governments. Here, let’s focus on what this means for Alaska.
First, what’s headed to the state. Overall, Alaska state and local governments already have or will receive roughly $2 billion from prior Congressional action. The ARP directs just over an additional $1 billion directly to state government, plus another $112 million for specified capital projects (broadband, water/sewer, energy). More is headed directly to Alaska’s schools, the University, local governments, businesses, families, and other recipients.
Alaska’s 165 cities and boroughs will see $230 million distributed amongst them, over two years. Before we get too excited, the distribution will mean roughly 76 will receive less than they do from Community Assistance. The total is about equal to vetoes these last two years of school bond and port/harbor debt reimbursement, Community Assistance recapitalization, and other important funding.
It’s by no means a windfall, but it does help to offset some of the costs of COVID-19 and lost revenues experienced this last year. It hopefully stabilizes the majority of, but not all, local budgets.
It does the same, potentially, for the state. Facing a roughly $2 billion revenue shortfall, the aid gives lawmakers options. Now is not the time to come up with a wish list of funding priorities, but Legislative Finance presented a pretty clear picture that the state had reduced its budget about as far as can be done without making significant statutory changes. The Alaska Municipal League has argued that for some things it has gone too far.
A first step to consider is to sort through the categories of state spending that are receiving direct federal aid. Schools, the university, local governments, and others are receiving direct aid for specific purposes.
There also will be direct appropriations from federal agencies into Alaska’s agencies. Together, those funds can help fill gaps in the amount the state needs to provide, but shouldn’t replace current spending levels or requirements. Most middle and lower income Alaska families, beneficiaries of the PFD, will directly receive $1,400-per-person stimulus checks.
After that assessment, and consideration of fund source changes, if any are possible, the next step is to look at this current “base” budget and use the federal funds received by the state to true up what’s remaining to be spent this year at the statutory funding formulas. That means to fully fund the State’s statutory obligations. Essentially, a review of the budget should include filling gaps or targeting programs that need it.
Then, if there are funds remaining — and there may not be much — the third step we would recommend is to address the state’s infrastructure deficit, and more specifically the maintenance backlog. These needs fall into three buckets: school construction and major maintenance, university and state deferred maintenance, and transportation projects (road maintenance, rural airports, and coastal infrastructure).
In light of the federal aid, lawmakers should reconsider the need for the Alaska Housing Finance Corp., Alaska Industrial Development and Export Authority, and general obligation bond proposals. These don’t necessarily have to be taken off the table permanently, but the better course may be to defer them to a later date in order to better spread out and sustain Alaska’s economic recovery.
Totaled up, the scale of federal relief is such that Alaskans can breathe something of a sigh of relief, but we can’t take our eye off the end goal. This federal aid doesn’t solve the challenges that lie ahead.
During this legislative session we still need action on new, equitable revenues; a fix to the PFD formula that avoids continued, deep cuts, the most harmful approach to most Alaskans; and other package items that may include a reasonable spending cap.
Relief doesn’t come with reduced responsibilities to fix these things now; instead, we should view it as providing a bridge from where we have been to where we are headed.
Nils Andreassen is the Executive Director of the Alaska Municipal League. Brad Keithley is the Managing Director of Alaskans for Sustainable Budgets.