A Regional Assessment of Borough Government Finances And Employment

Abstract

Alaska’s state budget revenues declined by more than 90% from 2012 to 2016, mainly due to a sharp drop in oil prices: oil revenues have paid for most state government operations since the 1980s. This loss of so much revenue has led to a shortfall of billions of dollars in the state budget and a sluggish economy. The health of a state’s tax revenues is critical to its economic growth and ability to finance public services. Considerable attention has been paid to the state’s fiscal woes, which are still ongoing. But the state also provides considerable support to Alaska’s local governments—and there has been little analysis of how the decline of state revenues might affect local governments. This analysis reports how much Alaska’s 19 borough governments rely on state aid—individually and as a group—and considers how vulnerable they are to cuts in state aid as time goes on. Alaska also has city governments, both within and outside organized boroughs, but here we look only at borough governments —which are essentially regional governments that, unlike cities, all have the same mandatory powers. We want to emphasize that our figures are estimates; boroughs report their revenues quite differently, and sometimes in ways that make it nearly impossible to identify allocations from the state. Alaska provides three main kinds of aid to local governments: aid for general government operating expenses (revenue sharing), grants for public works projects, and aid for schools. It has mostly relied on its oil wealth to fund that aid to local governments. Revenue sharing helps ensure that all areas of the state can pay for basic public services and have reasonably equitable and stable local tax rates. Aid to schools is a major part of the state’s budget, and it pays for a large share of school costs. State grants for local capital projects can vary sharply by year. In the years when oil prices were high—much of the time between 2008 and 2012—those grants were large. Since then, the state capital budget has shrunk to a small fraction of what it was a few years back.