Alaska borough governments depend much more on state money now than a decade ago

Tuesday, 27 June 2017, 03:25:02 PM. As aid from the state drops, local governments will likely need to adapt, according to a new study.

Local governments around Alaska depend on state funding much more than they did about a decade ago, and the impact of a state budget that has dwindled in recent years will likely force many communities to make changes to adapt.

Those are a couple of the main findings in a new report released this week by the Institute of Social and Economic Research at the University of Alaska Anchorage.

The report looked at how much the state's 19 borough governments rely on state aid, and how vulnerable those local budgets are to Alaska's budget shortfall. While most local government revenues have continued to grow, the study found, that is "almost certainly temporary."

"(I)t seems inevitable that local governments will need to either raise taxes or reduce services as aid from the state drops," the ISER report said. It also found that there has been "little analysis of how the decline of state revenues might affect local governments."

Across all boroughs, the report found, the average share of revenues a borough received from the state more than doubled between 2005 and 2015, from about 12 percent to 28 percent. There are three main kinds of state aid to communities: general government operating money, public works project grants, and school aid.

Between 2012 and 2016, though, plummeting oil prices caused Alaska's budget to decline 90 percent, the study explained. The last-minute budget the Legislature passed this week didn't address measures to fix the state's $2.5 billion budget deficit.

[Local government was a growth industry in Alaska in 2016. Wait, what?]

A big reason for the study, said author and UAA economics professor Mouhcine Guettabi, was to get a better understanding of what the state's budget crisis would mean at a local level all around the state.

“The conversation that we’ve been having has been centered around statewide issues with almost the assumption that places are homogeneous or that everybody will be affected the same way by impending changes,” he said. “Not that anyone was saying that, but the reality is the economy and finances of these places are very different.”

Some boroughs depend much more on money from the state than others, the report found. The Northwest Arctic Borough, for example, got an average of about 38 percent of its revenues from the state between 2000 and 2015. Compare that to Anchorage, which got 4 percent of its revenue share from state money.

Some communities around Alaska have already felt the squeeze from the state's budget woes: Alaska Dispatch News reported last year that some local governments have started to claw back funding for services.

[Decline of Alaska revenue sharing leaves communities vulnerable]

I don’t think we can afford to think about statewide solutions without thinking through what the implications are at the community for local governments,” Guettabi said.

The number of jobs tied to government revenue in each borough also varies greatly. Nearly 61 percent of jobs in the Lake and Peninsula Borough were in local government in 2015, the study found, and Anchorage was the least dependent on such employment.

If a borough needed to make up for dwindling state funding in 2015 with tax dollars, it could cost anywhere between $250 and $5,000 per person in extra taxes depending on the region, the study found.

Going forward, it’s difficult to imagine those dollars continuing to flow,” Guettabi said. “So where do local or borough governments go from here? That is a thing we don’t answer.”

ISER used borough audits, collected by the Alaska Department of Commerce, Community, and Economic Development, for data in the study.

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