Good morning. I'm Diane Hirschberg and I am the Director for ISER Institute of Social
and Economic Research and we are really honored that you are choosing to be with us this morning
for this presentation where we're sharing what I consider to very important work that's
I'm going to introduce the team members in a moment but first I want to acknowledge and thank
the governor's office the Governor requested this work. This is
us revisiting work that was done in 2016 and you all are of course you you
all who are legislators are facing a really critical moment in our state to
make some hard decisions and so we were asked to try to give you some of the
data that you would be able to use. So before we go any further I do want to
invite Governor Dunlevy up here to say a few words.
It's like a church service, it's totally quiet.
Everyone's wondering what's going on.
It'll be OK, guys.
Diane, thank you.
And I want to thank the team, and Diane's
going to introduce those guys here in a little while.
But just very briefly, this came as a result of,
I'm trying to always use data to guide a lot of our decisions
and something of this magnitude.
And that being, what does the state
look like today as opposed to 2016?
What's changed?
What's evolved, what no longer applies,
what are some new issues and items that have been
interjected into the discussions.
And so you're going to see, I think, some great work.
It's an extensive amount of data.
But basically, we asked the university through ice,
and I want to thank Rachel for spearheading this.
To really take a look at where things were in 2016,
many of us were here, many, of you weren't.
I was a senator back then and, you know, we start to have these discussions because of the things that we've been talking about in the fiscal plan and that is the revenue issues, the volatility issues and basically where do we go and how do
They gave us an overview a couple weeks ago,
it's kind of like Decemberish, right?
Some of that happened.
Long story short though, you're going to have a big opportunity
of my understanding is to ask questions,
but we just wanted pure data, no politics.
These guys would not do a study like this
if there were politics interjected into it,
and so the data's there.
We're gonna be able to use it however we want.
And I know that we're in the process of making policy.
for the state of Alaska, so the idea is that this will be helpful,
this'll be useful, and we're going to all do what we want to do
with the data, but hopefully there will
be some things in the Data that you'll see that make sense to you
and that maybe we can gather, get around it,
and make some decisions.
But with that, I'm going
to turn it back to, you, OK,
and wish you nothing but the best,
and then we'll have continued discussions on this.
Anyway, thank you.
Next slide.
So I think many in the room are familiar with who ICER is,
and a reminder for those of you who are in legislature
that it was the legislature that created ICIR in order
to answer some of these critical issues facing the state.
Next side.
And our mission statement, because it's always important
that we go back to it, that ICir enhances
the well-being of Alaskans and others
partisan research that helps people understand social and economic systems and supports informed
public and private decision making. And so work like this, projects like what we're
talking about today is really at the heart of why we do this. It's about enabling our
policymakers and our public to make their decisions with the best possible independently
And so Brett's going to go into detail about the work
that was done building on the 2016 work,
and then adding and extended these analyses.
And you'll also see there's a tool that they've created,
and we're continuing to refine that is going
to let you work with the data yourselves.
We're happy to answer questions and support you all
in working with that data, but we also
We want to have a sandbox where you get to work with those numbers as well.
And again, echoing what the governor said, the researchers worked independently.
I got to listen in on some of the conversations, but the work completely belongs to the
researchers.
A good part of the team, although it's not everyone who worked on it here today.
So Brett Watson, who you'll hear from just a moment, and then Mike Jones, sorry, that's
an inside joke.
And we also have Noah Burke, who contributed considerably,
and we partnered with people in the States
and with the people at McKinley Research.
So we're also appreciative.
It was an enormous amount of work done
in a very short period of time.
And that wouldn't have been possible
without this great collaboration.
So, and the next slide, please.
And just a quick note, this is also the 65th anniversary coming up on ISER's founding and so
we're going to be back to talk about this sometime in the next few weeks. Just to
talk a little bit about not just where we've been but also where
we are. You're gonna get to hear today from a good part of our newer team members and get it.
glimpse into the future of ISER, but we want to share more and bring some more people to
talk with you.
And then we'll also be having a big party in Anchorage, so we're hoping some of you will
be able to join us then.
So just very quickly, a rundown on what the rest of this is going to look like.
30 to 40 minutes and then we're going to invite the rest of two members up on stage and you
all have a chance to ask questions. We would like to prioritize that the legislators or
the legislative staffers in the room.
are asking the questions.
If we get through all of those questions,
then other members, I know we've got some friends
from the chamber and JEDC and other groups here.
We invite you to participate as well.
And we will run microphones around to you
so that we can make sure everybody's voices get heard.
All right, and with that,
I'm gonna turn it over to Brett.
Well, thank you to Director Hirschberg and to Governor Dunleavy for the invitation to come out today and present these results to you.
As Diane mentioned, my name is Brett Watson, and I'm an economist at the Institute of Social and Economic Research,
where I've worked for about the last eight years or so now.
I was interested in approaching this work, because for last 8 years that I have been at ICER,
questions surrounding Alaska fiscal policy have been persistent.
As Diane and the governor mentioned, in 2016, our colleagues,
Musine Gautabi, Gunnar Knapp, and Matthew Berman published a study
called the Short Run Economic Impacts of Alaska Fiscal Policy,
who remembers maybe some of the discussions around that study.
So I see a few hands in the room.
So this is not a conversation that is new to many of you.
The governor's office approached us in September
about potentially updating that study.
And I'll say somewhat candidly that I was a little skeptical
that if we revisited those numbers
that anything significant would change.
And what I hope that you take away from our presentation today
is while the earth hasn't shaken beneath our feet.
The conclusions that we come to today are not going
to dramatically invalidate those that you may recall
from the 2016 study.
I think that there were important
but potentially subtle differences
that will discuss in just a minute.
Just some boilerplate disclaimer language here.
As with all ISA research.
Much of ISER's research is funded by external sponsorship,
but ISer maintains independence on that research,
meaning that the methodology and the conclusions
that are used to conduct and analyze that work
are solely based on the discretion of ISO researchers,
that's myself and my co-authors in this study.
And so any interpretation of these results
should be attributed to us and not our institution,
not the university, and
not this sponsor, in
this case the office of the governor.
I also want to make the point clear, and I'll reiterate this maybe throughout the presentation,
that economic impacts, like the impacts that I will be sharing with you today, are really
just one dimension of policy making, there are many other factors that policy makers
will need to consider as they weigh fiscal options.
We think that the economic impact are one important facet of that conversation, but clearly not
The balance of my presentation will look something like this.
I'll provide you some additional context for this work,
some of the history of that 2016 study.
I talk about the scope of analysis,
kind of, the bounds of how we thought about this
work.
I walk you through just a slim sliver of results.
This is a fairly substantial body of work
that we put together for the project.
And then I will talk through how
we interpret those results, both the narrow set of
results that I would be able to share with you this morning,
and then also that broader set
of conclusions.
And then I'll point you in the direction of some additional resources that you all can use
to explore this work more on your own time.
So, I think it's useful to look first in The Review Mirror.
Where have we come since 2016?
So as I mentioned in 2016, ICER published a study evaluating the short-run economic impacts of budget options.
So, if we put ourselves back in the mindset of that 2016 budget year,
the state was in a very tight financial situation.
Oil prices had fallen precipitously over the last couple of years,
resulting as a result of some changes that OPEC had made to their production targets.
Oil price is where low production was falling, and the State was tight in financial.
in a tight financial position.
In light of those factors,
ISER published the study,
again, at that time,
at the direction of the Office of
the Governor then,
and ISAR's analysis looked
at how various fiscal options
to address that budget shortfall
would impact the economy in the short run.
And when I say short-run here,
I mean over the next couple of years.
The purpose of our work today is to take that 2016 work
and update it to 2026.
Now, 10 years later, it's a little painful to say
that 2016 was 10 year ago, but I suppose it is now.
And so our update of the 2016 analysis
is not just to incorporate new data,
but also to add additional factors to the analysis.
So we're going to include some additional options
that weren't available or weren't under consideration
in 2016 to expand the scope of analysis in that way.
short-term economic impacts here, but we're going to look down the road a little bit,
not just 10 years, 15 years but actually 25 years out to see how these various fiscal
options might play out not in the short run but in a longer term.
Important to note here.
The purpose of this study is not, and I'll reiterate this again,
to make any specific policy recommendations.
As the governor mentioned earlier, the purpose
of the work is to provide you some contextual information,
and, I wouldn't interpret any particular set of results
as a definitive direction in which to point policy.
But I think these data are useful.
The second important caveat, and this is a little bit more subtle, is we are not attempting
to calculate a fiscal note for any particular fiscal option here.
What we're doing is trying to understand how moving a fiscal dial up or down would have
impacts in the economy.
We're not trying understand to how much revenue the state would raise by setting a dial to
a particular level.
I'll discuss this point more in a minute.
And again, the economic impacts that we assess here are just one of many considerations for
policymakers.
So, let's turn our attention to the review mirror here.
What has happened since 2016 when ISA released this study?
Well, there have been many significant changes.
Alaska's economy has changed, our key source of revenue and private sector activity in
the petroleum industry has change, and policy has
changed.
In terms of what's been going on in our economy,
our economies actually diversified.
And then this is a point that sometimes when I make it
in public forums, it surprises people.
But if you look at the contributions
to either private sector employment
or gross domestic product for our state,
the contribution of the petroleum industry
has been slowly declining over the last 10 years.
Well, the contributors of every other aspect
our our autonomy have been growing.
So our academy is diversifying.
At the same time, one of the reasons for that diversification is that our visitor industry
is growing.
That has important implications for potential fiscal policy.
And the composition of our non-resident workforces change.
The types of workers that commute to Alaska to work at our remote mines or up on the
North Slope looks different now than it did then.
Our petroleum industry is changing.
I mentioned that its contribution to private sector activity as a share of overall economic
The geography of production on the North Slope is changing, oil production is opening up in areas that previously hadn't seen much production before, particularly in the petroleum reserve of the Arctic, the NPRA,
which has implications for fiscal policy as more barrels come out of federal land as opposed to state land.
And, you know, for the first time in many decades, we're looking at medium-term forecasted
increases in production, right?
Willow and Pika are set to bring online significant new production barrels.
That has important implications for fiscal policy.
And then finally, the policy landscape has changed.
In fact, a year after ISER published the 2016 study,
U.S. Congress and the president signed the 2017 Tax Cuts
and Job Act.
We'll refer to this probably throughout the presentation
as tiktjah, but that policy has important implications
for how the federal government and state government share the
relative burdens of taxation.
And of course, over the last 10 years,
our state fiscal policy is changed,
and that has an important implication for what's going on.
So let's take a look at those state fiscal policy changes.
So this is a chart showing the 10 years before the ISER 2016 analysis and the 20 or the ten
years after the ISO 2016 Analysis.
And this not to make any implied causal relationship here.
I'm not suggesting that the ICER 2015 study caused this change, but it happened to occur
at a time when there was significant change in the state.
unrestricted general fund expenditures on the left side of the figure, you can
see a strong decline in those UGF expenditures. These are measured in real
or inflation adjusted and per capita terms. Prior to 2016, real per
capita UGF expenditures were growing at a 6.3 percent annual rate. Since 2016
real UDF per-capita expenditures have been declining at 1 percent
to the FY26 budget, you'll see that real UGF expenditures declined by about $3 billion
over that 10-year period. The contributors to that decline are about a $200 million reduction
in the permanent fund dividend appropriation, a 1.1 billion dollar reduction in a state's capital
budget and a one-point-seven billion-dollar reduction on the state operating budget.
So we've made significant changes over the last 10 years with respect to our state expenditures.
But it's not just expenditures that have changed over the last 10 years.
Our state's revenue picture has also changed.
There were a couple of key pieces of legislation passed in this period that I think have
changed, diversified, and grown the state revenue
picture.
The most important of these changes, most certainly, is SB 26 or the percent of market
value reform that was passed, in the way that the
state manages its revenues from the permanent fund.
But also a new and more diverse source of revenue for the state rather than just solely being tied to the fate of the oil industry
The state now had access to this more diversified and broader based source revenue that it could tap into
So the states made important changes both on the expenditure side and on a revenue side
But I think that we recognize that there are still some lingering challenges here
One of the reasons that I think it's important to take this retrospective look, to look in
the review mirror a little bit, is when I talk to Alaskans at policy forums, much like this
one, when talk talk two Alascans, one of things, or one the senses that they get from them
is that there's been persistent inaction on this issue of Alaska's fiscal challenge.
They feel like there is not a lot of progress that the state has made, but when look at
a couple of these actions that this state is taken on the expenditure side and on
Some important changes with respect to our state's fiscal policy and it's important for us to acknowledge those changes as we think about looking forward
Like I said, we have a few challenges that still remain for and that's where we want to situate this current work
How do we address some of the lingering challenges with Respect to Our State's budget in a way that potentially minimizes their impact on the economy?
So that where this analysis comes in
So what we did in this work is we analyzed 11 fiscal options
that the state might have available to it
that met the following criteria.
That the State could feasibly implement them.
that the state had control over them and they would present significant fiscal change.
So these were not sort of minor changes that nibble around the edges, but more significant
and broad changes, that would have significant impacts on the states budget.
I'll talk more about these in just a minute.
And then we evaluated the impact of three variations of these options, which would potentially
reduce the effect on an economy.
So for each of those options that we have evaluated, we looked at a particular set of
We looked at the distribution of income, so how would lower income and higher income
Alaskans be affected by these different fiscal options? We asked the question, who would pay
or who'd bear the burden of these fiscal option? Would it be Alaska residents,
non-residents, including non resident workers or visitors to our state? Or would it
be the federal government to reduce federal income tax collections? And then finally,
income, gross domestic product, and population in the state's economy.
So let me tell you about more specifically the fiscal options that we considered.
We considered three changes to state spending.
We looked at changes in a state work force size, a clean capital budget.
And when I say clean here, I mean we assumed that no federal matching dollars would be
affected.
If federal match dollars are implicated in either increases or decreases in capital
These economic impacts would be considerably larger,
depending on exactly what the size of the federal match was.
So we assume that the capital budget could be affected
without affecting federal dollars.
And I think reductions in the capitol budget today,
this would a tricky puzzle to solve.
And we evaluated a clean or broad or operating budget change.
So an increase or a decrease in operating budgets
that again would not touch any federal dollar.
We evaluated six revenue options
that would change household income.
These options included changes to the permanent fund dividend amounts, a broad and narrow sales tax and when I say broad
I mean one that would include a large basket of goods and services that are purchased in the economy with some exceptions for health care
Education and a few components of shelter like rent or mortgage payments
Then we considered a narrower version of that sales-tax which would including the same
Exclusions that I just mentioned plus food at home think groceries
We also considered a flat and progressive income tax,
a fat tax being the same tax rate applied to all income earners,
sorry, the the tax rates regardless of your income level,
and then a progressive-income tax which like
the federal income-tax schedule which would
increase the rate as incomes rose,
and we considered it a statewide residential property tax.
These nine options were all the
same options that were considered as part of that ICER 2016 study.
The way that we expanded this analysis for this report,
was to consider two additional revenue measures,
which would affect business taxes in the state.
More narrow lead focused revenue options,
thinking about the states petroleum industry,
and then a broader set of business
taxes which affect other businesses in this state,
with respect to these changes in
the petroleum industries, I want to clarify
the way that we conceptualize this option.
Our modeling did not allow us to manipulate specific features of Alaska's petroleum revenue regime. Alaska has a very complex petroleum tax code
we model this change very generically.
We are thinking about, in this scenario,
pulling $100 million out of the petroleum industry
or putting $ 100 million back into the
petroleum-industry, regardless of whether
that mechanism is fees, taxes, or royalties.
I might generical refer to this option in a few slides
as oil government take or petroleum
industry.
None of these terms quite capture exactly.
the precise nature of this change,
but just know that what we're doing here
is a generic reduction of petroleum industry profitability
as we increase or decrease revenue
that the state collects from them.
We do the same thing for broader corporate taxes.
Again here, we are not modeling a specific change
to the states' corporate income tax,
but we might think that this scenario
would capture that sort of change in the State's tax code.
I want to talk about a few assumptions that we made as we constructed these scenarios.
First is that all of these scenarios are modeled independently.
And what I mean by independent is you can think about these as items on a buffet,
and you kind of scoop from them different serving sizes
as you construct a plate that is a state fiscal plan.
And so there's no particular combination of options
that would lead to more or less than the sum of their parts.
They all add up to exactly the some of the parts,
no matter what configuration they're composed in.
We also assume that increases in these revenues or decreases in
these revenue lead to an equal and opposite reaction in the economy.
So, for example, if we increase the permanent fund dividend distribution,
that will add more money into the state's economy and increase economic activity.
we model an equal and opposite decrease
in the permanent fund distribution
as having an equals and
opposite reaction in economy.
So you can look at increases in economic activity
or decreases proportionate to the scale
of the change that you're imposing.
We also assume that outcomes are linear here.
And what I mean by linear is that a sales tax
that we adjust from 1% to 2% in our model
has the same effect as raising the sales
tax from 5% percent to 6%.
Right?
In reality, it is likely that there are certain important thresholds that if you turn that
dial too far, consumers start reacting in more and more aggressive ways to it, but we assume
that their reaction is the same kind of regardless of what the level set is.
And then finally, none of these options are modeled in a budget neutral way, meaning that
if the state reduces the permanent fund dividend, for example, or implements a sales tax, both
would generate increases in the available revenue for the State.
We assume that that additional surplus is saved.
Any resulting deficit would be serviced out of savings, and so we're not recycling the
revenue in any way.
And so this is money that is either being brought out or the economy or being pushed
economy through these options.
Want to describe broad features of our results here.
Generally speaking, you can characterize the impacts
on the economy, the broad economic impacts
of these fiscal options, and put them into three buckets.
The first bucket are those with smaller economic
Generally speaking generally speaking this is important caveat on the smallest impacts on
the economy or smaller impacts result from business tax changes so these are changes more
narrowly to the petroleum industry or to a broad corporate environment.
More moderate changes result from changes to the permanent fund dividend distribution or from broad-based taxes
And then the largest economic impacts result form changes in state spending now
Remember that Icer did not evaluate business tax changes and 2016
But for the options that iser did evaluate then these results are largely consistent with ISER's results from that previous study
Now I mentioned a big caveat that generally speaking economic impact were more muted for for these for
these options
Corporate tax changes, contrasting to other options
that we're analyzing here.
Their effects tend to grow over time,
or at least persist for longer.
For most of these other option,
that over the time the economy adjusts
to changes in fiscal policy.
Corporate tax changes, though, have this unique feature that they provide a deterrent to investment in the short run and that investment, that foregone investment today means that there's less economic activity that's generated from that
investment and the future, and so those changes to the corporate tax structure tend to be more persistent, which is a unique
feature among them. So if you look at the impacts out of the longer term, those corporate income tax
changes might be meaningful.
I want to present just one set of our results for you today.
I'll direct you where you can find resources to take a look at some of the other results
that we analyze.
But I wanted to look for results of employment.
Generally speaking, again, generally speaking employment is correlated with the
other outcomes.
Fiscal options that have large impacts on employment tend to have
large impact on personal income on GDP on the state's population.
So these outcomes will be correlated across options
but we'll just for the sake of brevity here take a look at employment
impacts. So what I'm going to show you
is the employment impacts for using a particular fiscal option
to generate $100 million in deficit reduction.
That means we're going to use this fiscal
option to pull $ 100 million out of the economy
and use it to service a hypothetical state deficit.
And so we're going to look at what the employment impacts are, both the direct impact.
So if we are using cuts to the state's workforce to generate those savings, obviously that
would result in a layoff of a state employee, but that lay off would also generate indirect
and induced impacts, spill over economic effects, as that employee is spending less of their
income in the states' economy, which would generate further economic impacts.
So, I'm going to show you first employment results for what we call short-term static
impacts.
And when I say short term, over a one to two-year timeframe before the economy has time to adjust
to this change, and when say static impacts, what I mean is our modeling activity or our
modeling assumptions don't account for behavioral changes that individuals might make.
So for example, if the state implements a sales tax, for instance, we might imagine that one
is they've got less disposable income.
The price of goods and services that they're buying
is going up, they got
less money in their pocket to spend on other things.
That has economic impacts.
A second important impact of a change in prices
is the change and relative prices.
As I mentioned, some sales taxes,
if we constructed them in this analysis,
don't tax every category of expenditure.
There might be substitution that consumers make
from taxed and untaxed categories of goods.
So if they see prices of tax goods rising,
they might purchase less of those
and substitute their spending into untasked items.
So this doesn't account for that second form
of behavioral change,
where consumers are making substitution decisions.
This is a static analysis in that way.
So what you can see from these results
is that generally speaking, we see the following pattern.
that changes to the state's expenditures
result in the largest reduction in economic activity
as measured through employment, again, in
the short term and using these static assumptions,
whereas changes
to business tax environment down here in
the lower left hand portion of the figure
result
in smaller changes
to employment.
Next, what we're going to do is use a separate modeling technique that allows us to explore
dynamic effects.
And when I say dynamic effect, this incorporates both the reduction in disposable income associated
with pulling money out of the economy from these fiscal options, but it also allows consumers
to adapt their behavior in behavioral ways.
So consumers now are going have the opportunity to move from tax to un-tax goods in the
economy.
But again, you know, even when we're using this more sophisticated model which allows
for these dynamic adjustments to incorporate themselves, we still see that the most significant
impacts come from reductions in state expenditures will less significant impacts result from changes
in the business tax environment. We also see, that residential property tax now sort of falls
So these dynamic results again kind of in the short term here. We're thinking about
employment impacts in 2027 assuming that one of these options were adopted in FY 2024
Which was the base year for our analysis FY 2024?
But what happens in The Longer term so as I mentioned one
Of the things that we wanted to do here was shine our headlights as far out as they could
Looking out to 2050
Here what we see is that with more time to adjust
these economic impacts become a little bit more muted
for some of these options.
And so many of the economic impact
fall in their significance in that less significant category.
But there's still persistent effects
of those reductions in statewide expenditures.
The second outcome that I mentioned that we evaluated,
in addition to employment, income, GDP, and population,
we asked this question, who would pay
for implementing these fiscal options?
How are higher and lower income households affected?
Now, important caveat here,
that, we didn't have the data, or the policy specificity,
to evaluate how higher
and low income household would be affected by
changes to state spending or to changes in business taxes.
The reason that we can't evaluate changes
in state's spending and its impact
on higher or lower income households
is because it's heavily dependent
on which programs the state is making changes too.
So for example, if you think about a program
like Medicaid or SNAP, which is heavily targeted
at lower-income households,
they're obviously gonna be disproportionately impacted
by state-spending changes.
Whereas, if we think about another category expenditure, like DOT expenditure on road
maintenance, that's probably going to have a wider distribution of impacts between lower
and higher income households.
So it's heavily policy dependent.
At the same time, we didn't have the data to evaluate how business tax changes might
Generally speaking, the economics literature
finds that when you change the business and tax environment,
those changes are born by three different groups of people.
They're born the by the businesses owners themselves
as they see reduced profitability,
but they might simply just pass that tax on
to their customers, and so their
customers bear the incidence of that
tax through higher prices.
And employees might also be affected.
Employers might pass the tax onto their employees
through reduced hiring or compression in their wages.
So.
Of the options that we evaluated, those options
that changed household income, the PFD is generally found
to be the most regressive option that be evaluated.
And when I say regresive, I mean it has the highest impact
on lower income households.
At the opposite end of the spectrum, a progressive income tax
is the more progressive, it had the largest impacts
on the high income household.
Sales taxes, flat income taxes and property taxes fall
in between these two.
That result is what is illustrated in this figure here.
On the left side of this finger, you can see how households
that are at the lowest bracket of income in Alaska are affected.
And on the opposite side are the richest 10%.
The vertical axis here is how many dollars these households would lose out on a per-person
basis annually from these fiscal options.
So as you can see, the PSD reductions are quite regressive, lower income households
would bear the largest incidence from reductions in the dividend.
And in fact, what you see is that lower-income households, so for $100 million in deficit
Those would impact low-income households to the tune
of about $159 per person.
Higher- income households actually have less
of their income reduced because of that.
And the reason for that is that Alaskans pay federal income
tax on their dividends.
And so the federal government is picking up a portion
of these dividend reductions for the higher-income households
because lower- incomes Alascans generally pay lower
or no federal-Income tax, they pick up the full amount
of the loss.
On the other side of the spectrum is a progressive income tax, higher income
Alaskans would bear the most incidents from a
progressive-income tax. Lower income Alascans
would be bear virtually none of that incidents.
And then I mentioned these options in between, in order of their progressivity,
a flat income, a narrow sales tax a broad sales
tax and a property tax
I should also mention that higher-income Alaskans would have the opportunity to reduce the incidents
that they pay from these taxes by itemizing their federal income tax, so they can push
off some of their state tax burden onto the federal government through itemized deductions.
A second component of this who pays question is how is the incidence or the distribution
non-residents that commute up here to work,
visitors in our economy, and the federal government
through reductions in federal income tax.
I'll note again that we didn't evaluate
the state spending changes or business tax changes
for this who pays dimension.
We assumed that for the purposes of our economic impact
analysis that those would be completely born by Alaska
residents, but it's certainly true that the actual amounts
are likely lower than that, important to consider.
For the options that we did evaluate these gray bars represent how much of every dollar that the state would raise
From these different options would come out of the pockets of Alaska residents
So, for every dollar raised from a PFD reduction,
for example, 86 cents of that dollar would be raised
from Alaska residents.
Non-residents, the green bars here, you can see,
have virtually no contribution to PFD reductions, right?
Nonresidence of Alaska do not receive dividends
unless they are out migrating that same year.
So there's a small sliver of green there that accounts
for that out migration of Alaskans
that are still receiving their dividends.
The yellow bar represents federal income tax payments, and because those higher-income
Alaskans are no longer paying federal-income tax, we're not bearing the full cost of dividend
reductions within state, so the federal government is picking up a 13% share of the tab there.
Property taxes have a similar incidence of about 86% or 86 cents for every dollar raised
property in the state, out-of-state residents account for a smaller share of
residential property ownership. At the other end of the spectrum, the options
that would have the lowest incidence for Alaskans are sales tax options.
A broader base sales-tax would tax Alascans to the tune of about $0.76
for every dollar raised, while a more exclusive sales
tax would raise about 73 cents for
The balance of that would be paid by non-residents either visitors or commuters to the state and by the federal government through the opportunity for higher-income
Alaskans to deduct their sales taxes from their federal income taxes.
I mentioned one of the things that we did in this analysis was we looked at a couple of variations of
the options that I just described. One variation of these options was to consider a flat income tax for the State of about 2%.
and imagine that Alaskans were able to deduct from their state income tax liability
either a portion or all of their permanent fund dividend.
What this would do is it would allow Alascans to claim as that credit against their federal
income taxes, or Alasans would no longer pay federal income, tax on that dividend,
it's just a state-income tax credit. And so more of the incidents would be pushed off on the federal
But our incidents shared by those non-resident workers would remain, right?
People that work in Alaska would still contribute to state's income tax, but would not be subject to receipt of a PFD tax credit.
One of the other variations that we considered was a seasonal sales tax same intention here
How much of this incidents can we reduce on Alaskans and shift to are either our non-resident workers our visitors or the federal government?
So one way to do that is with a sale seasonal Sales Tax many are several communities and particularly in Southeast Alaska where we have a lot of tourism
Already deploy this strategy to try to shift more of that incidents onto the visitor industry
The idea here is that with higher rates in the summer when the visitors show up and lower rates throughout the rest of the year when
It's only Alaskans buying goods and services
Non-residents particularly visitors would pick up more the tab
The effect of a seasonal sales tax is the for every dollar raised
Alascans disposable income would increase by two to five percentage points relative to the option without a seasonal tax
So we're able to save Alasking's two-to-five cents by adopting or for ever dollar raise by adapting the seasonal Sales Tax model
I want to note an important limitation of our work is that we didn't analyze regional variation
But we recognize that there's important variations in these economic impacts across regions of the state
Based on those regions pre-existing local taxes the distribution of income across the regions and the local cost of goods and services
Another important impact that I think it's important to consider is the volatility of
revenue.
The governor mentioned this in his opening remarks is that one of the features of Alaska's
tax structure currently is we have the most volatile revenue in the country.
This is a figure that was produced by the Pew Charitable Trust measuring revenue volatility
And you see the very high level of volatility
in state revenue and tax collections
for Alaska relative to the rest of the country.
Of course, the key reason for that
is our reliance on severance tax revenue.
What this figure shows you is the volatility
of four different sources of tax
revenue across the 50 states in the
country on an annual basis.
This light or this kind of teal line here.
Is severance tax revenue and you can see that it bounces around quite a bit from year to year and because Alaska
So reliant on severances tax revenues are revenues also volatile
But you see the second most volatile source of revenue is corporate income tax
Revenue, which is depicted in this orange line here
Personal income tax revenue is slightly less volatile than that,
but there's still cyclicality in personal income taxes,
whereas sales taxes tend to be more stable.
The reason for this is that over the course of a business cycle,
as we move from economic expansion to contraction to recession,
The entities in the economy that are most responsive to those changes are businesses, right?
They see their profitability reduced over the course of that business cycle,
and so their tax base for corporate income taxes is moving the most across those business cycles.
On the other end of the spectrum, as workers in recessions begin to get laid off and they
see their incomes fall, they still are consuming in the economy. They're drawing out a savings,
they're taking out debt, and so consumption tends to be a little bit more stable. And
so revenue, state revenue that relies on sales taxes is a
little more stable than personal income taxes, which is more than corporate income tax,
I want to mention that another outcome that we evaluated,
not in quite the same framework that
we did with the other options, was what
would be the impact of not taking any action here at all?
So I think it's important to consider
that lower than expected oil prices over the next couple
of years could force the state's hand to take some action.
If the states sees realized oil
prices at the levels of 2017 or 2018,
you know, to the tune of $45 or $50 a barrel,
that could force the state's hand to take some option,
or take action on some of these options,
whether it would like to or not.
For every dollar change in ANS prices,
state revenue fluctuates by about $34 million,
which is pretty significant if we think about, you
know sort of the $100 million of revenue
that we were talking about earlier
and its impacts on the economy.
We talked about revenue volatility as well.
I think it's also important to recognize
Another important cost to fiscal uncertainty
is that it's a deterrent to investment.
I've heard many economists joke over the course of 2025
that if there's an economics bingo card,
the word that's in the free space is uncertainty,
uncertainty and uncertainty.
There's uncertainty with regard to federal policy,
particularly if we think about federal trade policy.
That's been a significant deterrent
to business investment nationally
over The Course of the Last Year.
It's one of the reasons that I think
that we're in a manufacturing recession currently,
one the reason that hiring is tapered off,
and one reasons the investment nationally is so low
in everything but data centers.
The business community is just sitting
with capital on the sidelines
because they're waiting for uncertainty
around US trade policy to resolve itself.
One of the things that we did in this analysis to evaluate the impact of a no-action alternative
is we looked at, since 2016, what has been the cost to the state of Alaska by not having
more resolution to our state's fiscal policy?
And we estimated that uncertainty with respect to state fiscal policies over this time period
GDP print last year is probably going to come in at somewhere around $65 billion.
And so we're talking about a significant amount of investment that was foregone over
this time period because of lingering uncertainty with respect to state fiscal policy.
I think another important dimension of this no action alternative is that current sources
of state revenue, petroleum and the percent of market value are not explicitly tied to
economic activity.
Many economists in Alaska have called this the Alaska Disconnect over the years, but the basic
something crazy would happen and many of the Silicon Valley tech giants were to
announce that they were going to create a Silicon valley of
the north somewhere in Alaska and that
they would move 100,000 employees somewhere
in Alaskan and create this northern hub of tech.
That would be absolutely catastrophic.
from the standpoint of the state of Alaska budget, right?
This would be 100,000 new permanent fund dividends to pay,
the children of 100 thousand new employees to educate,
more roads to maintain, more state services to provide,
without any additional revenue collected
for any of those individuals.
And so there's this disconnect now that's growing
between our private sector economy
and what goes on in our public sector.
You know, previously when oil contributed such a large portion
and such a large portion to our state's private sector
activity, those fortunes were more intertwined,
our public sector and private-sector activity.
But now there's a growing and more explicit disconnect.
And then finally, I think there is a pretty practical
consideration, which is that uncertainty with respect
to the state budget has changed or resulted in changes
to state bond rating in the past and results
in higher borrowing costs.
This is my TLDR slide for those of you that are quite well-versed in the ICER 2016 study.
This slide is for you.
If you've got the 2016 Study memorized like the back of your hand.
So recall that I said that in 2016, ICer only modeled the short-run impacts.
In 2026, ISER is measuring both short and long-term impacts, but generally speaking,
the long term impacts kind of mirror the changes that go on in this short run.
Generally speaking though, when we look at the magnitude of these impacts, how much is
done to the economy by changes in fiscal policy, we see that these
impacts are smaller. As I mentioned, the structure of the state's economy has
changed over the last 10 years. That's an important driver of why we
see smaller impacts. But there's also a more practical consideration, which is
that over last ten years, there has been about 25, inflation to
the tune of about twenty-five percent. And so if we're talking about a hundred
million dollars in twenty twenty six, that just doesn't buy you what it did in
For the simple for the Simple notion of of time-value money
Where we have seen more significant change from the ISO 2016 results, and this is where I said that there were subtle but important differences is
Recall
This slide that I shared with you that showed the allocation of incidents who would pay for these various fiscal options
When I sir did this analysis in 2016 all of these gray bars were the same
They exist in an arrange between 82 and 84%.
So residents would pick up almost the same tab regardless of which fiscal option we implemented.
Here as we sit in 2026, that's not the case anymore.
Because of the growth in our visitor industry, because of change in composition of our non-resident
workforce, and because particularly of changes in the federal tax code, Alaskans are going
changes in the permit fund dividend or statewide income tax,
then they would from a sales tax.
So the incidence from sales taxes has been reduced since 2016,
while the incidents from an income taxes grown.
The last thing that I want to do today is share with you
some tools where you can or some other information
that you could use that might be helpful
as you're interpreting some of this data.
So, launching after this presentation today is going to be a new page on the ICER website
where you can download these slides and, in fact, all 160 slides from my presentation
if you want to go over all, 160 of them, which God love you if he do, but all one hundred
and sixty slides will be available online.
But also available online is this tool that we put together that you can use to build
your own fiscal plan.
What this does is it shows you how these various options could be combined together
and the outcomes that they generate.
So I want to point you in that direction.
While it can't capture every feature of the fiscal plan with the level of detail that
you might want, for example, to create a fiscal note, I think it
can give you sort of a broad sense of how these fiscal options could
I'll pause there, and I think we'd like to open it up for a Q&A panel with my other
analysts and economists at ISER who have helped me put together this work.
And as they get repositioned here, as we come up to the stage, Diane, how would we like
And what I'd like to ask is when you ask a question that you introduce yourselves because
we want to keep track of the questions in case we need to get back to you.
Representative Sarah Hannon from Juneau you're sitting in my district.
in a municipality that has a sales tax.
My question is about the property tax provision
and wondering what you use for the basis of that,
whether you used only boroughs and municipalities
that are first-class that currently exercising
residential property taxes or how you evaluated
unincorporated areas
or second and third class boroughs
that are currently not exercising residential property.
And I'm going to add on to that.
Why you did not include anything besides residential
for the property tax evaluation.
So to your first question, how did we evaluate it?
The short answer is yes.
We did incorporate estimates of valuations
for unincorporated areas of the state
that currently don't levy property taxes.
We had to make some assumptions there, right,
because there weren't assessors going around
creating assessed values for that portion of state.
In 2016, I asserted a similar evaluation,
and so we kind of followed the methodology
that was adopted in 2016 to estimate
the property tax base for
unencorporated area of this state,
and then use the actual property
for incorporated areas for the tax base in an incorporated Alaska.
To your second question of why we didn't incorporate commercial properties,
I think that it's an important catch on your part
that a statewide property tax that did tax commercial property
would likely result in lower incidents for Alaskans is my assumption
as I thank more commercial priorities owned by non-residents.
But in answering that question is also the reason that we didn't do an evaluation of
commercial property is because non-resident ownership data is harder to come by for commercial
properties.
And so we weren't confident that could create that evaluation, of resident versus nonresident
incidents for a commercial properties in Alaska.
But directionally, I think that would be the direction that it would go, is that
it'd push down that resident incidents if we were to include commercial
Hey, my name is Will. I have two questions. If you could indulge. First one is I am struggling to understand how we are arriving at a
2 to 3 percent GDP growth estimate in the event that we were to levy taxes on industry, especially when the capitalization
Invested by industry is probably the biggest type of investment. We've had so if you can help me understand
How we model GP growth
based off taking money out of industry to invest
That would be helpful in the seconds regarding sales tax. Thank you
So I'm sorry the first one we're gonna get laying to the uncertainty the fiscal uncertainty
Yeah, so the assumption is because of fiscal
Uncertainty we would we are losing out on two three percent GDP growth per year
Which is actually quite substantial and the but the solution for certainty is to tax on industry
Which has the largest capital investor in this state, So how does that work?
How does the estimate how did we yeah? How do you how do? Yeah, so that was quite a complicated calculation that comes from Nick Bloom and Stanford
He has an uncertainty index and so he's using
Alaska newspaper
You know mentions of uncertainty to look at what's happening to investment in Alaska
And so for us there's a large range given the there is differences between other states such as you know
California and how they think about it and for US
two to three percent is what we came with but there's a large confidence interval that
comes with that just given these sort of estimates and so broadly that's what
we're calculating at this time. So just a quick fall maybe to get a better
clarification that is like a massive loss of valuation of the economic activity in
the state over a long period of time so that not really a sufficient answer so
like how do we say that the taxing the people who invest in the
Substantial GD keep your mo more than we've had on average in 20 years in the state. So like help me
To clarify that two to three percent isn't an annualized
Isn't in annualize growth rate or an annualized loss. It's the cumulative loss over that period
And so you know that would be on the tune of billions of dollars
But not tens of millions of Dollars over the time period. Um, so that's an important clarification
But, to Brock's methodological point earlier, this is, we deployed, I think, sort of the
best practice in the economics literature currently for estimating this sort
of cost of fiscal uncertainty, and adopted that to Alaska, but this
is not our methodology. This is a methodology that was developed by other
economists, just to clarify the methodological points.
Okay, it'd be helpful if you could make the methodology available.
percent of the population has the ability to not pay a consumption tax period because
of how they could change consumer behavior. I would think that's probably worth modeling
and it's more than 15 percent because it doesn't include households. So my question
is when you're looking at linear modeling for sales taxes and you are not breaking
out geographic regional, it seems like there's a lot of disparity, I don't know what the
It looks like, but again, if 15% of the people in my town have the option of not actually
paying the consumption tax period on most goods, it seems like it would be worth modeling.
So I'm curious why we didn't look at that.
So to be clear, we had two different models that we used.
One that didn t incorporate the ability of consumers to adjust their spending behavior,
and then one that did.
And we found pretty substantial similarities between the two in the short run.
So, we tested the model with and without the ability
for consumers to adjust their behavior
and the results are roughly similar.
Okay, thanks.
Here we go.
Representative Sarah Vance, lower king of peninsula.
And my question is also on the sales tax and modeling
that you did the assumption that.
Currently, a sales tax would be less impactful on Alaskans as compared to 10 years ago.
Did you model 10-years forward the changes that we are seeing in regards to oil and gas
development, changes in tourism, change to our seafood sector, that industry, and what
that implement a sales tax now saying, hey, this looks better,
what's the modeling going to look like 10 years from now
with all of those factors considered? So did you model that
assumption for us?
So we, in our dynamic modeling, so the models
where we allow consumers to respond or substitute away from
goods that are taxed relatively higher with the sales tax.
We also are thinking about longer-term outcomes.
Ultimately, modeling exactly how that incidence is going
to change over time is challenging, because we need
to know, well, how responsive is our tourism industry
to those sales taxes that we impose.
We're operating under the assumption
that, we think, visitors are going to be relatively
inelastic to the those sale taxes.
that kind of visitor incidents to remain relatively constant unless there's maybe
unforeseen change to the tourism industry. So if we, you know, if for some reason Alaska
lost some of its natural beauty and fewer tourists wanted to come here,
we wouldn't be accounting for something like that occurring. But generally speaking,
we are trying to account for over time how that incidents would
Remain or how or that incidents would would be sustained
so to answer your question, I think
We we think our current estimates are a good kind of guide post
But it's ultimately going to be up to you and your perception of how those industries are going up all over time
And actually comparing the 2016 study to the
The current study is an opportunity to think well if tourism is going to grow or shrink how might that incidents adapt?
Does that answer your question?
Thank you dance elder representative from your career
We're clearly going to want to turn to the policy implications
of what your methodology and your report shows us,
but trying to stay away from that,
this is a question on your methodology.
How far does your work model the secondary impacts?
Are they siloed to independent?
For example, if there is an increase in income tax,
people might move out there for reducing property tax.
Are the considered as silos independently
or how deep did your correlation go to other?
Or do you just consider them an income
tax just, a sales tax?
Just for refund, just?
How complicated is your methodology for that?
So we modeled each scenario independently.
And in part that was done in order to allow you all to use the tool that I discussed at the end,
to kind of mix and match things.
The two pieces of software that we used in plan and Remy are sort of leading commercial
discussions with the developers of those software,
we were encouraged to adopt that approach,
and so they consider that best practice
to model these types of scenarios independently,
and then sort of mix and match them on the back end.
The question of how people are allowed to adapt
in each of these modeling frameworks.
So for the short-term static impacts,
the way that the implant model,
that's the model that was used to
model those short term impacts.
The way it understands the economy
is in linkages between sectors, right?
The oil and gas and construction sectors are very closely linked, right?
There's a lot of trade that goes back and forth between those two sectors.
So any shock that happens to the oil
and Gas industry affects construction, retail and transportation are closely
linked sectors, so any shocked to retail also tends to affect transportation.
And so those economic linkages are modeled even in the short run,
short-run static analysis.
So if we tax consumer...
consumption, for example, through a sales tax,
they reduce their retail expenditures.
Those retailers are buying less from the transportation
industry.
And so we're modeling the full trickle through effects,
even in the short term, but not allowing those companies
to adapt dynamically in that short-term framework.
When we go to the dynamic model, we
do allow the industries to adjust and the consumers
to respond.
So for an example one of the things that we find in
the model is that when
When jobs are affected in the short term we see a lot of out migration from the state so people get laid off
In any of these these scenarios where there's a large
Employment shock those people leave the State and they tend not to come back. That's the dynamic effect
that we model persistently.
Similarly, if there's improvements in the quality of life
in Alaska that draws migrants in,
that effect is also modeled in a dynamic framework.
So, important distinction there between the two.
But again, we know when we look at these aggregate results
and compare employment and income GDP
between short-term and long- term dynamic and static,
the results are directionally pretty similar.
Thank you, Mike Prox district 33 of the
interior North Pole specific
Wanted to explore more about the concept of The Alaska disconnect
I think you hit it somewhat on the volatility of income
but the other is
The disconnect between the people who are demanding services from the state and those who?
are paid
remember, Chilkout Charlie's. They were in Fairbanks, they're now in Anchorage, and
their business model they say is we cheat the other guy and pass the savings on to
you, which is sort of what we do in the legislature. And so we get this disconnect between, I would
evaluate these second and third order effects so that we can get more durable
So a lot of our modeling does capture
second and third order impacts, right?
We are trying to measure indirect effects
which are the effects between buyers and sellers
in commercial activity and then induced effects
when people go out and spend money.
They're earnings in the economy.
So we're capturing kind of the full chain
of economic spillover activity.
So just to clarify that.
that that is captured by our modeling activity,
both in the short term and the long term.
And then in long-term, we allow even more adjustments
to take place.
Maybe you could further clarify your question.
I guess I'm not sure that maybe I missing what you're missing.
So.
On one of the very first graphs, the spending.
Well, when Prudhoe Bay came online,
there was just a tremendous amount of spending
And, excuse me, there's a tremendous amount of income coming in, and then there was a
tremendous amounts of spending and the flow from Prudhoe Bay inevitably fell off.
And just from a stability perspective, you know, frankly, I think given the circumstances,
the past legislators did fairly good, creating the permanent fund and such like that.
Nonetheless, we're now on the down slide and have been on
the downside because there's still a disconnect between the
demand for services and then the actually the long-term
economic effect of just letting people do what they were
going to do in the first place.
I think I take your point, yes.
I'm Andrew Gray and I represent the U-MAD district, would
It's a lower income district, so when I think about bringing in revenue for the state government,
the worst thing I can do for my low income people is cut their PFD, and the best thing
I could do is a progressive income tax.
What I was surprised by in your presentation was how non-regressive the flat income
tax was on the graph.
If I introduce a flat income tax, can you just say that that's not going to hurt poor people?
And B, would that close the S-Corp loophole and was that part of the modeling that we saw in terms of revenue generated?
So, to your first question, the progressivity or recressivity of flat-income taxes, as we've described it.
As I mentioned when it came to the assumptions of our analysis,
we modeled each of these independently.
And so one of the things that you can play with
in the modeling tool that we'll have online
is if you financed, for example,
increases in permanent fund dividends
with additional revenue that
you generated from one these other options,
then the distributional impact changes, right?
As you mentioned, the regressivity of a dividend cut
It could be totally offset by changes in one of the other tax structures if you combine
those options.
Would it flat income tax close the S corp loophole?
As I mentioned, we didn't evaluate any specific fiscal policy proposals, right?
These are all generic options, flat-income tax would capture business income.
as well as wage and salary income and so to the extent
to which income is earned in the state of Alaska,
it would be subject to tax from a flat income tax.
Jeremy Bynum, representative of House District 1,
down in Ketchikan and Wrangel.
I'll try to make this question as simple as I can get it.
Down where we're at, we have a sales tax,
we had a very high tourism economy.
And that economy hinges on the health of the overall U.S. economy.
And so when I look at this idea that we said that the sales tax component is going to be one of
the least volatile for state income, it makes me think of a couple things.
Number one is when we are building things in Alaska, a lot of people come here to do that work.
Those people will come in here and, of course, buy things and spend money.
But when we aren't investing in the state and we are not building things, those people
aren t going to be here.
When the U.S. economy is weak, the tourists don t come here and even if they do still
come there, they don't spend much money.
So when you talked about volatility, did you consider the fact that how spending habits
and those people coming here for work are impacted based on the U.S. economy and would
that then not create instability in the sales tax revenue?
I think your point is important here and so the volatility slide that was presented that
And so, in the way that you've described it, it is important how sales taxes are generated
from specific industries and how that might be distributed within Alaska versus the rest
of the country, but also specifically regionally.
It's probably also important to think about how municipal governments might need to respond.
I hope I'm not ad-limbing too much with the modeling team, but it is difficult to predict,
for example, how a tariff policy or a foreign policy might influence international visitors
to Alaska, for an example or an overall national economic situation might feed back into our
state situation.
you can filter that analysis through those potential assumptions on how you feel that
might be important.
And I'll let Brett supplement.
I was just going to say that you raise an important point,
that the more narrowly directed the sales taxes
toward the visitor industry, that visitor
industry is going be a more volatile component of spending.
You're right, the visitation tracks
national economic activity.
Many people view a visit to Alaska as akin to a European
vacation.
And so for a lot of people, it's a splurge.
The more narrowly you construct a sales tax to direct the base
around the visitor industry, the more volatile the revenue would be.
The broader the based,
the most stable the revenues.
But obviously there's trade-offs there as you tax Alaska residents
versus non-residents.
Just to put some numbers on this.
We use an assumption of $4 billion of direct visitor spending in the state that comes from
Alaska visitor tourism surveys and visitation counts from 2023
Obviously those levels are subject to change as you mentioned people might spend not only come to Alaska less
But also spend less in Alaska
Depending on the national environment, but that's the number that we came up with was about $ 4 billion in direct visitors spend
Contrast that to the sales tax base for
every other portion of the economy.
Now, there's different ways that you can construct a sales tax base, right?
The narrowest base might provide a tax space of 12 billion or so of consumption activity,
whereas the broadest defined base is maybe closer to 30 billion.
And so as that denominator of total activity that's subject to a sale's tax grows,
the component of a more volatile visitor spending would shrink.
In any of these scenarios if we're starting to think about a national recession
There's that's just a lot of additional volatility that is going to arise from that regardless of if it's a sales tax or an income tax
those are just
Options that are going be very responsive to business cycles and as a result, you know
We I guess my point being that a sale's tax is gonna be responsive. To a business cycle nationally
but personal income tax will also be responsive in a similar way.
So even though that introduces some additional volatility
to a sales tax that might be unique for Alaska relative
to the rest of the United States, U.S. recession is going
to introduce a lot of additional problems
that we're not necessarily considering
in this modeling exercise.
Elise Galvin representing Midtown Anchorage.
Thank you for being here and I have a question
with regard to your analysis around the income tax
and where your numbers were drawn from,
particularly with regards to, if you've projected out,
there may be a very large change in our workforce,
looking at perhaps 10,000 new workers
project in particular, let alone, we've had some recent new projects, both Willow and
PICA, for example, that are newer, so it added, I think, in the order of 4,000 workers, and
estimates are anywhere between 175 and 200, 000 each, And I don't know, like I said,
I'd like to hear your data on this, but also my understanding is that the numbers more
side workers, meaning out of Alaska, who are coming up for those jobs and paying income
that we would naturally if we put one in,
it would be a lower income tax than whatever they have
back home and they're not getting double tax.
So just thinking about the numbers
and how you get to your revenue in sales versus income,
to me, if you're looking at the new projects,
this might be an important piece of this puzzle to look at
is the number that are coming in in terms of dollars
and revenue from the workforce.
And part B to this question which is not necessarily affiliated
but I think important is you've heard from Southeast
and certainly we know we have more than 100 different communities
that are already funding their government of course services
through sales tax.
And so I don't know that you couldn't really put your finger
begs the question, right, that it's gonna make
such a huge change.
And do we eliminate those workers who are doing that?
And are we standing something up for seven years
and then wiping out the workers on the state side
if they're doing a state income tax?
It feels very,
it feels like I think you use the word static and...
versus long term. I want to make sure that we're making decisions that you've really
analyzed around long-term opportunity. And then the, sorry, I do have a part C.
And that is, in the past, we've been growing our permanent fund quite nicely.
And as you know,
we are using those revenue dollars more than ever.
because of whatever's happening in natural resources.
And so I guess my question is, would it make sense then
if we have a big project coming, even if short term,
that we collect those dollars and make sure
that they get into our permanent fund
so that that could be a longer lasting revenue generator
for us.
So if I can characterize part A, B, and C,
A is distribution of non-resident workforce,
Part B is distribution of sales taxes across the state,
and Part C is should we think about these sort of lumpy
investments or opportunities that might come from large
projects, which I think relates back to question A.
I see Dan Robinson in the back.
I want to thank him and his team for their work
on the non-resident worker industry reports
that they produce every year.
So that was a significant basis for the work that we did here.
I was looking at the distribution of resident and non-resident wages.
One of the things that you can see from that work is that the modal out-of-state worker
is a seafood processing—a nonresident worker is the seafood-processing worker that earns
a relatively low wage.
Another really common nonresident job is somebody that works in seasonal tourism, so
The average wage of a non-resident worker in Alaska is significantly lower than the average
wage in the Alaskan.
And while it's certainly true that we can think about particular industries where there's
a larger share of nonresidents, thinking about mining or the oil and gas industry, the majority
of workers in those industries are still Alaska residents.
And so while some of the incidents would be born, or of an income tax will be borne by
Particularly in more progressive tax structures, that will just hit Alaskans, Alascan workers more as Alasking resident wages are higher.
I'm going to pass it over to my colleague Mike to talk about Part C and then I might pick up Part B and I'll pick out Part Z.
Sales taxes, and the penis felt government finance.
And think about the interactions between municipal government and state government.
It's a really interesting question of how state sales tax policy would interact with municipal
state-sales taxes and
You know, I think there's there is an important
heterogeneity across the state we have a large economic center in Anchorage
Which does not currently have the sales-tax, which is is important sort of source of a lot of economic
activity and we certainly
Very different tax bases around the state within
No, I want to ask you guys within the modeling
Was that possible to capture?
So I I don't think that
Is across right and so there are certain there
Are certain on the ground more granular policy components here that?
this type of modeling through the implant and remi software
just becomes harder to disaggregate.
And I think it would also be a question
how municipalities chose to respond to that
in terms of any potential adjustments
to their own state tax structure.
And so in any kind of modelling exercise like this,
there is that level of policy uncertainty.
And, you know, a gentleman.
reference, for example, a situation in Fairbanks
where a certain percentage of the population
has the ability to shop in a in certain way
that would be a very granular focus
when we're thinking about sort of state aggregate effects.
And so these would naturally fall differently
in how they would precipitate
in different parts of this state.
And I think that's
just a feature of how things are able to be tractable in this type of modeling, and I
think that's the sobriety that we should filter this through as well as you are making policy
and as local municipal policymakers have to react and respond to that.
It's important to sober about those things that you can model with an attractable more
certain sense and certain things, that are just significantly more difficult by the nature
And so just to quickly address part C of the question,
sort of large projects that are on the horizon.
There's no assumptions that we make in the modeling
about potential individual projects,
gas line, large mining projects in Western Alaska,
for example.
And so, those are not reflected.
The model does incorporate forecasts of more general economic activity into the future,
but not the outcome of any particular projects that's not
reflected in those more, more General forecasts.
I'll just say that I think that it, there's also important discussions to be had
that if those projects do materialize, the state should consider.
Similarly, prudent types of decisions that were made in the past in making sure
that the non-renewable resource revenue that's generated
when those projects come into fruition is available for future generations.
That's Resource Economics 101.
Yeah, Bert Stebman from Southeast.
So I'm just curious when we look at our 5% payout, we're either going to,
out of the permanent fund, were either gonna take it to the operating account,
maybe a little bit of capital.
or it's going to go out in dividends.
A and B, we live in a pretty simple world.
We're not Ivy League scholars here.
At least people sitting out here aren't.
So explain a little bit about the dynamics
of when you change the dividend, say, in this example, down,
where then we increase goods and services
through the operating budget to the people,
the people's money that we're dealing with here and it's going to their benefit
across the state. It might come in a shot to some people, but that's in fact where it goes.
Or we do the reverse. The dividend shrinks or expands and
it just a yoyo. That it all equals five percent. And then after you cover that,
If you change the sales tax structure from the local level,
at least from my time on the assembly years ago,
we're either going to collect it in sales stacks
or we are going collect in property tax.
There's a limit on sales taxes that people can bear
to buy groceries and function in your community
and make sure the commerce stays in there.
We can't.
From Ketchikan, go to Sitka to Petersburg.
We're stuck.
You know, we not like the rail belt.
We can't just drive around to the grocery store.
Let's take it or leave it on your island.
So they're just going to go raise property tax.
So there's some interplay here that is different
in the railroad belt, but if you can help me
on those two points, particularly the dividend payout
structure.
Oh, and then one other quick thing when you do that.
Before you answer that one and then we'll go from there.
So my colleague Spencer is going to talk
about the impact of model in multiple scenarios
while I pull up a slide on the question of the permanent fund
dividend operating in capital budget splits,
which was a part of
the analysis that we conducted,
but just didn't have time to present today.
Yes. So to answer the second question,
I think it's important to-
Like, you know our approach here is we're not modeling any combination specific combination of policies and we are also not
You know because of that
Naturally we have a limitation in our ability to anticipate how municipal governments might respond to any changes at the state level
That kind of analysis is possible or that type of specific scenario is possibly to model
But just given the kind of nearly infinite number
of combinations of scenarios that would look like that,
we didn't approach this project with those types
of responses at the municipal level in mind.
However, I think, you know, if your expectation is that
well, the state is going to raise sales taxes in a way
that's going result in municipal governments.
Lowering their sales tax, on one side is going to kind of dampen the economic cost of the state level sales
tax. It's going basically to leave the post tax price that consumers are paying for goods roughly even or level across the pre and post state
So, that might dampen some of the economic costs associated
with the sales tax, but if they're just shifting that tax
onto property owners in the municipal level,
then that's going to kind of filter through in some way
to what would it look like if we had a statewide property tax
increase, right?
So that just to say is there's a limitation
in exactly how fine you can get with a tool that we're going
to make available to you of how is this going
But you could through some combination of adjusting sales tax levels and adjusting property tax
levels at the statewide in our tool get some sense of what the aggregate economic effect
of that might be.
I was just always going to make the point with regarding thinking about choosing different
levels of POMV, PFD splits.
But as I mentioned at the jump, it
relies importantly on the assumption
that there are no federal match dollars affected
with state spending changes.
And that's a major assumption, right?
If you start to crowd in or crowd out federal dollars
by either increasing or decreasing,
operating or capital expenditures,
and you started to get those 8 to 1 federal matched dollars,
then those have significantly larger economic impacts.
And so being strategic about where
on the CAP or OPEX budgets, I think is really important
to understanding the total or cumulative economic impact.
But certainly one piece of the analysis
that we conducted was trying to understand
how different levels of POMD, PFD splits
netted out with respect to the different economic outcomes.
So.
Sure.
So, the panel on the left here is the impact on employment,
and the, uh, panel the right is
the effect on total income for,
uh for residents of the state.
Um, what these three lines show is over different levels of PMV,
or POMV and PFD split,
uh how employment is affected and how total
income is effected.
So, what this panel on the left shows is that as you move from appropriating dividends
towards appropriatating to op-x or capital X, you, or sorry, as
you appropriate more towards the dividends,
you're reducing,
or you are putting negative pressure on
the labor market.
but positive impact on income in the state.
And that's just because you're turning more money directly
to residents, but that money is not recirculating
in an economy through employment.
The three different colored aligns show different combinations
of additional appropriations to either the capital budget
or the operating budget.
So for an additional dollar that we're allocating
to capital relative to an addition dollar
that would be allicating to operating budgets,
that changes kind of the slopes of those two lines.
be have larger or smaller impacts,
depending on whether that additional dollar
that you were taking from dividends
and putting into appropriations
was appropriated for capital or operating budgets.
But happy to talk more offline about this
and everything else.
I think Diane might be transitioning us to the next.
Yes, it is, unfortunately,
it's 11.30, and I know some of you
have a lunch and learn at noon.
So a couple of things.
Although it' tempting,
we are not jumping on the the explain out of town.
Some of you or your staffers will have seen an email that says we are available to meet
in individual meetings.
We said starting at one because of the events up in the capital and we're here tomorrow.
We're having a little bit of difficulty with there's a spreadsheet that people are supposed
I think everybody got sent to second email with my cell phone number so you could just
text me and say, are you available or you can come up or send somebody up to get my
cellphone or email one of us.
I did leave my card out there and all of our emails are up on EISER's website.
Secondly, on February 4th at 4 p.m. we're doing this again virtually.
Announcement and invitation to register will come out in about half an hour
And we've set it up for up to 500 people.
If we run into more than that, I'll work with our IT people
to figure out how we get the next larger license.
But this is really for your constituents,
for our local government friends,
for anybody who's interested in hearing this,
we want to make this available.
We also are happy to do this again in other ways,
whether it's we go up to Fairbanks together,
we don't have unlimited resources, as you can imagine,
but we wanna as much as possible,
make sure that as many people as
possible have access to this information.
So please reach out and let us know.
And with that, I wanna thank,
as can you see, for me,
I just get to
I really enjoy, along with you, learning so much from an amazing team of researchers,
and I want to thank them again for all this incredible work in such a short amount of time.
Thanks.