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U.S. budget cuts might hit Federal government dependent Alaska hard

  • McClatchy Newspapers
  • Published Wednesday, Dec. 5, 2012, at 4:16 p.m.
  • Updated Tuesday, Jan. 22, 2013, at 5:28 p.m.

— Economists are warning that the nation’s “fiscal cliff” crisis might cause the loss of 4,600 to 10,400 jobs in Alaska, a state where federal money supports an estimated one-third of all jobs and income.

“It will not cripple the economy, but it will be a significant blow to the health of the economy,” said Mouhcine Guettabi of the Institute of Social and Economic Research at the University of Alaska Anchorage.

Automatic budget cuts and tax increases will hit Alaska and the rest of the nation at the end of the year unless Congress can reach a deal to stop them. There are few signs that Congress is close to an agreement despite ongoing negotiations.

The spending reductions would come across the board, from the Defense Department to the National Park Service to the Indian Health Service. Most defense programs would be slashed by more than 9 percent, and other domestic programs would lose 8.2 percent.

Alaska has big military bases in Anchorage and Fairbanks and a rural population that’s especially dependent on federally funded social services. More than 60 percent of Alaska is federal land, and the state holds two-thirds of America’s national park acreage.

The federal agencies themselves are offering little detail on the automatic cuts, which are known as sequestration.

“We are not commenting on the impact of future budgets or the possibility of a budget sequestration,” National Park Service chief spokesman David Barna said in a response typical of what’s coming out of the agencies.

But it’s clear that the impact on Alaska would be big, given the state’s dependence on federal money, economist Guettabi said. A reduction in those dollars and lost military payroll would reverberate around the Alaska economy, from restaurants to real estate. Guettabi estimated that the job losses might be as great as 9,075. A recent study by George Mason University economist Stephen Fuller pegged the potential jobs losses in Alaska at more than 10,400.

If Congress doesn’t stop tax cuts now in effect from expiring at the end of the year, that also will mean higher taxes for Alaskans and every other American. Guettabi estimated that a single Alaskan who earns $75,000 to $100,000 a year would have an average tax bill of almost $1,900 more unless there’s a deal. A married couple filing jointly with that same income would have a bill of almost $2,850 more.

None of the three members of Alaska’s congressional delegation is a significant player in the talks on finding a solution. Reaching a deal to avoid the cliff and address the nation’s annual trillion-dollar budget deficits is largely up to Republican leaders in the House of Representatives and the White House.

President Barack Obama insists that any agreement include an increase in the income tax rates for the wealthiest 2 percent of Americans. Republican House Speaker John Boehner of Ohio is resisting any tax rate increase, saying increased revenue should come only from fewer deductions.

Alaska Rep. Don Young, the second-longest-serving Republican in the House, “believes strongly that the tax code needs to be reformed into a simpler system, but that does not mean higher rates on the American people,” said his spokesman, Luke Miller.

Alaska Democratic Sen. Mark Begich said he supported taxing the wealthiest 2 percent, along with cutting spending and investing in education, energy and infrastructure. "The reality is that this a budget challenge that’s built up over 40 years," Begich said. "Now we have to deal with it. We’ve been on a drinking binge for more than 40 years, and now we have a hangover."

Alaska Republican Sen. Lisa Murkowski said she wasn’t opposed to the possibility of asking wealthier Americans to pay more, in combination with spending cuts. But she said she didn’t want small businesses in her state to suffer as a result. There’s probably no bigger issue facing the nation, Murkowski said, and the impact on Alaska is especially big.

“Our heavy dependence on federal revenue makes our economy more vulnerable from sequestration than perhaps other states,” Murkowski said Wednesday.

James Rosen contributed to this report.

Email: scockerham@mcclatchydc.com; Twitter: @seancockerham

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