Gov. Mike Dunleavy’s vetoes of $409 million from the Fiscal 2020 state budget could cost the economy 4,217 jobs, driving a big dent into a fragile economic recovery now underway.
The estimate includes 1,943 direct jobs eliminated by the vetoes and 4,217 total jobs when the “multiplier effect,” or the effect on secondary service jobs supported by the primary job, is added.
“Multiplier effects cause further job losses referred to as indirect and induced jobs as the organization buys fewer goods and services and households suffering from loss of income spend less money in the economy,” said economists Mouhcine Guettabi and Nolan Klouda, authors of the study, in their analysis.
Guettabi is with the University of Alaska Anchorage’s Institute of Social and Economic Research and Klouda is with the Center for Economic Development, also part of the university.
Alaska’s economy began a slow improvement late last year after several years of sharp decline due to the falloff in oil prices, which resulted in major revenue reductions to the state and layoffs in the petroleum and oil-support industries. “The cumulative job losses between September 2015 and September 2018 amounted to about 12,400 jobs,” Guettabi and Klouda wrote.
Since the turnaround began last November 1,250 of these jobs have been regained but total employment is still 11,600 below that in May, 2015. Subtracting the gain of 1,250 from the projected loss of 4,217 results in a net reduction of 2,892 jobs in the economy, the economists wrote.
Vetoes of Senior Benefits would have no direct impact on jobs but would have indirect impacts due to reduced spending by senior citizens, the economists said in their analysis.
Similarly, Medicaid reductions would result in health care providers receiving less revenue, forcing them to cut costs by laying off workers,” Guettabi and Klouda wrote.
Municipalities will absorb vetoes of school bond debt reimbursement by raising taxes or cutting local budgets, resulting in indirect job losses.
“The actual job losses could be lesser or greater depending on how agencies and other recipients decide to absorb the losses, the economists wrote.
The largest impact of the vetoed will be with the University of Alaska, which would see a $130.2 million reduction or 41 percent of its state funds. “Since 55 percent to 65 percent of the university’s goes to personnel, direct job reduction would be necessary,” Guettabi and Klouda wrote.
Dunleavy’s veto of university funds would account for 40 percent of the overall job losses, the analysis said.
An important consideration is that the effects of job losses from state government budgets cuts are different than the sharp employment declines in the petroleum industry suffered in 2016 and 2017,
Many of the jobs lost since 2015 were held by non-locals such as the North Slope oil field workers who live out-of-state and commute to their oil field jobs, so the economic impact of the cuts was somewhat muted. “Job losses in state government or the University of Alaska, on the other hand, are held by residents who often own homes and send children to local schools,” the economists wrote.
In addition, the majority of university employees compete in national markets making the likelihood of out-migration high, which can affect local housing prices,” Guettabi and Klouda wrote.
Here are the impacts of the governor’s vetoes broken out:
Veto amounts are in millions of dollars
Agency/function Direct jobs Indirect jobs
University budget cut (-$130.2) 1,300 2,024
Medicaid/Mental Health (-$83.1) 575 890
Senior Benefits (-$20.78) 0 141
School bond reimbursement (-$48.9) 0 313
State personnel reductions (-$11.87) 68 124
Mental Health Capital (-$11.7) 101 149
All other (-$53.62) 0 576
Fund transfers/capitalization (-$49.6) 0 0
Total: 1,943 4,217