Perspectives on Business and Economics, Vol. 40

Perspectives on Business and Economics, Vol. 40, 2022 1 Introduction Alaska’s total revenue has “restricted” and “unrestricted” revenue categories. The unrestricted portion of the general fund (GF) represents the revenue that may be used for any purpose, whereas the restricted portion of the GF is appropriated by the legislature to pay for specific programs, such as Medicaid, Medicare, and transportation projects. Alaska’s state revenues come from three main sources: oil-related taxes, the federal government, and investment revenue from the state’s largest savings fund, the Permanent Fund (PF). The PF was created in 1976 as a mechanism for sustaining oil revenues for future generations. Investment revenues and federal funding substantially cover the restricted state spending, whereas oil-related revenues primarily fund the unrestricted state operations spending. As a result, the state’s total revenue remains subject to volatility from both the oil market and the stock market. From the 1980s to the 2010s, oil and gas income yielded a 93% contribution to the state’s unrestricted GF, which at its peak in 2012 entailed $9.9B of $10.6B, after adjusting for inflation. But, oil contribution to state revenue has dropped dramatically since 2012, due to declining production and lower world prices. By 2019, oil tax revenues had declined to $2.7B (Walczak, 2020). As a result of this dramatic decline and lack of new revenue streams, the state has been facing budget deficit challenges every year since 2013. Alaska’s proposed budget for fiscal year (FY) 2021 was $10.18B, with $4.53B (44%) allocated to the unrestricted budget; the rest was appropriated for specific government services (Mahoney & Barnhill, 2021). The state’s projected revenue for the unrestricted GF for FY 2021 was around $1.97B. With an appropriation of about $1.09B from the percent of market value (POMV), an annual draw from the PF, the total revenue summed up to approximately $3B, indicating a budget shortage of close to $1.5B (Walczak, 2020). That shortfall summarizes Alaska’s challenge: How can the state NAVIGATING ALASKA’S FISCAL CRISIS: A FRAMEWORK FOR A SUSTAINABLE FUTURE Lidya Yalew Bekele Alaska is known for its resource-driven economy and depended on oil tax revenues to cover expenses through the 2010s. However, due to declining oil production and lower prices, Alaska has faced budget deficits since 2013. In response, the state relied on its savings to close the gap. This article explores a balanced approach to counter the budget challenges, one that entails reallocation of the draw from the Permanent Fund, reduced state spending, and new revenue streams.