Alaska spends significantly more money per capita than any other state. In FY 2012, the state spent $13 billion, or more than $17,000 for each person in the state. Alaska’s spending may appear inflated by the money “spent” on Permanent Fund dividends, which pass through the state budget on their way to Alaska residents, and by money the state deposits into savings accounts, which is also counted in total spending, as well as the large amount of federal funds the state receives. Without dividends and savings though, Alaska still ranks first in the nation in per person spending ($13,000 per person), but 38th in terms of total spending. Other states with small populations (Delaware, Wyoming, Rhode Island, North Dakota) also regularly appear in the top 5 for per capita spending but near the bottom in total state spending.
Not surprisingly, Alaska’s overall budget has grown as its population has grown and its economy has matured. In 1970, Alaska was home to 302,000 people with an annual state budget of just $219 million. By 1980, following the completion of the Trans-Alaska Pipeline, 401,000 people called Alaska home and the total budget had risen to $1.5 billion. With 722,000 people now in Alaska, the current total state budget (including both operating expenses and capital projects) is $13.0 billion (FY 2012). This includes $3.1 billion in federal funding. Over the last decade, state operating costs have grown, on average, 8 percent annually and that growth rate is projected to continue.
Spending typically increases with population as the state is called on to provide additional services and build new infrastructure to accommodate more people. Some of these increases occur automatically due to formula funding. However, unlike most states, Alaska’s revenue is not tied to population. In states funded partially with personal income or sales taxes, state revenue automatically goes up as population and the demand for services grows because more people are paying taxes.
What does Alaska spend its money on?
Alaska spends its money in four main ways: providing services to Alaskans (the operations budget); building and maintaining statewide infrastructure (the capital budget); saving for the future; and paying Permanent Fund dividends to Alaska residents.
The operating budget is broken out into two parts: agency spending and spending on statewide activities, such as debt service and retirement.
The majority of state spending ($7.2 billion or 56% of the total budget) is used to provide services to Alaskans through 18 state agencies, which employ approximately 24,000 people throughout the state. State government provides 7 percent of all jobs in the state. Just over a quarter of the budget for agency spending (about $2 billion) is funded with federal dollars that are spent by state agencies as they provide services to Alaskans.
- Department of Health and Social Services ($2.5 billion) – includes state and federal spending on Medicaid and Medicare, as well as other programs.
- Education and Early Development ($1.6 billion) – primarily state funding used to operate schools throughout Alaska.
- Transportation and Public Facilities ($600 million) – includes state and federal spending on the maintenance of large capital projects throughout Alaska.
- University of Alaska ($891 million) – primarily state funding for operating Alaska’s university system.
Administration expenses totaled $312 million in FY2012, about 4% of total agency spending and just 2.4% of total state spending. All other agencies combined make up the other 25% of state agency operating costs.
Another component of the operations budget is statewide spending on items that span all agencies. Examples include debt service, where the state pays back loans (or bonds) that have been issued for new projects. The statewide operations budget also includes the majority of the cost to fund retirements for state employees. In recent years, the state has made substantial payments to make sure the pension system is fully funded in the future. This has caused substantial increases in the operations budget since fiscal year 2007.
Projects in the capital budget include all types of construction activities, such as energy projects, hospitals, improvements to the marine highway system, road work, schools, etc. Projects are constructed in all regions of Alaska. The capital budget fluctuates with the amount of revenue the state receives but has averaged $2 billion over the last 10 years. The FY 2012 capital budget was $2.8 billion, including $1 billion in federal funds.
Contributions to Savings
The state appropriates funds every year to help increase the balance in savings accounts that can provide a source of revenue in years when revenues fall short of expenses. In FY 2012, the state appropriated about $1 billion for savings over and above the constitutionally mandated contributions that flow directly from their source to specific savings accounts (such as when a portion of oil lease revenue is directly deposited into the Permanent Fund).
Dividends to Alaskans
The budget process requires the legislature to appropriate revenue to make dividend payments to Alaska residents each year from earnings on the state’s Permanent Fund. The formula to calculate the dividend is codified in state law and is the average of the Fund’s income over the past five years. While the Fund itself is enshrined in Alaska’s constitution through a constitutional amendment, the Permanent Fund dividend program was created under state law in 1982 and is not in the Constitution.