The high cost of doing government business in Alaska was outlined Wednesday in a report from the Alaska Policy Forum that showed nearly three-quarters of Anchorage Municipal employees are compensated to the tune of $100,000 or more.
The figure is not what employees see in pay, according to forum executive directory Bethany Marcum, but what they cost the municipality.
On average, she said, about 30 percent of an employee’s cost is tied up in benefits with health insurance costs now eating a big share of that.
The average, 2017 salary and benefits package for a municipal employee came to $128,162, but the average is weighted by the 412 of nearly 3,000 full-time employees who make more money than Mayor Ethan Berkowitz at $185,570 per year.
The muni’s highest cost full-time employee was a firefighter who collected some back pay to push his wage and benefit compensation to $701,476 on the year, according to the study; the second highest paid employee, a senior patrol officer with the Anchorage Police Department, cost $450,304.
The average $128,162 compensation package would yield a wage of about $89,600 per year. The median wage for working men in Alaska is $55,752, but that drops to $43,455 for women, according to the national Bureau of Labor Statistics.
But there are wide regional variations in pay and even bigger differences between job categories for both men and women. The Alaska Department of Labor also notes a high premium paid Alaska workers with college educations.
The median wage for men with bachelor’s degrees is $85,602, according to the state agency.
Too much; too little?
The Policy Forum report comes at a time when Alaska is struggling through a recession and the question of “right sizing” government is a hot topic. An economy long lifted by oil wealth began hurdling back to earth when global oil prices started falling early in this decade.
The economy continues to slide, but the Alaska Department of Labor hints of improvement. It forecasts a 2018 job loss of only a half percent, way better than the 1.9 percent drop in 2016 and the 1.1 percent drop last year.
Meanwhile, a February report from the Institute of Social and Economic Research at the University of Alaska says the state, which thousands have fled, has managed to successfully do some downsizing, although budgets remain large.
“Alaska’s 2015 state and local government spending per person – for all types of spending – was more than twice the U.S. average, and significantly more than spending in two other oil-producing states” – Wyoming and North Dakota, that report notes.
But it adds that Alaska spending in 2015 was inflated by the cash payments government made to residents in the form of Permanent Fund Dividends (PFDs) and to oil companies in the form of oil-tax credits to encourage them to keep drilling for new oil.
Remove those expenses from the equation, the report says, and Alaska is closer to Wyoming and North Dakota in terms of per capita state spending, and if the higher cost of living is added to the equation, “Alaska’s 2015 state and local spending per person was about 50 percent above the U.S. average, and below Wyoming’s.”
In the latter scenario, Alaska spending on state and local government at a cost of $12,733 per person slots in almost exactly halfway between Wyoming at $14,564 per person and North Dakota at $10,845.
Good or bad?
Whether this is where Alaskans want to be, or should be is, at the heart of budget debates going on at both state and local levels. Anchorage, like other Alaska communities, has long benefited from the state’s oil wealth, but it is being forced to do more to support itself as oil revenues decline.
Once the municipality enjoyed almost $15 million per year in revenue sharing. That’s down to less than $8 million for fiscal year 2018 and projected to continue declining. As state funding drops, the burden of paying for local government falls more and more on municipal property owners who shoulder the burden in the form of property taxes.
Since fiscal year 2013, the ISER report says, the state has cut the capital budget by nearly $2 billion. The capital budget pays for construction of roads, airports, state buildings and other types of infrastructure.
“State agencies have also seen cuts of several hundred million dollars, and the state has cut UGF (unrestricted general fund) spending for tax credits to oil companies and special contributions to employee retirement funds,” according to the ISER report.
A 2016 ISER study found that state and public sector employees earned about 8 percent less than similar private sector employees, but when benefits were factored into the equation compensation was near equal.
“There is no consistent evidence that state and local government employees are overcompensated,” the study concluded.
That has not helped Alaska avoid a budget crisis. Despite cuts at the state level, the state budget has come up about $3 billion per year short, and the state has been forced to cover the shortfall with savings which are just about drained. The situation has improved somewhat with global oil prices on the rise since July, but the state is still expected to be more than $2 billion short this year based on a March forecast of an average price of oil at $61 per barrel.
Future prices are uncertain. Crude climbed above $70 earlier in the week only to fall back. Tensions in the Mideast are putting upward pressure on prices; rising U.S. crude oil production is putting on downward pressure.
“The recent rally in oil prices might have taken some by surprise as the underlying fundamental picture does not justify Brent being close to $70/bbl. This view is based on the simple fact that non-OPEC oil supply growth will trump the increase in global oil demand this year,” PVM Oil Associates analyst Tamas Varga told the Reuters, the news service.
Problem for Alaskans
Oil prices are vital to Alaska because, as the ISER report notes, the unrestricted general fund is the part of the budget “that pays for general government services, and it’s been funded almost entirely by oil revenues since the 1980s—so that’s where the budget deficit is.”
Legislators in Juneau are still fighting over what to do about the budget. Some want to tax Alaskans, some don’t. Some want to use part of the Permanent Fund to cover the gap, which would reduce the PFD; some don’t.
Gov. Bill Walker proposed raising revenues with a payroll tax and Permanent Fund earnings. Payroll and income taxes proposals have run into strong opposition. So, too, a statewide sales taxes proposed last year.
“In 2016, Alaskans paid less state tax per person than anyone—$514, compared with a U.S. average of $2,600,” the ISER report says. “In other oil states,Wyoming residents paid nearly $1,700 and North Dakota residents $2,700.”
The report did not include local or borough property taxes, or sales taxes, or property and sales taxes paid by most Alaskans. Economists generally agree any sort of new taxes, cuts to the PFD, or reductions in state spending will hurt the economy. But the state is quickly running out of savings to cover spending shortfalls.
Anchorage has also faced funding shortfalls. The Anchorage School Board is now struggling with how to cut about $13 million because of lack of revenue.
How well compensated state and local government employees is all part of the equation. Marcum argues Alaskans have a responsibility to get involved in the discussion.
“Alaska has historically spent more per person than other states, and the persistent question—especially when the budget is in the red—is how much the state should spend,” ISER argues. “We don’t presume to answer that question, but this paper provides some context for discussions about the budget.”
At a statewide level, it suggests, “providing services costs more in a huge state with a harsh climate, few roads, and many small, isolated towns. Operating remote schools is one example. And health-care-costs, which are the highest in the U.S, also drive up spending for governments here.”
But a fundamental question, at some point, comes down to what Alaskans think public employees are worth.
Correction: Bethany Marcum’s last name was misspelled in an early version of this story.