4. Comparison to
Why Does Alaska Spend More Than Other States?
Alaska public outlays
(state + local) per capita was 85% above the U.S. average in 1999 (cost-of-living
adjusted). Netting out the BIG THREE—the Permanent Fund Dividend, Bonus
Federal Transfers, and Extra Interest Expenses—Alaska spending was still
46% above the national average, about $2,874 per person—or $1.782 billion
in total (at Alaska prices). A number of factors are suggested to help
explain this residual premium.
- Special Management
Needs of the Owner State. In 1998 the state spent over $172 million
(the combined operating budgets of the Departments of Fish and Game
and Natural Resources), or $275 per person, on the management of the
fish, timber, mineral, land, and petroleum resources of the state. In
addition, it cost about $48 million to manage the Permanent Fund and
the dividend ($75 per person).
- Other Unique
Programs. Every state has unique programs. We have many that are
not typical of other states such as the Power Cost Equalization Program
and the Longevity Bonus. These two programs cost about $80 million ($130
per person) in a recent year.
- Small Scattered
Population Preventing Economies of Scale in Service Delivery. Part
of the reason the cost of education is high in Alaska is due to small
enrollment in the average school. In many parts of Alaska, a number
of government services could be delivered to a larger population at
little additional cost. The absence of economies of scale in the delivery
of public services helps explain the high concentration of public employees
in the state.
- Expensive Delivery
Systems Due to Distance, Weather, and Other Conditions. The delivery
of some public services must be done in person, and this results in
high costs in some functional areas such as the court system.
- Loose Eligibility
Requirements. One legacy of the 1980s is the absence of means tests
for some government programs. The Power Cost Equalization Program, the
Longevity Bonus, and the Student Loan Program are a few examples of
- Need to Bring
Public Infrastructure up to Lower 48 Standard. Since Alaska has
been a state for a comparatively short time, it is behind the rest of
the Unites States in the quantity and quality of its infrastructure—roads,
harbors, communications, utilities, etc. This means a higher rate of
capital spending to catch up to the rest of the nation.
Children are an expensive age group to serve, primarily because of education.
Eighteen percent of Alaskans are school aged (5-14) compared to the
U.S. average of 15%. So for spending per student to be comparable to
the U.S. average, spending per capita must be 20% higher in Alaska.
Seniors represent another expensive age group to serve. Although only
5% of the Alaska population is over 65 (compared to 14% for the United
States as a whole), seniors are our fastest growing population (the
fastest rate in the nation except for Nevada).
- High Public
Wage Rates, Employee Benefits, and Other Costs. Labor agreements,
local hire laws, resident bidder preferences, and other laws and practices
drive up the cost of service delivery provided through the public sector.
Providing the same services through the private sector can sometimes
reduce the cost. This is a concern in every state.
- Fraud and Abuse.
These factors always have and always will be present to some extent
in every government. However, there is no evidence to suggest that these
factors are more important in Alaska today than in other states.
- Waste. Some
waste is the inevitable legacy of over two decades of high oil revenues.