The Alaska Fiscal Gap. ISER Fiscal Policy Paper. No. 1.

Alaska faces a problem that is easy to explain but hard to solve: state government is spending more than it collects. The budget crisis looms because oil production, which supplies 85% of the state's general fund revenues, will soon begin to fall as the Prudhoe Bay oil field is depleted. This paper examines the potential deficit and the effect it will have on Alaskans. It considers four possible ways to deal with the fiscal gap from the present to 2010: (1) stumble from year to year; (2) deplete the permanent fund; (3) freeze the budget; or (4) cut spending and raise taxes. Only economic effects, not political difficulties, are considered. Under each scenario effects on revenues, expenditures, employment, economic well-being, and the permanent fund are examined. Decisions are discussed in the areas of (1) current versus future spending and economic activity; (2) public versus private spending; (3) gradual versus abrupt transition; and (4) public versus private economic activity. The effects of the decisions may fall on different areas of the state, different segments of the population, and at different times, depending on the choices made. Although these decisions are political, they can best be made using information about the implications of different choices. (DHP)