The Sequester affects Alaska too

February 27, 2013

The US is likely soon going to pare its profligate spending by ‘sequester’ or forced savings. Alaska is highly dependent on federal expenditures and will not emerge unscathed from expenditure cuts.

The looming sequester in the US slow the economy and weigh down GDP in Alaska. The sequester’s $85 billion cut in discretionary spending this year is only 2.4% of total US federal outlays over the past 12 months of $3.58 trillion. However, those outlays include $2.19 trillion in spending on entitlements, which are a redistribution of income that doesn’t have a direct impact on GDP through its federal government component. Federal government spending in GDP, in current dollars, was $1.20 trillion during Q4-2012. That’s where the sequestration cuts will hit, as they account for 7.1% of this total.

A 7.1% spending cut for Alaska would mean:

• The federal government supports more jobs for Alaskans than any private industry—including even the petroleum industry. Just over a third of Alaskans with jobs depend in some way on federal spending. Federal spending in Alaska generates jobs in many ways and through both military and civilian activities.
• A lot of federal money flows into Alaska, relative to the number of Alaskans—an estimated $10 billion for a population of around 670,000. Alaska budget sequestration will cost the state $1.047 billion in gross state product, or about 2% of GDP.
• Around 125,000 people are employed directly and indirectly from the US federal expenditures. The Business Insider suggested that Alaska spending cuts would amount to about 10,000 jobs, some 5893 of the jobs lost will be because of cuts in defense spending and 4518 of the jobs lost will be because of cuts in non-defense spending.
• The US military has 44 military facilities in Alaska. Some of these could close.

 

Commentary

The Alaska economy is not immune from the pending sequestration cuts. Expect a 7% reduction borne mainly by the US military in Alaska.

The figures used by the Business Insider seem too high to be believable. A reduction on employment of 10,000 is too high. The actual number employed by the federal government is only 16,000, so 7% less would mean around 1,100 jobs.

Sources

• a)http://www.iser.uaa.alaska.edu/Publications/researchsumm/UA_RS_13.pdf



• b)US Fiscal policy in http://blog.yardeni.com/



• c)http://en.wikipedia.org/wiki/Category:Military_facilities_in_Alaska



• d)http://www.businessinsider.com/sequester-cuts-breakdown-details-california-virginia-defense-texas-2013-2#if-the-sequester-kicks-in-every-single-state-will-take-a-hit-in-state-gdp-1