Alaska economists urge targeted aid to help smooth out an uneven economic recovery

JUNEAU, Alaska (KTUU) - Alaska economists say a weak and uneven economic recovery could be assisted by targeted state aid to communities, businesses and people who need it the most.

Mouhcine Guettabi, an economist with the Institute of Social and Economic Research, said he has seen no signs of an “organic” economic recovery in Alaska from the impacts of the COVID-19 pandemic. A one-time infusion of federal funds could help.

The Alaska Legislature is grappling with how to spend $1 billion from the latest round of federal COVID-19 relief. A version of the operating budget is set to be rolled out Friday in the House Finance Committee that incorporates those funds.

Guettabi said the money won’t solve Alaska’s structural deficit and that legislators should focus on disbursing it to the most critical areas of need.

He used the example of Skagway which is slated to see a 95% revenue drop in 2021 without a significant summer cruise ship season. Guettabi said it would make sense that more funding go there per capita than Anchorage which is relatively better off.

Some sectors, like the visitor industry, are also facing unequal challenges with a diminished summer tourism season. Gov. Mike Dunleavy has proposed setting aside $150 million from the federal relief package to help those affected businesses.

That unevenness in economic impacts extends to the individual level, too.

The Department of Labor and Workforce Development says 92,916 people filed for unemployment benefits from March 2020 until March 2021. Lennon Weller, an economist with the department, said that number of claimants was unprecedented for Alaska.

Unemployment levels remain high and every sector, with the exception of health care, has not seen a recovery yet in job numbers. But overall, Alaskans saw a rise in wages in 2020, suggesting the state could be experiencing a “K-shaped recovery.”

Eligible unemployed Alaskans are able to receive $300 per week in federal benefits, on top of state benefits, until Sept. 6, but one state payment program ended in March.

The Legislature increased the amount of money given to unemployed people with dependents during the COVID-19 pandemic. A bill before the House Finance Committee would renew and extend that temporary rise to $75 per dependent.

Weller said the increase in per dependent payments had a sizable impact. It doubled the wage replacement level for recipients, meaning they were getting around 90% of their typical wage when they were employed.

He also supports a targeted approach for individual Alaskans who are out of work, saying it would make a big difference.

Guettabi said a Permanent Fund dividend may not be the best way to deliver that because it goes to everyone, regardless of income or whether the person stayed employed over the past year.

The Legislature though has less than a month until it hits the constitutional session limit, meaning digging into the data to create an alternative system with an income cap or means-testing would be difficult.

“It would be a nightmare to administer,” Guettabi said.

Looking at longer-term needs should also be a priority for legislators as they decide how to spend the COVID-19 relief, said Nolan Klouda, the executive director of the UAA Center for Economic Development, explaining that it should include investments in infrastructure and workforce development.

Previous federal coronavirus packages have stimulated the economy and made up for lost income, Klouda said, the focus now should be filling ongoing gaps in need.

Nome Democratic Rep. Neal Foster, a co-chair of the House Finance Committee, agreed that a targeted approach should be used for these funds

He said the Legislature would broadly follow the five spending areas for the federal package proposed by the governor. To what degree will be determined by legislators in the coming weeks.