No, Mr. Revenue Commissioner, ISER did not back away from job loss estimate
The back-and-forth this week between an economist at the Institute of Social and Economic Research and the Dunleavy administration revealed a great deal about the challenge of saying exactly what would happen if the state eliminates the ferry system, cuts funding for every public school in Alaska, dismantles the University of Alaska, removes $700 million from the Alaska health care system and confiscates $500 million from local governments.
It is impossible to give precise numbers on how much damage the Dunleavy Disaster would do to Alaska.
But two things stand out in the Guettabi/King smackdown this week.
First, the Dunleavy administration has refused to attempt an economic analysis, probably because the results would confirm just how bad these haphazard cuts would be for Alaska. The administration has added more confusion than clarity by saying everything is “unclear.”
The governor’s budget office has fallen back on the simplistic theory Donna Arduin has brought in her baggage from Outside, claiming that the more spending is cut, the greater will be the future increase in economic growth, ignoring key details about why that doesn’t add up.
Second, the 2016 ISER report by Gunnar Knapp, Mouhcine Guettabi and Matt Berman of the University of Alaska Anchorage remains the most valuable document we have about the short-term impacts of budget cuts.
The ISER analysis concludes that about 17,000 jobs would be lost under the Dunleavy budget, based on research showing that for every $100 million reduction in state spending, about 1,000 jobs would be lost. Is this a precise number? No. It is an estimate about an uncertain future. Call it informed guesswork.
The cuts would include about 7,000 jobs lost from cuts in the state operating budget, 5,000 jobs lost from local government cuts and 5,000 jobs lost from cuts in federal funding. (These estimates may be too low, as the job cuts in health care alone may range from 7,000 to 9,000.)
I was disappointed to hear Revenue Commissioner Bruce Tangeman and economist Ed King make misleading statements to the Senate Finance Committee Thursday afternoon about the ISER analysis. I don’t know if this was intentional or a mistake.
Tangeman made this misleading statement: "I think Dr. Guettabi cleared some of that up as well because the walking around number I think was 1,000 jobs for every $100 million, but then in his summary slide on the governor's plan, he actually backed that down to about 7,100 jobs lost. So, I think he started with a $100 million to 1,000 assumption and then he built in the different assumptions that he was seeing while he was analyzing this. It might be somewhat different than what Ed (King) is presenting, but it did show a very different number and I think that goes to this discussion as well, it's not just a fixed calculation."
King made this misleading statement about job loss estimates by Guettabi: "If you believed the ISER numbers that number would be somewhere north of 14,000 jobs. I already said I don't believe those numbers. I think ISER this morning said they don't believe those numbers. I think the Department of Labor said yesterday they don't believe those numbers. I don't think anybody really believes those numbers are real. But there is a impact and it needs to be accounted for. When you net everything out it's something less than 5,000 jobs total.”
I wrote here about the weaknesses in King’s guess that the Dunleavy plan would mean losing less than 5,000 jobs.
Contrary to Tangeman’s statement, Guettabi’s “walking around number” did not change. And, contrary to King’s statement, ISER researchers believe the ISER numbers that for every $100 million cut in government spending, about 1,000 jobs would be lost.
What Guettabi did with his presentation was to go beyond his guess about 17,000 jobs lost. He included an estimate of how many extra short-term jobs would be created if the Legislature increases the dividend this year by $1.3 billion, giving each Alaskan about $4,000, instead of $1,800.
Guettabi said that extra money, if it is spent, could create nearly 10,000 short-term jobs, lasting about three months. Subtract 10,000 from 17,000 to produce the estimate of 7,000 lost jobs. But let’s place a giant asterisk next to that number.
For one thing, destabilizing the Alaska economy by slashing public services would have an impact on household spending and saving.
Second, in a paper that King wrote last fall before he became part of the Dunleavy administration, he said that the PFD helps the retail sector, but not that much. “As best I can tell, more than 90 percent of PFD distributions don’t enter Alaska’s economy at all. Most of that money gets put in college savings accounts, leaves on airplanes, goes to Amazon, or pays federal taxes.”
For his part, Guettabi said additional jobs created by the $1.3 billion in added dividends would not last long. “The employment effects of the PFD may be short lived. Our recent (yet to be published) work shows that the employment effects are concentrated in the three months post distribution,” he said.
In other words, short-term jobs created by extra dividend money in the retail sector would not be the same as jobs lost for good at the University of Alaska, public schools, local governments, community hospitals, health clinics, the ferry system and other institutions that would shed workers under the Dunleavy plan.
It is misleading to subtract short-term gains from long-term losses and present the result as a single category. The conservative “walking around number” of 17,000 jobs at risk should alarm every Alaskan.