HomeMy WebLinkAboutAPA826BEHAVIORAL ASPECTS OF
THE STATE OF ALAS~~'S OPERATING BUDGET
FY 1970 -FY 1977
by
Michael J. Scott
Assistant Professor of Economics
till· Analysis Funded by
Legislative Affairs Agency
Alaska State Legislature
and
National Science Foundation
Han in the Arctic Program
Institute of Social and Economic Research
University of Alaska
Anchorage -Fairbanks -Juneau
Harch 31, 1978
Note to Readers
Since this paper was written, additional wage and salary information
has become available for FY 1977 which pernits the computation of \vorker
earnings for _FY 1977, and gives another year of data for Table 12. The
results appear below, ranked in order of their 1972-1977 rate of change:
Average
Earnings Index Annual Grm.,;th,
(1967 $) (1972=100.0) 1972-1977
Contract Construction $29,681 172.7 11.5%
Services 10,902 154.0 9.0%
Transport.-Corr~.-P.U. 14,750 133.1 5.9%
Hining 20,449 127.9 5.0%
State Government 11,660 115.5 2.9%
Trade 8,295 104.7 0.9%
Nanufacturing 10,271 104.3 0.8%
Federal Government 10,061 101.3 0.3%
Local Government 9,988 100.8 0.2%
Finance-Insurance-Real Estate 8,932 99.2 -0.2%
Agriculture-Forestry-Fisheries* 14,485 133.4 5.9%
* The growth rate in this sector would qualify it for second place.
However, it is shown separately because of its small size and variable
and inconsistent year-to-year results; e.g., considering only the period
1972 to 1976, this sector was in last place. One year's data moved it
to second place. The other sectors are far more consistent. For the
most part, they maintain the rankings shown in Table 12.
Introduction
T\olO fundamental questions arise concerning the pattern of state
expenditures since the discovery of oil at Prudhoe Bay, Alaska, in·l968
and the subsequent lease sale in 1969 which brought the state.about
$900 million dollars in one day. The first of these is: in view of .
subsequent rapid rise in total state expenditures, has the State of
Alaska spent its money in a relatively conservative or profligate man-
ner? The second question is: are there a limited number of demographic
or economic variables which tend to explain the increase? Without at-
tempting to directly answer the first of these two questions, the first
section of this paper describes in several ways the State of Alaska's
pattern of expenditures between 1970 and 1977 and compares the growth
in expenditures with growth in population, personal incomes, and value
of economic output. The second part of the paper describes the results
of some statistical analysis tvhich shows the relationship bet'\.veen the
size of major program categories of the operating budget and the level
of state economic activity, adjusted for the effects of available revenue.
Finally, since there is a possibility that additional funds have resulted
mainly in wage increases, rather than increases in the level of "service"
provided by government, the last section of this paper describes a brief
experiment in which analysis was done on the impacts of personal service
expenditures per budgeted position and of the number of budgeted posi-
tions on the level of operating expenditures per capita from 1972 to
1977.
2
The Level of Expenditures from 1970 to 1977
Total state expenditures of the State of Alaska increased about
3.5 times bet\veen 1970 and 1977. As can be seen frou Table 1, in real
dollar (constant dollar) terms, the 1977 level \vas about 2.2 times the
1970 level, for an annual average rate of increase of about 12 percent
over the entire period. Since 1972, the first fiscal year to feel the
full impact of the North Slope revenues, the rate of increase in total
real expenditures has been somewhat less--about 6.2 percent--while real
operating expenditures grew at about 9.3 percent, and capital expendi-
tures first grew at 3.2 percent through 1976, falling back to about the
1972 level in real terms by 1977. Three pieces of information stand out
in the table. First, the "real" or constant dollar rate of increase is
only about 62 percent of the nominal rate. Nearly 40 percent of the
increase has occurred because of inflation. Second, the rate of increase
was much more rapid between 1970 and 1972 than it >vas between 1972 and
1977. This suggests that after an initial period of adjustment to
higher revenues, spending has increased at a much slo>ver rate. Third,
operating expenditures, which are more sensitive to population growth on
a year-to-year basis than capital expenditures, have gro\ifll more rapidly
than capital expenditures over the whole period 1970 to 1977; but capital
expenditures, which may be more sensitive to revenue, grew more rapidly
than operating expenditures between 1970 and 1972. Operating expendi-
tures have continued to gro>v steadily since 1972, while capital expen-
ditures have been less responsive, being more or less flat since 1972.
Table 1
OPERATING AND CAPITAL ExPENDITURES,
STATE OF ALASKA, FY 1970-1977
(thousands of dollars)
3
Current Dollars Constant 1967 Dollars
Fiscal Operating 1 Capital 2 3 Operating Capital
Year Expenditures Expenditures Total E::-.."Dendi tures ~enditures Total
1977 $853,501.5 $285,112.8 $1,138,614.3 $506,228.6 $169,106.0 $675,334.6
76 739,210.8 310' 877. 2 1,050,088.0 468,151.2 196,882:3 665,033.6
75 597,070.2 272,951.5 870,021.7 421,362.2 192,626.3 613,988.5
74 482,348.0 196,411.2 678,759.2 386,187.3 157,254.8 543,442.1
73 421,833.8 189,216.1 611,049.9 359,926.5 161,447.2 521,373.6
72 371,534.4 198,550.2 570,084.6 325,052.0 173,709.7 498,761.7
71 332,780.1 125,892.9 458,673.0 299,532.0 113,314.9 412,847.0
70 228,048.7 100,104.2 328,152.9 212,732.0 93,380.8 306,112.8
mua1 Rate 20.7% 16.1% 19.4% 13.2% 8.9% 12.0% Increase,
1970-77
1 operating expenditures are defined as state operating budget actual expenditures
pursuant to a given fiscal year's appropriations (as revised), plus valid encumbrances
as of the end of the fiscal year. This includes debt service obligations and the
General Fund transfers made to the University of Alaska shown in the State operat-
ing budget "actual" colurn....J..
2capital expenditures are defined as General Fund capital outlay program current
year expenditures plus valid encumbrances as of the end of the fiscal year, plus
Capital Projects Funds expenditures defined as follows. For the years 1970 and 1971,
Capital Projects Funds expenditures are estimated as current year cash expenditures,
plus encumbrances as of the end of the fiscal year. For 1972 through 1977, the funds
are reported on an accrual basis, so the relevant figure is total disbursements (ex-
penditures plus reserve for encumbrances), less prior year reserve for encumbrances,
'tvhich are assumed to be paid during the year.
3Total expenditures include those main state budget items which actually require
General Fund expenditures, or which are accounted for by appropriation of general
obligation bond funds. Thus, the restricted funds expenditures of the University
of Alaska (~.;rhich are not expenses of the main state budget) are not included; how-
ever, the expenditures of the Special Revenue Funds, almost all of Debt Service
'Fund expenditures, the administrative and operating expenditures of the Enterprise
'Funds are included, along with the expenditures of the Working Capital Funds, trans-
fers from the General Fund to the Teachers' Retirement System, and the administra-
tive expenditures of the Trust and Agency Funds.
(Detail may not add to totals because of rounding error.)
Sources: Alaska Division of Budget and Management, Office of the Governor, Executive
Budget FY 1970-71 to FY 1979; Alaska Division of Financing, Department of
Administration, State of Alaska Annual Financial Report, FY 1969-70 to
FY 1976-77.
4
Table 2 reveals the influence of total state population on the
real expenditure series. Since resident pnpulation gre-.;.;r by about five
percent per year (even fast~r_ if one considers only civilian population)
during the period 1970-1_9_77, nearly half the increase in real spending
can be attributed to increase~ in population. During the period 1972
to 1977, real per capita expenditures grew at an average rate of only
0.5 percent, and capital expenditures actually failed to keep pace
with population growth, while per capita real operating expenditures
grew at a relatively modest 3.4 percent. Examining the two subperiods
1970 to 1972 and 1972 to 1977, one can see the sharp contrast between
the operating and capital expenditures. Both grew rapidly during 1970
to 1972, a period of relatively low population growth, but the rate of
increase was much more rapid in the capital budget. In contrast, the
period 1972 to 1977 showed a fall in per capita capital expenditures
approximately equal to the rate of increase in population. The final
column shov1S that "available" General Fund monies grew rapidly, ini-
tially, then declined as the State ran down the large balance in the
General Fund which had been due to the North Slope lease sale in Sep-
tember 1969. The capital budget responded more rapidly to the initial
change in the available funds; then when it became clear that the bal-
ance was finite, capital expenditures stabilized. The more population-
sensitive component, operating expenditures, continued to grow slowly,
holding almost constant in real per capita terms between 1972 and 1976.
Fiscal ·Resident 1 Year Population
1977 413,289
76 404' 635
75 351,159
74 330,600
73 324,800
72 312,930
71 302,361
70 294,560
1970-77 5.0%
1972-77 5.7%
1970-72 3.1%
5
Table 2
STATE REAL PER CAPITA OPE&\TING k~D
CAPITAL E}~E~DITURES, 1970-77
(constant 1967 dollars)
Operating Capital Total
Expenditures Expenditures Expenditures ... ._
Per Capita· Per Capita Per Capita
$1,224.88 $409.17 $1,634.05
1,156.97 486.57 1,634.54
1,199.92 548.54 1,748.46
1,168.14 475.66 1,643.80
1,108.15 497.07 1,605.22
1,038.74 555.11 1,593.85
990.64 374. 77 1,365.41
722.20 317.02 1,039.22
Average Annual Rate of Increase
7.8% 3.7% 6. 7%
3.4% -6.0% 0.5%
19.9% 32.3% 23.8%
Available
General Fund
Monies, 2. .
Per Capita
$1,966.19
1,495.60
1,542.42
2,108.29
2,562.78
2,942.25
3,063.25
458.98
1 state's estimate from Research and Analysis Section, Employment Security
Division, Alaska Department of Labor, State of Alaska Current Population Estimates
by Census Divisions, July 1 [year]. The population as of the beginning of the
fiscal year was used.
2Beginning fiscal year General Fund balance, plus estimated revenues avail-
able for new appropriation as estimated in the Budget Document for the fiscal year
to which it applies.
6
Any state's options for increasing or decreasing the level of its
expenditures are limited by ongoing legal obligations, such as debt
service, and are modified by Federal funding sources \vhich expand the
State~s potential fiscal resources. A reasonable question to ask is:
hmv much of the increase in expenditures recorded bet~veen 1970 and 1977
was funded by Federal sources, and ho~v much represented a drain on Alaska's
treasury? Table 3 provides a partial answer to this question. In this
table, one can see that in spite of fairly large increases in Federal
funds supplied to the State's General Fund and Special Revenue Funds,
\vhich account for almost all state budgeted expenditures of Federal
funds, Federal funding has actually declined slightly as a source of
state expenditures. Looking at the year-to-year changes, one can see
that state expenditures went up every year while Federal funding some-
times fell. In no year was the increase in Federal funding large enough
to absorb the increase in state expenditures, even though it may have
reduced the incremental cost of new programs. One is led to the conclu-
sion that increases in Federal funding do not, in themselves, explain
the increases in the State's budget.
In most states, an excellent predictor of the growth in state
budgets has been the increase in personal incomes of its citizens. This
is both because of the growth in "demand" for government services ~-lith
increases in incomes, and because in most states personal income is an
excellent indicator of the size of the tax base. In Alaska, available
state funds are only loosely dependent upon personal incomes because of
7
Table 3
FEDERAL REVENUE OF THE GENERAL FUND
AND SPECIAL REVENUE Fl.iNDS,
COHPARED TO EXPENDITURES
(thousands of dollars)
Current Dollars Constant 1967 Dollars
Fiscal Federal 1 State Federal State
Year Revenue Expenditures Revenue Expenditures
1977 $237,197.7 $1,138,614.3 $140,686.7 $675,334.6
76 254,371.3 1,050,088.0 161,096.5 665,033.6
75 203,009.0 870,021.7 143,266.8 613,988.5
74 153,940.1 678,759.2 123,250.7 543,442.1
73 159,487.0 611,049.9 136,081.1 521,373.6
72 136,078.7 570,084.6 119,054.0 498, 761. 7
71 123,328.4 458,673.0 111,006.7 412,847.0
70 87,298.5 328,152.9 81,435.2 306,112.8
erage Annual
te of Grotvth 15.3% 19.4% 8.1% 12.0%
Federal Revenue
as a Percentage
of Expenditures
20.8
24.2
23.3
22.7
26.1
23.9
26.9
26.6
1 From Statement #2, "Combined Statement of Revenue, General and Special
Revenue Funds," State of Alaska Annual Financial Report. FY 1970 and 1971
figures were aggregated for the same accounts from the revenue reports for
the General and Special Revenue funds from the same source. No consolidated
report was available.
8
the fact that first Federal funds and later oil revenues supplied an
unusually large proportion of the State's financial needs. However,
the increased personal incomes of Alaskans may have worked on the de-
mand side to increase the demand for government services and for state
expenditures. As the economy has grown in size and the average ·Health
of Alaskans has grown, one w·ould expect that, as in other states, the
total level of state spending would grow in real (constant dollar) terms.
Table 4 illustrates this result ,.,ith three comparisons. The State's
real budget expenditures per capita are compared with real available
funds per capita, real personal income per capita, and gross real value
of output per capita. Because no convenient estimate of "available"
funds for general obligation bonds exists, since these are sold on
national money markets and the State's "full faith and credit" capacity
to borrow is only loosely limited by current state revenues and incomes
of its citizens, the comparison is made between total operating budget
plus general fund capital expenditures and the three indicators of demand
and/or funding capacity. The bottom half of the table emphasizes the
percentage change of each of the columns by reporting each series as an
index, with fiscal ·1972, the first year after the North Slope fund ·
transition, as the base year.
The table reveals that the rate of growth in non-general obligation
bond expenditures has not kept pace with either the growth in per capita
income or per capita output, and that (as Table 5 more explicitly demon-
strates), state expenditures are not a much different percentage of
Fiscal
Year ---
1977
76
75
74
73
72
71
70
1977
76
75
74
73
72
71
70
9
Table L,
STATE PER CAP ITA OPERATING BUDGET k'W GENER.:\L FUND
CAPITAL EXPE.:-IDITURES, COHPARED TO PER CAPITA
AVAILABLE FL~DS, PERSO~A.L INCO~ffi,
~~D GROSS PRODUCT,
1970-1977
(thousands of 1967 dollars; gross product in 1958 dollars)
Operating Budget Available
Plus General Fund General Fund Personal Income
Capital Expenditures Honies, Per Capita Per Capital
$1,498.48 $1,966.19 NA
1,457.14 1,495.60 $6,399
1,496.81 1,542.42 6,175
1,452.ll3 2,108.29 5,539
1,399.58 2,562.78 4,941
1,405.24 2,942.25 4,601
1,253.02 3,063.25 4,505
941.18 458.98 4,297
Index (1972 = 100.0)
106.6 66.8 NA
103.7 50.8 139.1
106.5 52.4 134.2
103.4 71.7 120.4
99.6 87.1 107.4
100.0 100.0 100.0
89.2 104.1 97.9
67.0 15.6 93.4
Gross Output
Per Capita2
(1958 dollars)
NA
$5,446.3
5,381.8
4,618.4
4,217.2
4,368.2
4,567.9
4,542.2
NA
124.7
123.2
105.7
96.5
100.0
104.6
104.0
1 Fisca1 year basis. Source for personal income: U.S. Department of Commerce,
Bureau of Economic Analysis. Source for population: Alaska Department of Labor.
2Fiscal year basis. Source: Institute of Social and Economic Research.
Fiscal Year
1977
76
75
74
73
7.2
71
70
10
Table 5
OPER..<\TING BUDGET PLUS CAPIT~\L EXPENDITURES
AS A PERCE~TAGE OF INCO~lli
Al'l"D AVAILABLE FUNDS
Percentage Percentage of
of Available
Personal Income General Fund Honies
NA 76.2
22.8 97.4
24.2 97.0
26.2 68.9
28.3 54.6
30.5 47.8
27.8 40.9
21.9 205.1 1
1 EA~enditures exceed available funds, since available funds
were revised upward by some $900 million after fiscal 1970 had
begun. This was not reflected in either the beginning balance
for the year, or in the preliminary revenue estimates.
11
personal income in the most recent year than they were in 1970. The
table also shows that although the original rapid growth in available
funds undoubtedly had an influence on expenditures, it appears that
since 1972, expenditures and available funds have been moving in opposite
directions. Real per capita output of the Alaska economy ,.;as actually
declining slightly between 1970 and 1974, probably due to the delay of
North Slope development, but this was a period of very rapid increase in
per capita spending. In general, it appears that per capita income
"demand" influence might have been quite important, since the "supply"
of available funds 'tvas declining throughout the study period after 1970,
and available funds were being fully utilized by FY 1975. Table 5
demonstrates this latter fact and shows the level of spending as a
(mainly declining) percentage of state income.
Table 6 compares Alaskan state direct expenditures (a slightly
different expenditures definition than in Table 5) as a percentage of
estimated fiscal year personal income with those of twelve other western
states. Generally speaking, the Alaskan state expenditures make up a
significantly higher proportion of personal income than they do in the
other states. Ho,vever, two things are worth pointing out. First, many
governmental functions which are performed by the state government in
Alaska are performed at the local level in other states, and Alaska
supplies a much higher proportion of local government (especially local
school) revenues than is common in most of the other states. Thus, when
local government expenditures and state government expenditures are
State
Alaska
Arizona
California
Colorado
Hm.,raii
Idaho
Hontana
Nevada
Ne•.,r Hexico
Oregon
Utah
Hashing ton
~...ryoming
12
Table 6
PL\SKA Al'l'D THE HESTER:-J STATES
STATE EXPENDITURES A:.'.JD STATE A~D LOCAL
EXPENDITURES AS A PFRCE~TAGE
OF INCOHE, FISCAL YEARS 1970-AND 1976
State General State and Local .
Expenditures Direct General Expenditures
Pet. of Personal Income as a Pet. of Personal Incorea
1970 1976 1970 1976
25.5 25.2 30.4 31.0
11.8 12.7 17.9 20.6
10.9 11.6 19.2 20.9
10.3 11.3 17.4 20.4
19.3 20.0 23.7 25.7
12.6 13.8 18.6 20.3
12.9 13.9 20.2 22.8
11.1 11.2 19.3 20.7
17.4 16.7 22.7 22.0
11.6 12.8 19.1 22.7
14.8 15.1 20.5 21.9
12.3 12.1 18.9 18.5
16.4 16.7 24.2 25.5
Sources: U.S. Department of Commerce, Bureau of the Census, State
Government Finances in 1976, GF76, No. 3, issued August 1977,
Governmental Finances in 1976, GF76, No. 5, issued September
1977, and U.S. Department of Commerce, Bureau of Economic Analy-
sis special personal income printouts by state.
13
combined, tte gap bct'>,'een Alaska and the other states narrm.;rs consider-
ably. Second, the trend in most of the Hestern states has been that
state expenditures (or state and local expenditures) are taking_an
increasing-proportion of personal income. Alaska is ar;:ong the very fe,~
'"hich shm• an unchanged or declining percentage between 1970 and 1976,
the last year for which data are available. This is in spite of the
fact that currently, about two-thirds of Alaska's budget is funded by
oil revenues, which are not constrained by the personal incomes of its
citizens. It will be interesting to see if this apparent trend persists
into the post-pipeline period.
Analysis of State Discretionary Expenditures
There are several sources of difficulty inherent in estimating the
effects of various variables such as income on the State's budget over
time. It is reasonably clear that c~pital expenditures have not behaved
in the same fashion as operating expenditures, that some parts of the
budget such as debt service respond to the costs of previous budgetary
decisions rather than current demand for services, and that the Federal
government may influence the State's spending decisions by providing
part of the funding. In order to obtain a clearer estimate of the
effect of "demand" for services on the state budget, one can make the
following adjustments. First, since the capital budget is not expected
to be especially responsive to current service requirements, but rather
requires expenditures over a longer budgeting cycle as equipment or
14
buildings must be augmented or replaced, capital expenditures should be
separated from operating expenditures. Second, Federal government funds
have zcra opportunity cost to a state (they represent no drain on the
State's financial reso~~ces), so the state could always be expected to
undertake any program requiring Federal funds, to the extent that Federal
funds paid for the program. In other words, the state would make the
real budget decision on the cost of the program to the state. To adjust
for this fact, Federal funds were subtracted from the total budget ex-
penditures to get the State's program costs. This remaincer is that
portion of the budget over which the State exercises current year-to-
year discretion.1
Table 7 contains the resulting measure of the gro~•th in the dis-
cretionary budget. The table values have been adjusted for both the
influence of inflation and population increasEs by deflating the nominal
dollar values by the Anchorage Consumer Price Index, and then dividing
by the State's resident population. For the convenience of the reader
1 It may be argued that several nominally "discretionary" expendi-
tures as defined here may be mandated by law or custom, and thus are
not really under the control of the budget process. Similarly, some
capital expenditures may be more "discretionary" than the operating
expenditures, since there may be some additional leeway in timing of
these expenditures. However, law or custom changes in response to
economic, political, and social press~re, so the entire operating bud-
get was included. To the second objection, one can only say that the
capital budget involves different and more complex decision processes,
and a clear test case was desired in which potential current demand
for government expenditures could be estimated.
Education 2 Social 2 §_srvicc~ 3 ~
1977 $437.48 $81.22 $51,. 58
76 411.84 75.00 50.511
75 357.50 66.86 50.81
74 359. 37 76.08 49.31
73 340.81 60.28 46.34
72 342.21 61.50 44.85
71 333.514 54.01~ 48.014
70 225.57 31.48" 35.70
1977 127.8 132.1 121.7
76 120.3 122.0 112.7
75 104.5 108.7 11).3
74 105.0 123.7 109.9
73 99.6 98.0 103.3
72 100.0 100.0 100.0
71 97.4 87.8 107.0
70 65.9 51.1 79.6
Avcr;~gc:
Annual Grc~1th
1972-77; 5.07. s. n; 4.0?.
Table 7
STATE DISCRETIONARY REAL PER CAPITA OPERATING
EXPENDITURES BY FU~CTIO~, FISCAL YEARS 1970-19771
196 7 DOLLARS
Naturnl Resources
nnd En vi ronr.1<:n tal Public Administration
Conservation Pro~~~ of Justice Dcve lormcn t ·
$61.71 $25.35 $95.90 $59.07
58.02 19.94 87.29 55.08
55.50 20.29 -89.73 79.72
51.31 17.46 . 79.83 50.86
46.99 14.06 71.84 49.68
51.79 13.99 65.33 42.75
48. 82l
44.99 I
12.804
13.28
61.%4
61.60
43.904
32.90
INDEX (1972 = 100.0)
119.2 1!!1. 2 146.8 138.2
112.0 1112.5 133.6 128.8
107.2 145.0 137.3 186.5
99.1 124.8 122.2 119.0
90.7 100.5 110.0 116.2
100.0 100.0 100.0 100.0
9l,, 3 91.5 94.8 102.7
86.9 94.9 94.3 77.0
.3.6?. 12.6% 8.07. 6.7%
General
Trnnsr;ortntion .9.2Y'=.."~".!}~
$139 .t. 7 $87.93
133.41 79.55
lil9.07: 77.79
136.72 81.1/t
129.29 71.93
124.57 61.99
JJO. 70 69.304
121.734 73 ·''0
112.0 11.1. 8
107.1 120.3
119.7 125.5
109.8 130.9
103.8 116.0
100.0 100.0.
104.9 111.8
97.7 118.4
2.37. 7.2%
To_~ 3
$1,04Z.76
970.67
947.27
902,08
8:n. 21
808.9 8
802.994
640.63
128.9
lLO.O
117.1
111.5
102.7
100.0
99.3
79.2
5.2%
......
lJl
16
Table t-:o tes:
1. Discretionary expenditures are estimated by takin;; "actual" total
expenditures plus encumbrances for e~ch function or program cate-
gory as reported in the Executive Budget of the Governor, and
subtracting debt service and Federal revenues reportef for each
budget request unit. This number is then deflated by the Anchorage
Consumer Price Index, estimated on a fiscal year basis by a simple
average of the included four quarterly figures for CPI. Finally,
to get the numbers on a per capita basis, real expenditures were
divided by the Alaska Department of Labor July 1 estimates of
Alaska resident population as of the beginning of each fiscal
year (for FY 1970, the 1970 U.S. Census April 1 count was used).
2. The figures have been adjusted to report individual BRU's in the
same program category as they occupied in the FY 1978 and FY 1979
Executive Budget. This, for example, required the moving of the
Alaska Skill Center from Social Services to Education for the
years 1970-75. Education includes state budget transfers to
the University of Alaska.
3. The "actual" expenditures reported for Health for fiscal 1972 in
the FY 1974 budget contain an apparent error. ~fedicaid, a new
program, was combined ,.;ith General Relief-Hedical BRU from Social
Services and vas transferred to Health. Hhile the budget reports
an estimate of projected expenditures for FY 1973, there is no
estimate of FY 1972 expenditures for the transferred program, in
spite of the fact that the state's Annual Financial Report records
cash expenditures of $3.957 million for this category. The reported
figure here includes an estimate of General Relief-Medical expe~di
tures equal to $3.957 million cash expenditures, plus a change in
encumbrances of $1.036 million. The total has also been adjusted
to accommodate the changed figure for Health.
4. Fiscal year 1970 is reported in~ different format than FY 1971-77.
The individual BRU's have been allocated to the program categories
where they appear in the FY 1978 budget. FY 1970 is the first fis-
cal year in which the revenues from the 1969 Prudhoe Bay lease sale
could have figured in the actual expenditures.
Sources: Alaska Governor, Executive Budget, various issues.
Alaska Department of Administration, Division of Finance,
Alaska Financiai Report, various issues.
U.S. Bureau of Labor Statistics, "Consumer Price Index-
Pacific Cities and U.S. Average," various issues.
17
interested in percentage changes, the lower half of the table shows an
index of how total expenditures and those for each government function
have increased or decreased relative to the 1972 base.
Several observations can be made from Table 7. Total real dis-
cretionary operating expenditures per capita have increased to 163 per-
cent ($1,042.76 f $640.63) of their 1970 value, with an annual rate of
increase of 12.4 percent between 1970 and 1972, and a 5.2 percent rate
of increase between 1972 and 1977. The 1972-77 annual rate of growth,
5.2 percent, is considerably greater than that reported for combined
operating and capital expenditures of 0.5 percent reported in Table 2;
and it is also greater than the rate of growth (3.4 percent) reported
for total operating expenditures, indicating the declining importance
of Federal funds in the operating budget.
The distribution of growth has been quite uneven across sectors.
The lo\vest rates were turned in by those sectors which are probably the
least closely linked to the individual citizen's demand for government
service. Transportation budget request units mainly relate to the
operations and maintenance services. As the wealth of the State's citi-
zens increases, the level of expenditure in the short run is probably
more dependent upon the amount and condition of the transportation
capital stock in place, which may not grow at the same pace as the
population. Thus, although total real discretionary spending for Trans-
portation grew by 10.1 percent between 1975 and 1977, population grew
18
by 17.7 percent, causing a decrease in per capita expenditures. Natural
Resource low growth rates seem to be a result of a decision to fund
local ~,Tater and se~.;er grants (Department of Environmental Conservation)
out of bond funds rather than out of general funds after 1972. Grants
for this purpose fell by $2 million over a two-year period. Beginning
in 1974, debt service charges on these bonds started the expenditure
growth process again, but at a lower rate than if the grants had all
been made through the operating budget. There seems to be no one single
cause for the growth in this budget after 1975. All programs expanded
together, with most of the dollar increase appearing in the Fish and
Game Resources cover program, which is related to the State's interest
in increasing the productivity of the fishing industry. Natural Re-
sources and Environmental Conservation budget increases, therefore, are
probably less related to increases in the underlying demand for direct
government services than they are to specific capital programs in envi-
ronmental protection, on the one hand, and the State's efforts to develop
a specific industry, on the other. Growth rates and percentage statis-
tics for Natural Resources, Transportation, and all other program cate-
gories, plus selected cover programs, are show~ in Table 8.
Nany of the faster growing pro·gram categories in the discretionary
budget may be more closely related to the increasing wealth of Alaska's
population, but may also be the result of increased expenditures for
special purposes. Among the faster growing are .Education, Social Serv-
ices, Public Protection, Administration of Justice, and General Government.
19
Table 8
Slr.-~!ARY OF GRWTH ST,\ TIS TICS,
ALASKA DISCFl:TIO~AR\' BUDGET
1972 -1977
~~br2~ C2tebories and
Clc.:~·.:!d Cover Pro.2ra2s
Average Annual
Real Per Capita
Grow-th Rate
PrograQ Categories:
1972 Pet. 1977 Pet.
~ ~:al Discretionary Expenditures:
:J·...:·:a~ion Category:
rrinary and Secondary
Post-Secondary a~d Adult
Co~~unity Services
Soci~l Services Category:
Aged
General Population
E~plo;~ent Stabilization
Ad;ninis tration
l!,:,.clth C.:Jtegory:
Public Health
!-len tal Health
!·Jedical Assistance
Pla:1ning
~~tural Resources Category:
Pu~lic Protection Category:
Consumer Protection
\-:or1:e r Protection
Life and Property Protection
Ad=inistration of Justice Category:
Cri~inal Justice Support
and Planning
CriQinal Identification
and Apprehension
Due Process
Offender Confine:c:e!lt and Parole
i·:orker Protection
Dc:\·elop;;:eat Category:
Transportation Category:
General Government Category:
------------------burce: Executive Budget. ;
4.9%
5.0%
4.2%
7.9%
10.4%
5. 7%
19.0%
-1.1%
. 35.3%
-4.9%
4.0%
1.1%
3.6%
6.2%
27.5%
3.6%
12.6%
9.0%
7.2%
16.2%
8.0%
39.6%
10.3%
7.1%
3.6%
28.0%
6.7%
2.3%
1.n
of Total
100.0
42.3
7.6
5.5
6.4
1.7
8.1
5.3
15.4
7.7
of Total
100.0
42.0
7.8
5.2
5.9
2.4
9.2
5.7
13.4
8.4
Cover Programs:
1972 Pet. 1977 Pet.
of Cate££.EY_ of Category
--
100.0 100.0
79.5 76.4
19.2 21.9
1.3 1.6
100.0 100.0
16.5 29.7
73.7 52.9
4.0 13.9
5.8 3.4
100.0 100.0
28.7 24.9
39.5 38.8
31.1 34.5
0.7 1.9
100.0 100.0
100.0 100.0
51.3 45.2
11.0 8.9
37.7 45.8
100.0 100.0
0.2 0.7
22.9 26.5
38.6 38.6
37.0 31.3
1.2 2.9
100.0 100.0
100.0 100.0
100.0 100.0
20
Educotion expenditures fall into tl1ree main categories: Elementary and
Seco~1dary Education, Post Secondary and Adult Education, and Community
Services (e.g. libraries and museums). Of these three, the two which
are likely to be the most "income elastic"--that is, those for which
demand could be expected to be most sensitive to the wealth of the
people--grew the fastest. Primary and Secondary Education, is generally
thought to be more of a "necessity," and might be less responsive to
changes in income. Also, the school population apparently gre\v less than
the total population. In any event, Primary and Secondary Education was
only able to grow at about 4.2 percent in real per capita terms. This
caused this cover program to decline as a proportion of the education total
from about 79.5 percent to about 76.4 percent. In contrast, a growth rate
of 7.9 percent in Post Secondary and Adult Education caused an increase
from 19.2 percent to 21.9 percent of the total. Even though Cornmuni ty
Services grew still faster, its total contribution, less than two per-
cent in the beginning, did not change significantly.
Social Services expenditures are categorized into several cover
programs, including: Social and Economic Assistance to the Aged, Social
and Economic Assistance to the General Population, Employment Stabili-
zation, and Social Services Administration and Support. The General
Population category and Administrative category discretionary expendi-
tures have fallen as a percentage of total Social Service discretionary
expenditures (from 73.7 to 52.9 percent and from 5.8 to 3.4 percent,
respectively), while Services to the Aged have gro~vn from 16.5 percent
21
to 29.7 percent of the budget for Social Services, and Employment Sta-
bility programs increased from 4.0 percent to 13.9 percent. The specific
causes of expenditure growth see~ to be the adoption of several new
programs for the aged, such as the Longevity Bonus and Senior Citizen
Tax Exemption, and the fact that the State has taken some responsibility
for funding training programs under the Employment Stabilization cate-,
gory, \.;rhereas this funding was almost 100 percent Federal in 1972.
The direction of change in each of the Social Services total operating
(as opposed to discretionary) expenditures was the same, but the cushion
provided by Federal funds in the cover programs for the general popula-
tion and for employTient security tended to make the movements in State
funding less apparent and to deemphasize the local priority given to
programs for the aged. Much of the growth in the total program has
been due to the Federal Comprehensive Employment and Training Act,
which since 1975 has provided funds for between 33 and 45 percent of
all spending for Emplo;~ent Stabilization. The other major source of
gro,.;rth--programs for the aged--consists entirely of state funds.
It is difficult to say which Social Service programs, if any, could
be described as being income elastic. It is true, however, that the
cover program with the slowest rate of growth in discretionary expendi-
tures is Administration, which is likely to be least closely tied to
growth in demand for services. The growth in personal incomes of Alas-
kans could have caused the increase in programs for the aged in several
22
ways: first, the general feeling of wealth could have led the legisla-
ture to give tax relief and extra income (under the Senior Citizen Tax
Exemption and Longevity Bonus Programs) to a group which traditionally
does not share in general prosperity; second, sooe senior citizens'
incor::es may have risen, increasing· their capability of remaining in
the state, and leaving them eligible for these programs; third, rising
personal incomes would increase the value of property exempted from
the property tax under the Tax Exemption Program and should have in-
creased the required state offset. The rate of gro\vth in discretionary
spending for employment stabilization can largely be explained by the
matching requirements for the CETA program, and it is therefore more
difficult to attribute this growth to increased demand for employment
stabilization programs, generally. State discretionary spending for a
wide variety of programs for the general population of the state actually
dropped in real per capita terms between 1972 and 1977, possibly a re-
sult of the increased economic well-being of the population. The State
did fund a slightly larger (68.0 percent, as opposed to 62.8 percent)
percentage of services to the general population in 1977 than in 1972.
Health was not one of the faster growing categories of per capita
discretionary spending between 1972 and 1977. Health services are
generally regarded by economists as relatively income-elastic: that is,
private individuals will spend proportionately more on the maintenance
of their health as their incomes rise. However, this does not seem to be
23
as true in a public as in a private sense in Alaska. Health services
are divided into four major categories: Public Health, Hhich is con-
cerned with medical, hospital, and physical health maintenance services
of the state; Mental Health, which is concerned with Alaska Psychiatric
-,:
Institute, Harborvie"lv Developmental Center, and the regional centers for
the purposes encompassed by these two institutions; Medical Assistance,
which is composed of Medicaid and other programs to assist indigent per-
sons obtain medical care; and Comprehensive Planning. Public 1Iealth and
Mental Health, which are addressed to the basic medical, developmental,
and psychiatric needs of the population as a whole, might not be expected
to grmv along "lvith the general increase in demand for private health
care, which has been a demand for more sophisticated medicine. These
categories actually grew more slowly on a real discretionary per capita
basis than the Health category average of 4.0 percent (they grew at 1.1
and 3.6 percent, respectively), partly due to an absolute decrease in
spending for co~municable disease control, which may be less necessary
as incomes rise. The Hedical Assistance category grew at 6.2 percent in
real per capita terms, and Planning grew at 27.5 percent. The former is
quite important in describing the pattern of spending in the Health cate-
gory as a whole. Largely as a result of Federal programs (State expen-
ditures were only about 59.3 percent of the total budget for Medical
Assistance in 1977), overall real spending for }!edical Assistance has
increased at an annual rate of 25.6 percent between 1972 and 1977. Even
discretionary expenditures grew at 12.2 percent (6.2 percent per capita),
24
but it is. difficult to say in ~-rhat sense this spending \vas actually
discretionary, since in 1977, for example, 76.7 percent of state money
spent for Medical Assistance was required General Fund matching money.
The 27.5 percent annual per capita growth rate in real discretionary·
spending for Planning seems to have been the result of its original small
size and a number of new health planning programs, possibly a result of
increased demand for sophisticated medical care in the private sector.
Overall, Health seems to be a marginal case with respect to the likeli-
hood of a strong demand for services arising out of increased incomes.
It may not be surprising, therefore, that Health shows an increase in
per capita spending which is less than that of discretionary spending as
a ~.;hole.
Public Protection Has the fastest gro,.;ing of all the program cate-
gories between 1972 and 1977. On a real per capita basis, the average
annual growth in this category during that period was 12.6 percent.
The program category can be divided into three cover programs: Consumer
Protection, '{orker Protection, and Life and Property Protection. Dis-
cretionary expenditures for these showed annual real per capita growth
rates of 9.0 percent, 7.2 percent, and 16.2 percent, respectively. The
rapid increase in Life and Property Protection (which gre>.-. from 37.7 per-
cent to 45.8 percent of Public Protection discretionary expenditures
over the five-year period) was due to large increases in driver and
vehicle services costs and the Alaska Disaster Office. The former may
have been a result of increased mobility of Alaskans in response to
25
incre.:1ses in ~.;realth--additional vehicles O"Cmed, for example. The latter
is not probably determined by personal income but reflects an increased
state budgetary capability for carrying out services to communities.
Expansion of consumer protection functions is apparently a result of the
increased expenditures of the Pipeline, Transportation, and Public Utili-
ties Cot:h'nissions, arising out of an increas:.ngly elaborate physical
plant in a maturing state. The general awareness of hazards in indus-
try, desires of consumers for financial protection, and additional de-
mands on licensing services may be a general consequence of rising wealth
of Alaskans but may have much more to do \vith a national social trend
tm-:ard increased consumer protection, which is not necessarily the
result of increased wealth.
Adwinistration of Justice real per capita discretionary expenditures
grew at an average annual rate of about 8.0 percent, the second highest
of any category. The Executive Budget breaks this program category into
five cover programs, and their relative growth reveals a little more
about the probable causes of the high overall growth rate. The five
categories are Criminal Justice Planning and Support, Criminal Identi-
fication and Apprehension, Due Process (mainly the judicial system),
Offender Confinewent and Parole, and Worker Protection. The smallest
of these categories, Planning and Worker Protection, grew at real annual
per capita rates of 39.6 percent and 28.0 percent, respectively, between
1972 and 1977. Hm.;ever, even >vhen combined, they account for· only 3.6 per-
cent of total discretionary spending for Administration of Justice. Of
26
~ar more importance is that Crime Identification and Apprehension expen-
diures grew at a real per capita rate of 10.3 percent and, in so doing,
increased from 22.9 percent to 26.5 percent of the discretionary Justice
b:.1dget. The major increases have occurred since 1974, suggesting that
the urbanization and pipeline impact may have caused much of the increase._
Also, the increase is concentrated in the State Trooper Detachments and
Criminal Investigation Bureau, which have nearly tripled their budget
in the last three years, '"'hich the Budget Document says 'iJas "in response
to public desire throughout the State for increased police protection.11
Due Process grew at slightly less than the average rate and about main-
tained its budget percentage (38.6 percent of Administration of Justice
discretionary total in 1977), while Offender Confinement and Parole, the
least oriented tm.;ard the public of all the major cover progra:ns, greH
at only 3.6 percent in real per capita terms and fell from 37.0 percent
to 31.3 percent of the total. Of the large programs, police protection
is probably the most oriented toward service to individuals in the com-
munity, since much police patrol work is primarily deterrent in nature.
It is not surprising, therefore, that an apparent response to increased
individual wealth, given the urbanization of Alaska, has been increased
real spending per capita on police protection. It is less clear whether
the Court System is exactly service-oriented, but if the primary service
provided is a speedy resolution of disputes between individuals, and if
both the number of disputes and the costs of delay are consequences of
increased wealth, the amount spent on resolution of disputes should be
27
income elastic. Indeed, this seems to be the case. Expenditttres for
trial courts (district and superior courts) per capita held roughly
constant in real per capita terms from 1972 to 1974, then increased by
nearly 50 percent between 1974 and 1977. The fast growth in the Worker
Protection cover program seems to be almost entirely a consequence of
the Alaska Local Hire Law and its administration. A strong case can be
made that e~pen~itures for this function should have increased as per
capita incomes rose, since much of the increase in per capita income was
due to the pipeline-related jobs that were to be administrated under
Local Hire. As the importance of the function rose, so would spending
for the program.
Development category discretionary spending gre~v at 6.7 percent
between 1972 and 1977. Except for the year 1975, when special pipeline
impact grants of $10 million caused an upward aberration, the growth in
this category was rapid and steady. Over 80 percent (86.6 percent in
1977) of all non-debt service funds spent in this category were for local
community development (the remainder were spent for general economic de-
velopment). In real per capita terms, combined Municipal Services Reve-
nue Sharing and directly shared taxes have grown at 6.8 percent, which is
just slightly greater than average for the whole category. The principal
purpose of the system of grants from the State to local governments is
to use the State's taxing power over incomes of individuals, corporations,
and the State's mineral \vealth to hold down property tax rates in local
communities. Shared taxes are a direct result of taxes collected on
28
business licenses (gross receipts), amuse~ents, aviation fuel sales,
electricity and telephone services, liquor, and fisheries. Distributions
would be proportional to collections, which are strongly influenced by
tl1e pace of the economy, as measured by incomes earned.
~1unicipal revenue sharing occurs on a per capita basis to local
government units and consists of specific dollar amounts per capita for
specific purposes. While there have been new programs and increases in
the level of funding per capita for each of these purposes, the primary
cause of the increase seems to have been the rapid increase in the qualify-
ing population. The most extreme example is in transportation services,
\.Jhere the ratio of qualifying population for this purpose, to estimated
state resident population (as estimated by the Department of Labor at
the beginning of the fiscal year), went from 0.34 to 1.04. (The latter
ratio implies there was a higher qualifying than total population in
1977. This is because borough governments and city governments within
a borough can both qualify, using the same population.) To the extent
that increases in demand for (especially new) local government services
are a product of increased real incomes, and to the extent that municipal
revenue sharing is motivated by a public desire to substitute the State's
relatively progressive and income-elastic tax structure for the munici-
palities' and boroughs' essentially regressive property tax--and sales
tax--dependent tax structures, the municipal services revenue program
may be regarded as a program for which there may be increasing expendi-
tures as real wealth rises. In the future, the Development category
29
migl:t for this reason be highly correlated with increases in per capita
ir..come.
The final program category, G.:;neral Government, consists of a wide
varie-cy of administrative and legislative governmental services functions
which one would not necessarily expect to be correlated with per capita
income, since most of the services are not provided directly to citizens.
Nost are of a general nature,. such as those of the Legislature or Execu-
tive Office of the Governor, or are provided to other units of government
(e.g. Legislative Budget and Audit, Archives, Risk }lanagement, Buildings
and Equip~ent Services). Expenditures are more likely to increase over
tioe along Hith the size and complexity of the rest of state government.
In the i~~ediate future, the planning for movement of the state capital
and its actual execution may lead to interim increases in this category,
particularly for buildings and communications services.
The actual historical pattern of real per capita discretionary ex-
penditures was estinated as a function of personal income and the level
of available revenues for the years 1970 to 1977, using multiple regres-
sion techniques. The results from the runs are reported in Table 9.
This exercise was considered useful, since it could be that even though
growth in a given category of expenditure might occur for a series of
precise identifiable reasons related to individual cover programs, a
simpler and more general explanation might be provided by the growth in
the economy and the amount of funds 2vailable. Second, multiple regression
30
allo~s us to statistically separate the effect of rising incomes from the
related effect on available state funds, 1.;hereas they Hould ordinarily
be observed to move together.
As Table 9 shows, in every case except Transportation, the separate
elasticity of the per capita income term was statistically significant
at the 95 percent confidence level. If the correct variables are in the
equ&tion, in only 5 percent of randomly selected repetitions of these
analyses would the true value of ~he elasticity differ by more than two
standard errors from the estimated value. In every case, the degree of
significance was less for the available funds term, and in several cases
it was not significant. The corrected multiple correlation coefficient,
which measures the proportion of variation of dependent variable which
can be attributed to the variation of both explanatory variables together,
shows a very poor 11 fit" for General Government, but is at least adequate
for the others. (Transportation is a marginal case and is only that
good because of the dummy variable.)
The estimated elasticities vary considerably, but in no case was
the elasticity for available funds nearly as large as that for personal
income, indicating per capita expenditures were far more sensitive to
variations ~n the level of personal incomes than they were to variations
in the estimated supply of funds (General Fund balance plus estimated
taxes). A plausible way of interpreting this piece of data is that even
in cases where there is an outside source of funds available for appro-
priation that does not involve an increase in personal taxes, the demand
~, ......... ..._ VL. L.-;..\..i.l...LJ..i't'J
l.At.c . .JH!l.JLilU.S E~->TH;.;\T.ED .i\S A_/"i\l"CTION OF PER CAPITA
INCOI-IE AND AVAill ,E FUNDsl
Per Capita Income 2 Per Capita Available Funds
Estimated Standard Student Estimated Standard Student
D_ ep <lr t!ll~ nt _ Y_Ci_r_:L ~ b 1~ ]:lasticit_y3 Error "t" Ratio'• E1astic:!:_~1_3 Error "t" Ro.tio 4 CR~5
~--------------------
Total 0.828 0.079 10.514>~ 0.127 0.020 6. 308~': 0.954
Education 0.959 0.046 20. 993>'c 0.218 0.117 18. 594>': o. 991
Social Services 1. 3'·4 0.242 5. 5'•2>\-0.338 0.622 5.438i: 0.889
Health 0.583 0.096 6,Q69>'C 0.142 0.025 5. 755:'c 0.903
Natural Resources 0. 61.0 0.086 7.Lf58ic 0.482 0.022 2.190 0.891
Public Protection 1.528 0.187 8.165>': 0.017 0.048 0.347 0.902
Administration of Justice l. 061 0.016 6, 769>'C 0.034 0.040 0.835 0.863
Deve1opment6 0.931 0.160 5.821,., 0.169 0.040 4.224>t 0.939
Transportation? 0.216 0.081 2,672 0.031 0.020 l. 551 0.749
General Government 0. 53!. 0.179 2. 979"' -0.037 0.046 0.814 0.525
*statistically significant coefficient.
1 The estimated per capita levels of expenditures are the same as in Table 7. The regression form \vas
ln(y) =a+ b · ln(x) + c • ln(z), with 8 observations, this gave 5 degrees of freedom.
2The per capita income measure actually used was per capita lagged one period, which was believed to be
a superior measure of expected wealth in the year for wl1ich a budget was written, and because it provided a
superior statistical fit.
]Rounded to three decimal places. All estimates were rounded off.
4The critical values for a two-tail test with 95 percent confidence intervals are 2.571 for 5 degrees of
freedom, 2.776 for 4 degrees of freedom, 3.182 for 3 degrees of freedom. Absolute values are shor,.m in each case.
5 cRSQ = ~fultiple correlation coefficient, corrected for degrees of freedom.
6A dummy variable was used in this equation to adjust for the 1975 pipeline impact grants.
Degrees of freedom = 4.
7A dummy variable was used in this equation to adjust for unexpectedly high transportation maintenance
expenditures in FY 1975. Degrees of freedom = 4.
w .....
32
for so2e classes of services would not necessarily keep pace with in-
creases in the wealth of tt~ citizens of the state. This was true in
the historical period for education, health, natural resources developm-
ent, transportation, CJ.nd general government. On the other hand, social
---
services (particularly employment services and services to the aged),
public protection (especially crime prevention), and administration of
justice (par':icularly district and superior courts) might be expected to
take increasing proportions of the Alaska budget.
Finally, it is not obvious from the data that substantial additional
revenues at this point would have a significant impact on the level of
real per capita spending. While there was a rapid one-time adjustment
between 1970 and 1971, both the low elasticities shovm in Table 9 for
available funds and the more moderate grov1th rate of the budget bet~veen
1972 and 1977 indicatE that demand for government services may bt. the
more important factor in state spending over the long run. Hhen the
state once again approaches its fiscal limits, a lm.;er growth rate in
expenditures than those indicated in Table 7 would probably occur, since
those shOi.JD in Table 7 are essentially unconstrained growth rates in expen-
ditures. The best nei.JS of all to the fiscal conservative is that the rate
of increase in expenditures of the State government is not infinitE when
the fiscal constraints are temporarily taken off. Unfortunately, the ques-
tion of what would happen if the increase in funding were relatively per-
manent rather than transitory cannot be answered using the historical data.
33
Th~ Effect of ~-lage Rates on Ooerating Expenditures
Another interesting aspect of the history of the Alaskan budgets
from 1970 to 1977 can be stated as the following question: if the rate
of spending per capita increased between 1970 and 1977, \vas this merely
because wage rates of state workers were increasing, or because there
were additional services provided? There can be no really good answer
to tnis question because, except in a few cases, the "services" or "output"
of state government are very difficult to count. By contrast, in private
industry the output is sold, and this provides a measure of the value or
amount of service to the consumer. Government often specializes in goods
and services for which a market either cannot be established or which
~cial policy has excluded from the marketplace.
A partial and some\vhat indirect answer can be given, however. One
aspect of the ans,ver is to see hm,r much of the change in per capita ex-
penditures over the historical period can be attributed to variations in
\·7age's paid per unit of labor, hmv much was due to changes in the level
of "service,11 as ::ueasured by numbers of state workers in each fiscal
year, and how much was due to other causes. The rationale for focusing
on state government Hages a.nd employment is twofold. First, government
"orkers are a large and highly visible component of government expendi-
tures, so it is ..,.;orthwhile to see what the effect of wage increases might
have been on the average program category during the period. Second,
~ince workers in other industries compare their increases in wages with
34
those of state Horkers, it is t-JOrth,vhile to note "Thether increases for
state workers have been significantly faster or slower than in other
industries.
Table 10 shows total non-University real operating expenditures p~r
capita, real non-University personal services expenditures per capita,
real personal services expenditures per non-University worker, and non-
University government workers per capita for the fiscal years 1970 to
1977. The bottom half of the table shows each variable as an index, with
1972 equal to 100. 0. As can bE: seen from the table, personal service ·ex-
~~nditures per capita grew substantially slower between 1972 and 1977
than total operating expenditures per capita; ho~vever the increase in
personal service expenditures per worker tended to lead personal service
expenditures per capita. This latter result, as described below, may be
at least partially due to the drop in total state employment associated
with the transfer of rural elementary and secondary school functions to the
Rural Education Attendance Areas, and possibly higher average salaries
among the remaining employees. In any case, increases in expenditures per
worker more than offset the decline in employment, and personal services
per ~apita expenditures grew by 3.3 percent between 1972 and 1977. This
was in spite of the fact that state government workers per thousand popu-
lation, a crude measure of "service," slipped from 33.3 population to
26.96 per thousand between 1972 and 1977. The latter ratio was even
.lightly lm.;er than in 1970, while expenditures per \,·orker were about
47 percent higher. This does not tell the whole story, however.
35
Table 10
INFLUENCE OF PERSONAL SERVICES EXPEl\DITURES
PER HORKER 0~ EXPEND I 1URES
PER CAPITA, 1970-1977
Total Non-University Personal Services
Operating Expenses Personal Services Expenditures Per
(Less Debt Service) Expenditures Non-University
Per Capita Per Capita State Horker
(1967 $) (1967 $) (1967 $)
$1,162.39 $343.76 $12,751
1,099.33 307.91 11,192
1,131.95 395.54 11' 184
1,101.05 385.66 11, 258
1,042.86 366.64 10' 390
980.75 332.73 9,992
942.99 312.72 10,116
690.92 243.46 8,665
Index (1972 = 100.0)
118.5 103.3 127.6
112.1 92.5 112.0
115.4 118.9 111.9
112.3 115.9 112.7
106.3 110.2 104.0
100.0 100.0 100.0
96.1 94.0 101.2
70.4 73.2 86.7
Non-University
, State Horkers
Per Thousand
Population
26.96
27.51
35.37
34.26
35.29
33.30
30.91
28.09
81.0
82.6
106;2
102.9
106.0
100.0
92.8
84.4
,_;: Executive Budgets; State of Alaska Department of Labor, Employment Security
Division, Research and Analysis Section, Statistical Quarterly.
36
Table 11 demonstrates, using a slightly different measure of employ-
ment, that the increase in personnel costs may have been partially caused
be a change in the structure of Education costs. Comparing the indices
from Tables 10 and 11, one can see that total personal services expendi-
tures per non-University man-month of labor shmvs a lmver rate of increase
than does personal services expenditures per non-University employee,
shown in Table 10. The exact reasons for this are not clear, but the
difference arises from a systematic in'crease in the ratio of budgeted
man-months to actual average numbers of employees between 1972 and 1977.
The cause may be increased use of part-time help by state agencies, or
by a failure to spend all budgeted man-months allocated, or simply dif-
ferences in reporting. In both tables, bet1veen 1972 and 1975, unit
labor ccsts were rising more slowly than personal services expenditures
per capita, implying that some of the cost increase was due to addi-
tional "services" rendered. In 1976, the dm.;mvard adjustment in workers
and personnel expenditures ••hich occurred when the State Operated Schools
became local schools evidentally involved a proportionately larger decrease
in workers than it did in expenditures per worker, since personal services
expenditures per capita (B) fell by_more th~n expenditures per man month (A).
Since this adjustment, unit personnel expenses have again been rising
slower than personal service expenditures per capita--a change from 1976
to 1977 of 5.3 percent as opposed to 11.7 percent--Hhich indicates in-
creased employment per capita is again explaining more than half the
increase in personnel costs.
Tnhlc 11
INDICES OF REAL PERSO~I\L SEIWICES SXPENDlT\JRES Pr:R BU!lGl':TED
!·!l\.'1-~!0NTI!, ltEI\L PERSONAL SERVICES EXf'ESDITUiU:S l'ER
CAP IT I\, AND OPERATI:\G EXl'E!\DI TURES l'ER Ci\Pl1'A
BY PROGRI\~1 CATEGOH'l, 1972-1977
(1972 = 100.0)
Educ::ttion 1 Soci;1l Services Henlth Nntural Rcsourc~s -------
A fl c A B c 1\ 13 c A fl c
2 ?
1977 99.97 14. o; 109.9 118.5 1 v •. '~ 111.8 llS ,I, 113.2 ll,S, 7 113.7 llt7. 5 ll5. 7
76 %.8-13.0 103.7 LUt.6 131.7 114.5 10').1 107.2 138.3 116.8 135.6 110.1
75 97.0 10J.4 105.4 108.0 130.3 10'·· 5 107.9 llO.G 137.4 107.8 127.7 105.G
74 113.1 109.7 107.9 105.0 116.0 119.4 101.1 103.1 131.9 100.5 117.0 97.5
73 128.5 116.9 105.6 108.5 116.4 112.9 97.5 103.6 117.2 103.2 108.7 90.7 .
72 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Administratio;'l
of Justice Dcv.,lopmcnt Transportation Geueral Covcrn•ncn t ---------
A n .£ /.). B .£ A ~
1977 119.8 137.9 139.1 102.2 146.3 131.9 114.6 nt, .2
7G 11.3.6 124. 6 127.7 98.2 128,3 122.6 110.3 109.2
75 110.6 126 ·'· 130.4 96.7 120.3 173.0 109 ,l, 119.1
74 101.1 113.5 115.5 94.6 121.8 111.2 100.4 110.1
73 10?..8 103.9 101,. 5 80.6 120.4 110.5 103.2 106.4
72 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
,\ = Re2.l Pe rson;:l Services Expenditures Per Budge teJ }lnn-rton th Index (197 2 " 100. 0)
D = 1\<.'ol Persou::l S~rviccs £xpcnditures Per Cnpita Index (1972 = 100.0)
C = Real Operating Expenditures (Less Debt Service) Per Cupita
c A
107.9 132.1
103.2 ll;.'i .1
115.3 116.2
105.7 137.7
102.5 99.8
100.0 100.0
~occ: 1tuiversity of Al;1sko personal services expenditures and rnan-monthY are excluded. The University
budg,et is included only ns transfers to the University affect the General Fund budget.
2 st~te Operated Sd1ools were transferred to local control and placed under d1e School Foundation
Pror,ram in FY 1976.
B .£
123.6 136.5
127.5 123.6
116.7 123.5
139.2 131.2
110.1 111.9
100.0 100.0
!'uhlic Protection
--~~·--·----
6. 1) c
116 ,I, 172.2 190.9
106.7 1~2.9 162.1
103.3 lf12. 2 163.1
102.8 133.7 134.3
9 7. 9 109.0 107.5
100.0 100.0 100.0
Tntn1 1
w
--.1
A r . c
111; .9 lOJ.J 118.5
109.1 92.5 112.1
106.6 118.9 115.4
107.4 115.9 ll2. 3
106.8 110.2 i06. 3
100.0 lOO.O 100.0
38
The distribution of increases shmm in Table 11 reveals that average
costs per worker may be rising at very different rates in different cate-
gories. So it appears from the personal services expenditures per bud-
geted man-month .. The only categories showing five-year increases less
than the average in personal services expenditures per man-month are
Education, Development, and Transportation. HoHever, Education is the
only category shm.:ing a below-average gain in personal service expendi-
tures per capita, since employment increases in the other two categories
make up the difference between the rates of increase in personnel costs
per man-month and personnel costs per capita~ Personal services expen-
ditures per man-month grow faster than personal services expenditures
per capita in Education, Health, Transportation, and General Governnent.
In all other cases, the increase in per capita personnel costs was par-
tially due to budgeted man-months' grm-Jth rate exceeding the growth rate
in population, and in some cases such as Public Protection, employment
growth ~{as the larger cause of increased personnel costs. Finally, both
in the totals and in several of the detailed program categories, it is
apparent that since personal services expenditures per capita grew more
slowly than total operating expenditures per capita, one cannot look to
wages ar.d salaries alone, or even to personnel expenditures, to fully
explain the 1972 to 1977 budget changes. The causes of increase are
clearly broader.
The final question is whether the increase in expenditures on state
>vorkers, especially \vagcs and salaries, has gro~m significantly faster
39
than the \.:rages and salaries of \Wrkers in other industries. Table 12
shaHs th<!t for the ye2.rs 1972 to 1976, state government (this time,
including University esployees) Harkers came in fifth, \•Then ranked \vith
other sectors of the economy according to earnings gains during the
. ---. -. -. . -..
period 1972-1977. If the period 1966-1976 is broken do\vn differently,
into pre-~orth Slope (1966-69), pre-pipeline (1969-1974), and pipeline
periods, state goverrment \·.'orkers do not do much better. From 1966 to
1969, they ranked fourth; from 1969 to 1974, second; and from 1974 to
1977, sixth. They also rank second bet\veen 1970 and 1972. ~~bile growth
in state workers' real earnings has been steadier than in most of the
other sectors, it certainly has not been faster, overall.
Conclusion
In summary, one can say that bet\Jeen 1970 and 1977, the state budget
gre\v rapidly by almost any measure. However, the rate of grmvth has
been much s1o>ver since the initial adjustment to North Slope oil revenues,
and ~uch of the growth was due to inflation and changes in the population
of Alaska. Real per capita expenditure growth has been very unevenly
dj_stributed a'Qong prograns, for a variety of reasons.
Second, the discretionary operating budget appears to be more sen-
sitive to changes in the "demand" side of state expenditures than it is
to transitory changes in available revenues. Finally, the. rate of in-
crease cannot be solely or even for the most part attributed to increases
in \vages and other personal services expenditures, which were not out of
line with the growth in wages in most industries in Alaska.
Contract Construction:
1 F.arnin_~ Index
1976 $26,725 155.5
75 23,337 135.8
74 16,996 n.9
73 16,333 95.1
72 17,133 100.0
71 16. 302 9!;. 9
70 Ho, 99ll 9!1.9
69 16,671 97.0
b3 15,799 9L.3
67 16,087 93.6
G6 14. 725 85.7
.., t.nn11a1
197l.-76: + 25.47.
c 1\!1nu .. 1l
l%9-74: + 0.4%
..! i.:m<::l1
1966-69: + 4. 21.
c Annual
1972-76: + 11. 7i.
T.1blc: 12
REAL EA!{.'IUIGS' PER h'ORKC:R N-lD INDEX OF REAL EAR;liNGS
PER \401\.Klm llY JNDUS'!'RY, ALASKA, FY 1966-1976
(1967 Dollars; 1972 = 100.0)
Trnnspo rca tion,
C0r.1munlca tio:1n,
Services: ----Public Utilities: Nining:
E.nnill_l_\2 l .!!'~lex E . 1 Index E . 1 Index .....:.'.!~lrl ~~
$10,1133 147.t.~ $14,666 132.4~ $19,4'•5 121.6
9,159 129 ·'· 13,210 119.2 1!:!,504 115.7
7,645 108.4 11,673 105.4 15,962 99.8
7, lo46 105.2 11' '•59 103.4 16,175 101.2
7,080 100.0 11' 080 100.0 15,988 100.0
7. 043 99.5 10,985 99.1 16,0!,0 100.3
7,066 9'J.!l ll,OHB 100.1 15,618 97.7
7,047 99.5 10,723 96.8 15,114 94.7
6,831 96.5 10,671 96.3 15.227 95.2
6,512 92.0 10,480 94.6 13,656 85.4
6,460 91.2 10,167 91.8 12,892 80.6
+ 16.6% + 12.1% + 10.4%
+ 1.7% + 1. 7% + 1.17.
+ 2.9% + 1.81. + 5.5%
+ 10.2% + 7. );~ + 5.01.
State Govenln:·~.ll..S.!.. Trade:
E:~rninC2_ 1 l!'dc~ E.., n •. ncl Index ~-.z.:~~~
$10,958 108.5 ~.8,365 105.6
10,557 10'·. 5 S,l5G 102.9
10,263 101.7 7,706 97.2
10,004 99.1 7,Sll5 99.5
10,099 100.0 7' 924 100.0
9,742 96.5 7,799 ')H,4 .j::oo
0
9,7.17 ~'1.. J 7,'nl 10(),0
8,730 86 ,ll 7,776 93.1
(l' 5'•6 34.6 i,770 93.1
8,166 80.9 7' (, 3') 96.11
7,919 78.4 7 ,5'J5 95.8
+ 3.3% + 4.2%
+ 3.3% -o.n
+ 3. 31. + 0. 8i~
+ 2.1% + 1.47.
1976
75
74
73
72
71
:'0
&9
63
(, 7
(,6
l\':e :".:lf,L~ ,\nnunl
cr.),,th l'J7'•-76:
P.vero.gc Annual
Gro1Hh 1969-74:
/,vcro.c~ .\nnual
Growth 1966-69:
hvcraGc Annual
Gro~th 1972-76:
Federal Cove rnment -----------
_1'~.:1 rninr-,s l Index
$10,003 JOO.S
10,159 102.3
10,219 102.9
10,493 105.7
9,930 100.0
9,968 100.4
9,735 98.0
8,761 88.2
8,880 89.4
8,329 83.9
8,019 80.3
-1.0%
+ 3.17.
+ 3.o::;
+ 0.27.
__ H::~f:-~gurtnz __
l
. . . l
"'~ rnclcllgs
$ 9,828
10,192
9,753
9,625
9,848
9,860
9,531
8,879
8,901
8, 720
9,073
+ 0.4%
+ 1.97.
-2.17.
Neg!.
Indf'X
99.8
103.5
99.0
97.0
100.0
100.1
96.8
90.2
90.4
88.5
92.1
Table 12 (continued)
Finance, Insurance,
-~eal Estot_e __
Eo.r:E_~n),s 1 Index
$8,531 99.8
8, 611 100.7
8,743 102.2
9,000 105.2
8,552 100.0
8,Z64 96.6
8,229 96.2
7, 779 91.0
7, 7Bl, 91.0
7,658 90.0
7,tl27 91.5
-1.27.
+ 2.3%
-0.2%
Negl.
_k<?ca_l Government
Earn):!~.&~ l Index
$9,836 99.3
9,2SO 9 :J .l·
9, 563 96.5
10,364 1Cl,, 6
9,907 100.0
9. 4 74 95.6
8,937 90.2
8,600 86.8
8,491• 85.7
7,737 78.6
8,219 83.0
-1. 4~~
+ 2.1%
+ 1.5%
-0.27.
A~ri culture,
}\)rt''' trv Fi.sher icB -----·--l---· ---·-
~L~~!~~ 1 [nd2x
$10,569 97.3
U,275 ]] :J .1
l5,D4 lJ'),l,
l:J,l72 1/.l. ·;
10,857 lCO.O
10,919 100.6
l.l,H8 107.')
12,3)(, 113.8
8, 07:1 7 .... 6
9 ·'' 13 -o6. 7
9, s~·,6 H!l. 0
-16.5%
+ 4.1%
+ 8.97.
-0. 7%
.p.. ......
42
Table :\otes:
L Real earnings v:ere estimated by sumrr.ing total nonagricultural
quarterly payroll for each industry for the four quarters of
the fiscal year, as reported and corrected in Department of
Labor's Statistic~l Quarterly, dividing by an average of the
corresponding 12-month's employment reported in the same
place, and deflating by the Consumer Price Index for Anchorage,
Alaska (October 1967 = 100.0). For the years 1970-1977, a
simple average of the four quarterly CPI observations within
the fiscal year (July-June) was used. For the years 1965-1968,
the index was not estimated quarterly, so an estimate of each
non-reported quarter was first generated from corresponding
annual data by assuming the implicit annual rate of change
reflected in the October index occurred in each quarter of
the year. The quarterly estimates were then averaged on a
fiscal year basis.
/
2. Substantial pipeline employment is buried in these sectors
in the year noted.
Sources: Alaska Department of Labor, Research and Analysis Section,
Statistical Quarterly, various issues.
U.S. Bureau of Labor Statistics, "Consumer Price Index -
Pacific Cities and U.S. Average,11 various issues.