The cost of fiscal uncertainty: Investment losses

As the state Legislature moves with agonizing slowness toward a major restructuring of state finances and fiscal policy, business leaders have pointed out that the uncertainty creates a hesitation to invest. Some sectors of the economy are relatively stable but the instability of the state’s finances affects them as well.

No one has tallied what this might be, however. Now, Mouhcine Guettabi, economist at the Institute of Social and Economic Research at the University of Alaska Anchorage, has estimated the extent of the lost investment. The bottom line: A loss of $630 million to $1.9 billion in foregone private investment in construction from 2016 to 2018 due to dithering in Juneau. These estimates may be low. Guettabi presented the findings recently at Northrim Bank’s annual economic outlook luncheons. The estimates are derived from studies done elsewhere on the suppression of private investment in states in the quarter prior to a governor’s election. The effect was estimated at 5 percent to 15 percent less investment.

Translated to Alaska in 2018, $4 billion in 2018 private construction (estimated by ISER) could have been $200 million to $600 million higher. The actual loss may be higher, Guettabi said, because the uncertainty around the state’s scal gap is far greater than that around a governor’s election in a Lower 48 state.

State’s recession drags on but job loss eases
Alaska’s recession continues, although job losses continue to ease. Other indicators present a picture of general stability (see page 3). Total wage and salary employment dropped 0.8 percent in March, or 2,600 jobs, which is up from the department’s previous job report for January which showed job losses at 0.5 percent. Almost every industry lost jobs except transportation, warehousing and utilities, which was at, and health care, which showed a surprising gain of 1,000. Oil and gas, a key industry, was down 6 percent in March, or 600 jobs, despite a fairly brisk winter exploration season (see page 2). An observation is that these numbers can easily be in fluenced by one project, in this case an exploration well delayed by lack of a permit. Had that well gone forward the industry’s winter employment would be even with the March, 2017. Construction, another key industry, was down 100 jobs, its decline easing.