Stateline Story

Tracking the Recession: Gloom in Alaska

For 22 straight years, Alaska has added jobs. But in a sign of how the recession is slamming every corner of the country, state and private economists reported this week that the streak would come to an end in 2009.

"Alaska will join the rest of the nation in a recession in 2009," said Marcus Hartley, a senior economist with Northern Economics, a private economic forecasting firm in Anchorage.

Hartley's bleak prediction, which included the forecast that Alaska would lose 3,400 jobs this year, came the same week that Gov. Sarah Palin (R) ordered a hiring freeze and a 7 percent cut in spending because of a budget shortfall that could exceed $1 billion. Six months ago, when oil prices were at historic highs, Alaska was not on anyone's list of troubled states. Now it is, because of the drop in oil prices from $144 a barrel to under $40 a barrel.

"A few months ago we were saying, 'It might not hit us,'" Hartley said in an interview with Stateline.org. "But when you think about it, so much of the economic crisis is driven by natural resources."

Though the nation as a whole has been in a recession since December, 2007, a handful of mineral-rich states have escaped it. But as Alaska has proved, even those states are slowly getting sucked in to the downturn. Texas officials announced Jan. 12 the state would have $9 billion less to spend in the coming fiscal year, an indication of a slowing economy in the oil-dependent state.

Nearly all of the revenue flowing to the Alaska government is from oil. A year ago, when much of the Legislature's session centered on what to do with a revenue surplus, lawmakers squirreled away $5 billion in reserves, on top of $3 billion already leftover. They also gave residents a $3,269 dividend from the state's oil savings account, the Alaska Permanent Fund. Palin said in announcing the hiring freeze and spending cuts that she did not want to rely on reserves to cover all of the shortfall.

"When oil prices and state revenue are on the rise, as was the case, there's temptation to assume it'll go on rising forever, and to spend accordingly," she said in her state of the state addressJan. 22. "Since prices fell, there may be an equal temptation to draw heavily on reserves or, for some, to be tempted to tap the permanent fund earnings or tax our hardworking families. No. With the budget, the aim is to keep our economy on a steady, confident course. The aim is - with discipline - we protect our reserves and promote economic growth."

Hartley gave his forecast to business and political leaders Jan. 20 in Fairbanks at the first of three stops by members of his firm to Alaska 's major cities. Usually the forecasts are sanguine occasions over lunch. This year, though, Hartley's slide presentation showed job losses in virtually every sector of the economy, especially natural resources, construction and manufacturing, trade, tourism, health and education and transportation and utilities.

State labor department officials, confirming the recession forecast, are predicting 700 jobs will be lost this year. Their count is lower than Northern Economics' total because they do not include self-employed workers and military personnel in their analysis. Either way, the forecast is unusual for Alaska although not as bad as many other states.

"It feels pretty bad," Hartley said, "But I'm still happy to be in Alaska."