It’s widely accepted that Alaska spends a lot of money—including state, local, and federal dollars—compared to the rest of the nation because of its large size and small population. But just how much more does it spend? A recent article published by the Cato Institute shows that since 1962, Alaska has had one of the highest or the very highest rates of growth in spending nationwide.
The Cato article examines state and local government spending across all 50 states and the District of Columbia since 1962, using data that includes expenditures from federal funds. Government spending is compared to second-quarter state personal income. Examining government spending as a proportion of personal income over time is a way to adjust for both inflation and economic growth, which makes this state comparison particularly impactful. (Another way would be to examine gross domestic product.)
Overall, government spending has grown enormously over the last six decades. In the median state, government spending (state, local, and federal fund expenditures) grew from almost 16 percent in 1962 to 20.5 percent in 1977. Since then, the median ratio has grown to only 20.67 percent as of 2020.
But in Alaska, the spending ratio is currently much more, at 31.4 percent. In 1962, government spending was 18.6 percent. But the highest government spending in proportion to personal income in Alaska was in 1987, at 55.9 percent.
According to the author of the article, Marc Joffe,
“Alaska … has relatively high Medicaid enrollment and costs. But the main cause of its surge in state spending after 1977 was exploitation of the Prudhoe Bay Oil Field. A gusher of energy revenue inspired legislators to implement a costly industrial policy, increase transfer payments to individuals, and raise public employee compensation. A drop in oil prices in the 1980s constrained personal income growth, contributing to a further rise in the spending to income ratio.”
Interestingly, the Permanent Fund Dividend payment is included in the overall government spending number—a state spending element unique to Alaska. Regardless, Alaska has had much higher rates of government spending in proportion to personal income since the early years of statehood compared to the rest of the nation.
Most impactful is watching the animation provided by Marc Joffe at the Cato Institute. Click the “play” button on Figure 1 to watch Alaska bounce around at the top of the chart over the last 60 years.