What Drives State Spending
Office of Management and Budget
Fiscal Policy Caucus Town Hall Meeting
Anchorage - July 25, 2001
Major Elements to Consider
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Changes in citizen needs and expectations - e.g. desire for better education or
stronger law enforcement, increased business activity, more accessible state
services
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Changes in federal and state requirements - high standards, new laws
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Population - not just total number of residents, but the composition of the
population
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Inflation - not just overall rate, but inflation in specific service areas
Overall Population Growth
Chart 1: Natural
Population Increase per year Since Statehood
Chart 2: Overall Population Change
Since Statehood
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History since statehood of volatile growth and contractions due to big projects
in Alaska and economic conditions in Northwest feeder states.
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A slowing US economy coupled with the prospect of a gasoline and missile
defense system increase the probability of another wave of migration just over
the horizon.
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Most migrants are young adults in their 20s and their children under age 5.
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Rural Alaska has a younger population than the statewide average, a higher rate
of natural increase, and residents are less likely to migrate out of state.
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Private sector and state government are already experiencing severe
recruitment/retention problems particularly in jobs such as information
technology, engineers, health care workers, teachers and biologists.
Population by Age Group
Chart 3:
Population by Age Group - 1999
Chart 4: Population
by Age Group - 2010
Chart 5: Population
by Age Group - 2025
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Most expensive age groups in terms of state service costs - children, males
18-25, and seniors.
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Peak of the echo of the baby boom is now 10-12 years old and in elementary
school. The average cost per year of educating a K-12 student is $7,945.
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Young men account for most of the criminal justice system costs: prosecution,
courts, prison. Keeping an inmate in state prison costs $40,839 per year.
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Public service costs associated with this bulge in the population will ripple
through the criminal justice and higher education systems during the next 10
years.
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Population of seniors is expected to mushroom during the next 25 years. The
average state-federal cost for all Medicaid recipients is $516 per month, but
seniors cost $1,209 per month (the disabled cost $1,624 per month). Pioneer
Home costs average $5,973 per month (of which residents pay about 38%).
Inflation
Effects of inflation on public service costs can't be measured
simply by the Anchorage CPI. Several specific rates of inflation apply to the
range of state services. For instance:
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Inflation on medical services runs higher than the overall CPI. However, a
small percentage increase has a significant effect on state spending,
especially in Medicaid.
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Energy prices are a small component of the overall CPI rate, but higher fuel
prices have big impacts on specific programs such as the ferry system, 24 hour
facilities like Pioneer Homes, and Power Cost Equalization.
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Nationwide, the price of goods and services purchased by universities have
risen much faster than overall inflation.
Per Capita Spending
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