FAIRBANKS — High levels of welfare spending per capita and a large number of people receiving help are keeping Alaska near the bottom of an index measuring economic freedom in each of the 50 states.
The bottom isn’t a good place to be, especially as companies look for competitive, solid environments to locate new business, said Dr. Lawrence McQuillan, a study author and director of economic and business studies for the Pacific Research Institute.
The institute, in association with Forbes magazine, developed the U.S. Economic Freedom Index to evaluate how friendly or hostile state government policies are toward free enterprise and consumer choice. Previous reports were issued in 1999 and 2004. The authors have shown that states ranking higher in economic freedom tend to have higher growth rates in income, employment and population.
In states that limit economic freedom or do little to build greater freedom, people tend to leave. Those who stay often end up poorer, the study said.
States that try to offer greater freedom often see an influx of people, capital and business that expands the tax base and stabilizes revenue streams for long-term economic health, McQuillan said.
The nation’s most densely populated states also are some of the least economically free, and many of the Western states that value less government intervention in markets are more free. Alaska stands out as an exception.
McQuillan and his team gathered data on 143 indicators in each state — things like tax rates, state spending, the size of government, tort reform and environmental regulations.
The institute’s first index, in 1999, set Alaska at 38th. The state nudged up a few slots to 32nd in 2004, then slid 12 spots to 44th.
“It’s definitely headed in the wrong direction,” McQuillan pointed out. “But it might not be because of anything Alaska has done. It may be more about what Alaska hasn’t done.”
Either way, he said, the state is at a major competitive disadvantage when it comes to diversifying the economy with new industries and adding fresh jobs.
McQuillan said two factors really push Alaska to the bottom.
In the fiscal sector, Alaska ranks 30th, a major downturn since 2004, when the state placed ninth. He attributes the slide to a record-high operating budget signed by Gov. Sarah Palin in 2007, which equates to higher state and local government spending for the size of Alaska. He acknowledged the index doesn’t account for the state’s unique geography or the higher costs associated with doing business of any kind in the state.
The second red flag, he said, is in the dollar amount and number of recipients of welfare spending — or, as the institute defines it, the amount of money being transferred from the working class to welfare recipients.
By his analysis, Alaska government isn’t really growing despite record revenues. In fact, Alaska government’s size ranking improved from 47th to 31st. Instead, more money is going to welfare — Medicare and Medicaid, food stamps, support for women with infants, and other federal outlays like Temporary Assistance for Needy Families. Alaska not only spends a lot per person on welfare, but allocates assistance to a high percentage of its total population.
“You have very generous welfare payments, and you have a lot of people who are on public assistance, given your population and the size of your state,” McQuillan offered. Study authors give extra weight to welfare, which they define more or less as taking wealth from one sector and giving it to another. “We see that as the most egregious violation of economic freedom. There is no bridge being built, there is no road being paved, as there would be for some sort of public asset.”
Among the institute’s findings:
- Alaska ranks 49th per capita in state and local welfare spending.
- Alaska ranks 44th for the number of TANF recipients, and the monthly average benefit for a family of three is the most generous in the nation.
- Alaska is 49th for average food stamp benefits paid and for average monthly benefits paid out under the federal Women, Infants and Children program.
- The state improved in the judicial sector, moving from 42nd to 19th. That’s a good indication that the lawsuit climate, such as tort costs and liability risks, is improving, McQuillan said.
The Tax Foundation, a nonpartisan tax research group in Washington, D.C., marks Alaska as a beneficiary state, and the third-highest in how much residents receive in federal funding for each tax dollar paid. In 2005, residents received about $1.84 in federal spending for every dollar paid in federal taxes.
McQuillan said states can use the institute’s index to make policy changes and build public awareness to create a more competitive economic environment, which could draw new industry and make new jobs.
“You’ve got to work around your faults,” he said. “You can’t change your weather, but you can change your policy environment.”
Contact staff writer Rena Delbridge at 459-7518.