Alaska’s heavy reliance on federal dollars could spell big hits from debt default

The United States Capitol. (Liz Ruskin/Alaska Public Media)

Alaska is highly dependent on federal dollars, perhaps more than any other state, so the prospect of the federal government defaulting on its debt is on the minds of many Alaskans.

That’s because if Congress doesn’t raise the country’s debt limit in the coming days, it could hurt the government’s ability to pay everything from food stamps to fish workers.

Alaska Beacon reporter James Brooks wrote about the potential impacts on Alaska of a debt default recently. The usually unflappable Brooks says that even he is worried.


The following transcript has been lightly edited for clarity.

James Brooks:And right now, I have the same feeling as if I’m at a family reunion, and Uncle Bob is telling everyone that he’s going to get the four-wheeler off some sick ramp he built. And in this case, Uncle Bob carries everyone’s paychecks.

casey grove:Not again, Bob.

James Brooks:Not again, Bob.

Alaska really depends on the federal government and federal spending. About 5% of all jobs in the state are federal jobs. More than a third of the state budget is paid for with federal dollars. We have many federal retirees. We have active duty military. We have industries like tourism, fishing, oil and gas, which are largely dependent on the actions of the federal government to keep going, and if there’s any kind of disruption to that, that has really serious consequences here. And we saw it in 2019.

casey grove: What would be the immediate effects in Alaska if Congress does not raise the debt ceiling by June 1?

James Brooks: The short answer is that we can’t say for sure, because not even the Secretary of the Treasury, at this point, can say when the federal government would default. But there seems to be a window of high risk between about June 1 and early August, that’s the maximum uncertainty. And if Congress can’t come to an agreement, the federal government effectively becomes a cash-and-carry operation. You can only spend what you have on hand. So, decisions will have to be made at the individual or program level to decide, “Okay, we’re going to put certain things on hold. We’re not going to do certain things because we can’t afford them.”

Take, for example, Social Security and pension checks. The government pays out tens of billions of dollars just in the first days of June. If there is a crisis in those early days, will those checks go out on time? Will they be delayed? Could you be in a situation where Social Security recipients don’t get their checks this month or maybe next month? That’s something we might be looking at here. Parks could close. We might see planning offices close or employees come to work but not get paid right away. They could not be paid until the crisis is over, potentially.

We look at past government shutdowns as a guide to what happened. But this closure is different. The latest closures have been due to Congress not being able to decide how to allocate the money. The money was available, they just couldn’t agree on how to spend it. This time, there is actually not enough money to spend. So it’s a whole different problem that may need to be handled in a whole different way.

casey grove: So, knowing that the causes of this robbery are different, does it seem that it could last longer? And are there specific things that would be affected in Alaska in the long term?

James Brooks: Yes, in the longer term, we have to be concerned about how a debt crisis triggers a broader economic crisis. That is what we have heard from many credit rating agencies, economic analysts, who say that the US dollar is a cornerstone of the global financial system. If that cornerstone no longer exists, then we are facing a situation where we could be entering a broader economic downturn. That is, when I talk to the members of the Permanent Fund Corporation, that is what worries them, because they have to invest on behalf of the state. And so they’re watching closely, starting to shift money into things like gold and precious metals that are alternatives to the US dollar.

casey grove: Hm. OK. Seems like there’s still a chance to, you know, borrow the metaphor from earlier, for Uncle Bob, or in my case, Father Bob, to safely get that four-wheeler onto the trailer. Is there still a way forward here before June 1?

James Brooks: There is, but time is running out. They only have a few days left before that window of uncertainty opens, that window of danger. And so that doesn’t mean there’s going to be a crisis, a debt crisis, immediately on June 1. But that’s when the danger period opens. And the economists, the government officials, are on their guard for what they call “X-Day.” That is the day the federal government effectively runs out of money.

casey grove: Or when Uncle or Dad Bob flips the ATV off the trailer and it just flips on its side.

James Brooks: Yes. We don’t know when and if he will be able to nail the landing.