ANCHORAGE, Alaska — For decades, Alaska’s economy has rested on a “three-legged stool” of petroleum, private industries like mining and fishing, and federal spending. But as oil revenues wane and federal policies shift, economists warn that the state’s reliance on Washington’s largesse is growing — and with it, new vulnerabilities.
At a virtual economic forum hosted by the Commonwealth North, University of Alaska Anchorage’s Institute of Social and Economic Research (ISER), and Build Alaska’s Future on May 1, 2025, leading economists delivered a nuanced assessment of Alaska’s economic trajectory. Titled “How Shifting Federal Dollars Impact Alaska’s Economy,” the event underscored the state’s heavy reliance on federal funds, the growing role of the Alaska Permanent Fund in state revenue, and the challenges posed by federal policy shifts under the current administration.
The Economic Pie
Alaska’s economy, valued at approximately $70 billion with a population of about 730,000, is uniquely tethered to federal spending, which injects an estimated $13 to $14 billion annually—roughly one-fifth of the state’s economic activity. Dr. Scott Goldsmith, Professor Emeritus at ISER, framed the discussion with his “three-legged stool” model, comprising petroleum, basic-sector private industries (e.g., mining, tourism), and federal spending. While petroleum’s role has diminished, federal dollars have become increasingly critical, with Alaska ranking third nationally in per capita federal expenditures at approximately $25,000 per resident in FY 2022.
“Federal dollars are big, growing in importance, and more significant than most realize,” Dr. Goldsmith said, noting their historical stability. He outlined five key streams: civilian departments ($1.5 billion in wages), military spending ($4.7 billion), grants to governments ($6 billion, the highest per capita nationally), payments to individuals like Social Security ($2.2 billion), and loans or insurance.
However, the forum highlighted a significant shift in state revenue dynamics. As petroleum revenues have declined, the Alaska Permanent Fund has emerged as a cornerstone of state finances, providing a growing share of revenue to offset fiscal vulnerabilities and stabilize the economy amid federal uncertainties.
A Flat Economy with Emerging Strengths
Dr. Brett Watson, an ISER assistant professor specializing in natural resource economics, provided context for Alaska’s economic performance. March 2025 a new record high level of seasonally adjusted employment. Real GDP and employment have returned to pre-recession (2015) levels. Alaska’s recent growth has outpaced the nation, with 6.3 percent employment growth from 2022 to 2024, nearly double the national average. This comes as the oil sector’s decline has decoupled the economy from petroleum, particularly for state government revenue which is now increasingly reliant on federal dollars and Permanent Fund returns.
Watson noted that the oil sector, once a dominant force, has weakened significantly, with production down 15% to 479,624 barrels per day and prices falling 30% from $105 in March 2014 to $72.50 in March 2025.
Despite this, sectors like healthcare and construction have driven post-pandemic recovery, fueled largely by federal spending. However, national economic headwinds—a first-quarter GDP contraction, pessimistic consumer and business surveys, and trade-driven recession forecasts—threaten Alaska’s stability. “If the country slides into recession, Alaska will struggle to avoid one,” Watson warned, citing exposure to commodity price volatility and federal policy shifts.
Permanent Fund Bolsters State Revenue
A key development discussed at the forum was the growing role of the Alaska Permanent Fund in sustaining state finances. As outlined in the forum’s slide deck, state petroleum revenue has plummeted, dropping from historic highs to a fraction of its former contribution. In contrast, federal spending and Permanent Fund earnings have risen sharply. The Permanent Fund, established in 1976 to save oil revenue for future generations, now generates significant income through investments, with its market value exceeding $80 billion in 2025.
In recent years, the fund has contributed over $3 billion annually to the state budget, surpassing petroleum revenue in some fiscal years. This shift has provided a buffer against the volatility of oil markets. However, Goldsmith cautioned that the state’s fiscal situation remains unsustainable long-term due to persistent budget deficits and liquidity concerns with the Permanent Fund’s spendable portion. “The Permanent Fund is a lifeline, but it’s not a cure-all,” he said.
Federal Workforce Reductions Threaten Stability
Dr. Brock Wilson, an ISER research assistant professor focused on labor economics, addressed the looming impact of federal workforce cuts. Drawing on a New York Times dataset, he noted that a proposed 12% reduction in the 2.4 million civilian federal workforce could result in a 2% to 4% cut in Alaska’s federal civilian jobs, which number around 16,000 and account for 3.2% of the state’s labor force—the third-highest proportion nationally. In Q3 2024, federal civilian workers earned an average monthly salary of $8,641, ranking third among Alaska’s industries for pay.
Key agencies like the Department of the Interior, Air Force, and Army are major employers, with 53% of federal workers concentrated in Anchorage Municipality and 21% in Fairbanks North Star Borough. Wilson highlighted data gaps, noting that he is awaiting payroll data via a Freedom of Information Act request to assess regional and agency-specific impacts. “We’re piecing together a puzzle in the dark,” he said, emphasizing the uncertainty’s toll on local economies.
Infrastructure and Supply Chains Face Headwinds
Dr. Mike Jones, an ISER research assistant professor specializing in transportation and supply chains, discussed challenges to Alaska’s infrastructure projects. The state has secured $8.5 billion from the Biden-era Infrastructure Investment and Jobs Act, including $81.2 million for rural airports and $16.8 million for the Alaska International Airport System in FY 2024. However, federal workforce reductions have created an “implementation crisis,” with agencies like the Department of Health and Human Services (HHS) struggling to administer grants and ensure compliance.
Rural programs, like the Low-Income Home Energy Assistance Program, face disruptions, while alternative energy grants worth $700 million are vulnerable.
Jones cited Senator Lisa Murkowski’s remarks at a recent infrastructure symposium, where she noted a lack of clarity on committed funds and staffing shortages that leave project managers without points of contact. “If a multi-year project is delayed, it may never happen,” Jones warned, particularly for rural initiatives. Additionally, trade disruptions from a 10% across-the-board tariff, with over 100% on Chinese goods, are driving cost increases. Alaska’s off-road communities, where 80% of non-food retail goods are imported, face heightened risks, and marine cargo shippers to the state have reported that volumes are already slowing.
Policy Shifts and Economic Opportunities
The forum explored how federal policy changes, including executive orders from President Trump, could reshape Alaska’s economy. Watson highlighted an order to “unleash Alaska opportunity” by easing restrictions on resource development in the National Petroleum Reserve-Alaska (NPRA) and the Ambler mining district. Projects like Willow and Pikka are driving construction jobs. Dr. Watson advocated for well-staffed permitting agencies to unlock resource development, citing Nevada’s efficient mining permits.
Conversely, proposed cuts to Medicaid, which delivers $3 billion annually to Alaska (75% federally funded), could devastate healthcare access and rural hospitals. Jones emphasized healthcare’s role in employment growth, with educational and health services adding 3,000 jobs from March 2019 to 2024. Goldsmith warned that Medicaid reductions would have cascading effects on the state’s healthcare infrastructure.
On the energy front, Jones noted that over $700 million in Inflation Reduction Act (IRA) awards for alternative energy projects, such as microgrids for isolated communities, are at risk. A proposed natural gas pipeline has federal support but may not serve remote areas like Togiak, underscoring the need for localized energy solutions.
Navigating a Complex Future
Moderator Mead Treadwell, a former Alaska lieutenant governor, facilitated audience questions on stabilizing Alaska’s economy. With Alaska’s congressional delegation holding key roles on appropriations and authorization committees, panelists offered priorities. Goldsmith advocated protecting grant programs for highways, airports, and Indian Health Services, while Watson emphasized efficient permitting for resource development, citing Nevada’s mining permits as a model. Wilson and Jones stressed workforce transition support and contingency plans for programs like the Alaska Bypass Mail system, critical for rural economies.
The growing senior population, up 60% in the last decade, will increase demand for Social Security and Medicare, complicating budget negotiations. Meanwhile, the Permanent Fund’s rising contribution offers a fiscal cushion but requires careful management to ensure long-term viability. “We’ve started this recovery,” Jones said optimistically. “The challenge is sustaining it amid federal and global uncertainties.”
As Alaska grapples with lower oil prices, potential federal cuts, and trade disruptions, the forum underscored the need for strategic advocacy and resilience. Alaskans face a critical juncture to balance immediate needs with long-term fiscal stability in a rapidly changing economic landscape.
