Alaska’s heavy dependence on federal dollars could mean big impacts from debt default

Alaska depends heavily on federal dollars, perhaps more so 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 fails to raise the country’s debt limit in the next few days, it could affect the government’s ability to pay for everything from food stamps to fisheries workers.

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

Listen:

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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 gonna take the four-wheeler off a sick ramp he built. And in this case, Uncle Bob is carrying everybody’s paychecks.

Casey Grove: Not again, Bob.

JB: Not again, Bob.

Alaska is really dependent 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’s budget is paid for with federal dollars. We have lots of federal retirees. We have active duty military. We have industries like tourism, fishing, oil and gas, that depend in large part on the actions of the federal government to keep going, and if there’s any kind of interruption in that, that has really severe consequences here. And we saw that back in 2019.

CG: What would the immediate effects be in Alaska, if Congress doesn’t raise the debt ceiling by June 1?

JB: The shorter answer is we can’t say with any certainty, because not even the Secretary of the Treasury, at this point, can say when the federal government would go into default. But there seems to be a window of high risk between about June 1 and the start of August, is the peak uncertainty. And if Congress can’t reach a deal, the federal government effectively turns into a cash-and-carry operation. It can only spend what it has on hand. And so there’ll have to be choices made on an individual or program level to decide, “OK, 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 in just the first few days of June. If there’s a crisis in those first few days, will those checks go out on time? Will they be delayed? Could you be in a situation where Social Security beneficiaries might not get their checks this month or maybe in the next month? That’s something we could be looking at here Parks could close down. We could see planning offices be shut down or have employees come to work but not be paid immediately. They wouldn’t be able to be paid until the crisis is over, potentially.

We look to previous government shutdowns as a guide to what happened. But this shutdown is different. The last few shutdowns have been about Congress being unable to decide how to allocate money. The money was around, they just couldn’t agree on how to spend it. This time around, there’s not really enough money to be spent. And so it’s a whole different problem that may need to be handled a whole different way.

CG: So, with the knowledge that the causes of this holdup are different, does it seem like it might drag on longer? And are there specific things that would be affected in Alaska in the longer term?

JB: Yeah, in the longer term, we have to be worried about the way a debt crisis triggers a broader economic crisis. That’s what we’ve been hearing from a lot of the credit ratings agencies, economic analysts, who are saying that, you know, the U.S. dollar is a cornerstone of the global financial system. If that cornerstone isn’t there anymore, then you’re looking at a situation where we could be going into a broader economic recession. That’s, when I talk to members of the Permanent Fund Corporation, that’s what they’re worried about, because they have to invest on behalf of the state. And so they’re watching carefully, starting to shift money into things like gold and precious metals that are alternatives to the U.S. dollar.

CG: Hm. OK. It seems like there’s still a chance to, you know, to borrow your metaphor from earlier, for Uncle Bob, or for in my case, Father Bob, to get that four-wheeler on the trailer safely. Is there still a path forward here before June 1?

JB: There is, but time’s running out. They’ve only got a few days left before that window of uncertainty, that window of danger, opens. And so it doesn’t mean that there will be a crisis, a debt crisis, immediately on June 1. But that’s when the danger period opens. And economists, government officials, are on guard for what they’re calling “X Day.” That’s the day when the federal government effectively runs out of money.

CG: Or when Uncle or Father Bob tips the ATV off the trailer and it just rolls on its side.

JB: Yep. We don’t know when and if he’ll be able to stick the landing.