Juneau’s leaders were told this week while the economy “has done well since the pandemic” — and thus so have the city’s financial investments — a slowdown is expected this year and “it could be a more dramatic slowdown than even we were anticipating,” due to tariffs and other disruptive actions being taken by the Trump administration.
Financial results were surprisingly good during the fall, but now the situation is going the other way, said David Witthohn, senior portfolio specialist for Insight Investment, while presenting an overview of the city’s roughly $200 million portfolio to the Assembly’s Finance Committee on Wednesday.
“We were getting really positive surprises back in September and October and November, but recently we’re not getting surprises and this ended at the beginning of February,” he said. The outlook is “we are expecting a slowdown this year and, given some of the recent changes that we’re seeing with tariffs and everything, it could be a more dramatic slowdown than even we were anticipating.”
The pessimistic tone aligns with what President Donald Trump and top administration officials have said recently as impacts of mass firings and funding cuts, and the uncertainty in national and global policies, set in. In many instances they are describing it as a temporary, but necessary, setback.
Trump told reporters Friday “there could be some disturbance, a little bit of disturbance,” from his policies. Treasury Secretary Scott Bessent in a speech Thursday defended Trump’s tariffs by declaring “access to cheap goods is not the essence of the American Dream.” Federal Reserve Chair Jerome Powell said Friday the U.S. economy is facing a potential slowdown in consumer spending amidst “heightened uncertainty about the economic outlook” among businesses.
Witthohn said economic setbacks could indeed be short-term, but the odds for a longer and more significant downturn are rising.
“I will tell you that back in December the general estimate of a possibility of a recession was about 10% — pretty unlikely, right?” he said. “A 90% chance we’re not going to have a recession in 2025. That’s recently risen to about 25%, so there could be an economic slowdown coming, particularly if you think about laying off a lot of workers — federal workers and federal contractors — and you start to put some shackles on economic activity by putting some tariffs in.”
On a positive note, the City and Borough of Juneau earned 4.2% on its portfolio during the past year, well above the 1.64% annual average since the inception of the account with Insight Investment in October of 2019, according to Witthohn’s presentation.
“That’s going to probably continue on about that level for 2025, so that’s good and the portfolio is making some cash,” he said.
The longer-term average reflects the sharp economic downturn during the COVID-19 pandemic, with Witthohn citing a “benchmark” national return during that period of 1.36% based on government indexes compiled by Bloomberg and Barclays.
Witthohn’s report, along with other Southeast Alaska economic studies presented recently, shows inflation has dropped to roughly normal levels of between 2% and 3% after peaking at nearly 7% in 2022 due to pandemic-related turmoil. He said the U.S. gross domestic product between 2019 and 2024 outpaced those of Japan and major European countries by about 10% to 15%.
CBJ as of Jan. 31 had 31.39% of its investments in corporate bonds, 25.21% in government bonds, 18.8% in government agencies, 11.87% in government-backed mortgage securities, and the rest in other assets such as municipal bonds and commercial paper, according to Witthohn.
Juneau’s city leaders say they are facing their worst financial situation in years as they begin drafting the municipal budget for the fiscal year that starts July 1, a sentiment echoed by many state lawmakers in the process of crafting the state’s budget.
Among the primary factors at the local level are costly flood-related projects following record jökulhlaups the past two years from Suicide Basin and high infrastructure support costs. Assembly members have said an increase in the property tax mill rate and additional bond measures appear inevitable, and on Wednesday discussed possible other options such as a seasonal sales tax increase during cruise ship season.
Concerns at the state level include a drop in oil prices, plus the possibility of lost federal funding which in fiscal 2024 accounted for nearly 40% of the state government’s revenue.
Optimism about Alaska’s economic future is being expressed by Trump and state policymakers who support him, due largely to executive orders mandating the elimination or modification of all federal regulations that inhibit maximum utilization of natural resources such as oil and timber.
However, experts say most such projects are likely many years from becoming reality if they ever occur due to legal and practical considerations — plus the possibility of a change in policy by a different president in four years.
• Contact Mark Sabbatini at mark.sabbatini@juneauempire.com or (907) 957-2306.
