The Alaska Legislature has approved a budget compromise that avoids a shutdown of state government on July 1.
Congratulations.
It may be a fatal mistake.
In December, Gov. Bill Walker spoke to the state in a televised address. In that address, he presented a complete fiscal plan, something that would wean Alaska from its reliance on oil revenue and erase a $4 billion deficit.
He told us that action must be taken this year. Failing to act will leave Alaska in uncertainty, and uncertainty is the No. 1 enemy of sustainability and growth.
Walker renewed that statement on Wednesday.
“The Permanent Fund Dividend check will be in jeopardy, there’s no question about that,” he said. “The private investment … will sit back for another year and say, ‘Well … we’re not sure we can invest in Alaska.’”
Home prices will drop. Alaska’s credit rating will drop, making it more expensive for the state to borrow money. There will be knock-on effects on all industries and all Alaskans.
To remove uncertainty, Walker asked lawmakers need to approve his fiscal plan before taking action on the budget.
Lawmakers rejected that request. As Sen. Pete Kelly, R-Fairbanks and co-chairman of the Senate Finance Committee told reporters on Monday night, “What we do here is our business. We don’t take dictates from the governor. The sequencing of how we get things done is pretty much up to us.”
The problem with that statement is that the Legislature isn’t getting things done with revenue.
As Senate President Kevin Meyer, R-Anchorage, said Monday night, a balanced budget relies on three R’s: reductions, reforms and revenue.
The Legislature has made substantial cuts to the budget and passed significant reform bills, but it has failed to address revenue.
After 121 days of regular session and 11 days of special session, the Legislature’s actions in that regard have been along the margins. A fish and game bill promises $9 million from increased tag and permit fees. Other bills pledge a million here, a million there.
It is not enough.
After the passage of the budget Tuesday night, Alaska still faces a $3.2 billion gap between revenue and expenses (the governor argues that the figure is much higher). It is as if we were facing a 100-foot tsunami, but now we only face a 70-foot one. It’s still enough to top our seawall of savings accounts.
Rep. Sam Kito III, D-Juneau, said on the floor of the House that unless the Legislature passes new revenue measures, it’s in the position of a homeowner who has lost his job but will make ends meet by only paying half his mortgage.
That doesn’t work. We must have new revenue measures, and we must have them this year.
The ideal start would be the plan created by Gov. Walker’s staff and Sen. Lesil McGuire, R-Anchorage. Presented in the Senate Finance Committee, the plan calls for a sustainable draw from the Alaska Permanent Fund’s earnings reserve.
That reserve is refreshed each year with the harvest of the fund’s investments. Figures provided by Randall Hoffbeck, the state’s revenue commissioner, show that the McGuire plan would generate $1.8 billion per year in revenue for state operations.
Should McGuire’s plan be passed, the tsunami Alaska faces would be halved. Added to a modest rise in oil prices and other small tax increases, that tsunami could even be beaten.
Unfortunately, we have been told by members of the Alaska Senate leadership that the McGuire plan is a non-starter. There simply isn’t support for it right now.
Sen. Dennis Egan, D-Juneau, supports the idea, but apparently too many of his colleagues don’t.
Their concern is that the McGuire plan will result in smaller Permanent Fund Dividends for Alaskans. Instead of a $2,000 dividend, you might get only $1,000.
In our view, that’s an acceptable price for stability. We would rather protect the jobs of our friends and neighbors rather than worry about an annual windfall.
Furthermore, the alternative is a $0 dividend. Without action, and without an unexpected explosion in the price of oil, Alaska will run out of savings by 2020. When that happens, the Permanent Fund Dividend will end. Barring massive tax increases or draconian cuts, the state of Alaska will be bankrupt.
For our sake, members of the Alaska Legislature must approve new taxes and revenue measures. A stable and sustainable draw from the Alaska Permanent Fund must be part of the solution.
Without it, we’ll be underwater.
