The governor and the Legislature have both professed that a combination of budget cuts and revenue options will be necessary to solve the state of Alaska’s fiscal crisis. So where are the cuts? The data shows that little progress has been made toward reducing the size and cost of state government. Juneau seems to be in a hurry to change the cash flow that impacts the Permanent Fund in order to operate Big Government. Unfortunately, many in the state Legislature are considering either a broad state income tax or reducing Permanent Fund dividends to maintain the status quo. But, before taking more money out of the people’s pockets, state government should first demonstrate the ability to operate efficiently, and deliver only the necessary services.
Some in the Alaska State Legislature would like you to believe that they achieved a 10 percent reduction in the Fiscal Year 2016 State Operating Budget and another 10 percent reduction in the pending FY17 Budget. The problem is that the data from the Legislative Finance Division clearly refutes these big budget reduction claims. The accompanying chart shows the total of only the Alaska state agency budgets (data source: http://www.legfin.state.ak.us) for the past three fiscal years and the pending FY17 proposals from the governor, the House and the Senate.
Legislative Finance data indicates FY16 spending on agency operations of $8.2 billion, including “supplemental” spending, for a 3.5 percent reduction from historically high FY15 levels. Also, FY17 is shaping up to be essentially unchanged from the FY16 spending of $8.2 billion. (Note that these figures are the cost of operating state agencies, and do not include the statewide operations, consisting of debt service, payments to retirement and fund capitalization). The data clearly illustrates that the core costs of state government have hardly changed.
Let’s not forget the state capital budget, because capital budgets contain a lot more than infrastructure projects for the state. The governor’s proposed FY17 capital budget holds a wide range of appropriations including $32 million for the purchase of the Anchorage LIO. It also contains a provision for taking the unexpended and unobligated balances from FY16 budget to use in FY17 instead of allowing them to be swept back into the Constitutional Budget Reserve (CBR). It is important to note that capital projects often become part of Big Government operating costs.
By many measures, our state government is demonstrably too big and too costly. Alaska spent per capita $15,470, nearly three times the national average ($5,457) of total state expenditures in FY14, based on data reported by the Kaiser Family Foundation (data source: http://kff.org/other/state-indicator/per-capita-state-spending). The common argument is simply, “Alaska is different.” Yes, but three times different?
A useful benchmark is to compare our current spending to previous budgets during frugal times when government operations were being delivered at a lower price. The FY06 operating budget provides a solid benchmark, as it predates the rapid rise in the price of oil, and revenue, that fueled bigger spending. In FY06, agency operations, including supplemental spending, were $5.24 billion (FY06). Using FY06 as a benchmark, and adjusting for inflation at 26 percent (data source: 2006-16 Consumer Price Index, Municipality of Anchorage) and then adjusting for a population increase from 675,000 to 738,000 (data source: Alaska Department of Labor and Workforce Development) over the past 10-year period would suggest equivalent government services could be delivered for $7.2 billion. That’s $1 billion, or 12 percent, lower than our current FY17 budget proposals in Juneau.
These simple benchmarks suggest that we can significantly reduce the cost of state government. We simply must have the will! The governor should take the lead, with the assistance of the Legislature, to manage costs down, ensuring that state government is paying for only necessary services, and delivering those services at the lowest possible cost. A good first step would be a real 10 percent cut in total agency operating costs — this year.
If we keep funding Big Government by diminishing the wealth of the private sector, we will be diminishing key opportunities for current and future generations. The Permanent Fund has had decades of proven success with a healthy bonus in the form of a “dividend” for the people. The fund was intended to protect the state of Alaska, and provide for future generations. It is not right to disregard that protection by changing the plan and denying future opportunities simply because the government can’t control spending today.
I will not support broad revenue generating proposals that penalize the private sector and hardworking Alaskans. Neither will I support changing the cash flow of the Permanent Fund, nor spending from the Permanent Fund earnings reserve until a significant reduction in spending is achieved.
Are we going to continue our Denali-sized spending while depleting our savings? Alaskans need to speak up and demand substantially lower budgets before accepting a plan that implements a state income tax or restructures the Permanent Fund cash flow. If we don’t fix government now there will be no motivation and no sense of urgency, to reduce spending in the future, because government will have the keys to the treasury! In other words, Big Government will continue to eat away at the wealth of Alaska. Now is the time to mandate a more responsible and efficient state government in order to secure a brighter future for Alaskans.
• Lora Reinbold is a Republican from Eagle River serving in the Alaska House of Representatives.
