My Turn: Test driving Alaska’s fiscal model

  • Thursday, October 29, 2015 1:01am
  • Opinion

As the Legislature meets again in special session to wrestle with gas line issues, Gov. Bill Walker’s administration continues to advance its agenda of new revenue measures combined with minimal cost cutting.

Using its highly touted Revenue and Expenditure Model as a centerpiece, administration officials and others have held numerous meetings around the state to show Alaskans how various revenue measures will be necessary to offset declining oil receipts.

The Alaska Dispatch News recently reported some critics are characterizing the administration’s fiscal model as “strongly biased” toward measures that would raise revenue to close the state’s multibillion-dollar budget deficit, such as taxes or capping the Permanent Fund Dividend. This is worth noting since there is another model available created by Scott Goldsmith from the Institute of Social and Economic Research that focuses instead on reaching a sustainable spending level and also considers additional revenue options arising from economic development.

I recently explored the administration’s fiscal model after downloading it from the Alaska OMB website — choosing the more complex, detailed version. The model allows users to graphically view how their choices affect the state budget, our state savings accounts and the Permanent Fund. According to the model, a state sales tax of 3 percent or a state income tax of 10 percent of your Federal tax will yield $400 million to $500 million annually. An across-the-board budget cut of 5 percent in each of the next two years would save a nearly equal annual amount over the model’s 15 year period. Users may narrow their cuts to specific departments or taxes to specific industries. However, the options to raise taxes (or cap the Permanent Fund Dividend, which is essentially the same thing) are quite detailed and extensive, while the choices for expenditure cuts are very general and restrictive.

I was interested in how the model incorporated economic development and discovered there were only five choices — labeled Large Projects — consisting of the liquefied natural gas pipeline, Susitna Dam, Knik Arm Bridge, Ambler Road and Juneau Road. The only project showing a positive effect on the budget was the LNG pipeline that generates significant revenues by 2026. All the other projects were cast as “budget drains” with negative impact on state revenues or savings.

Strangely, while the three largest projects included limited positive comments regarding economic impacts (such as “may lower cost of electricity” and “may lower cost of living”), the smaller Ambler and Juneau road projects both were given identical 13-word descriptions of their economic impact: “Has the potential to negatively effect (sic) the environment and peoples (sic) way of life.” Ignoring the grammatical errors and that this wording was seemingly lifted directly from an environmental organization’s message points, one has to wonder how such an inappropriate statement was included in an official state document purporting to present factual information to the public.

The description regarding the Juneau Road is demonstrably false as the project’s Environmental Impact Statement, as currently written, expects no significant adverse long-term environmental impacts associated with the preferred alternative. However, administrative architects of the state fiscal model — not just content with this inaccuracy — climbed the emotional hyperbolic scale to new heights by implying that a new 47.9 mile highway could end the Alaskan way of life as we know it.

Additionally, the $40 million state cost of the Juneau Road contained in the model is highly misleading. About 90 percent of these funds have already been appropriated and shouldn’t affect future budgets. Arguably, funds expended on the road wouldn’t have budgetary impacts anyway since the state has made clear their intention to spend $100 million annually on capital projects in order to leverage the maximum matching federal dollars possible. Whether these dollars are spent on the Juneau Road or some other project will not alter the budget.

It’s a mystery why Gov. Walker, who campaigned on liking to “build things,” is overlooking the importance of roads in creating economic development in our state. His advocacy of LNG development is admirable but, with its longer time horizon, we need to look at smaller projects to bridge the gap.

Corey Baxter, district representative for Operating Engineers Local 302, in a letter to the Juneau Empire states that his union “……believes the road is critically important to the long-term economic health of upper Lynn Canal communities and all of Alaska.” The Juneau Road project will pump a half billion dollars into the Southeast economy, reduce transportation costs throughout the region, spur new economic development and allow our ailing ferry system to consolidate its resources while lowering its costs.

Clearly, there’s a negative bias related to economic projects in the state fiscal model. Whether this bias extends to promoting revenues over spending cuts is unknown. What is known is that one real “drain” on the budget and our economy would be future unemployed Alaskans.

• Win Gruening retired as the senior vice president in charge of business banking for Key Bank in 2012. He was born and raised in Juneau and is active in community and statewide organizations.

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