The uproar over the governor’s draconian budget is no surprise — supposedly a day of reckoning for living beyond our means. This is true, but not the whole truth. The governor’s fiscal rectitude masks an arbitrary protection of the oil industry. And, he is exploiting a tough situation to enable his ideological bent of making government small enough to drown in a bath tub. If successful, he will needlessly “lead” us into a budget solution that will maximize adverse economic impacts, or where we ultimately give up our share of the oil wealth. Either way, the Alaska economy will suffer.
Alaska’s budget deficit is hardly new. I was critical of former Gov. Bill Walker when his public campaign to educate the public on the deficit stalled. I also criticized Walker for not using his “Bully Pulpit” as a catalyst to stimulate more public action. In retrospect, my criticism was too harsh. Walker was up against entrenched legislative obstruction — especially from Sen. Pete Kelly and Mike Dunleavy. The governor would have had to have been a benevolent dictator to balance the budget. Nonetheless, a feasible and balanced solution existed then and remains today. It is a combination of oil tax reforms, new broad based taxes, budget cuts and the judicial use of the Permanent Fund. This solution allows all who want to stay in Alaska and thrive and would equitably minimize the pain.
So how the hell did we get here? Was it by malfeasance or being totally irresponsible? Yes, but only in part. There are other dynamics working.
Prior to passing the oil tax reform/credits in SB81, the industry foresaw a perfect storm of falling global oil prices and the looming state deficits. To do nothing would have put industry in a position of being the lone deep pockets. So acting as a powerful special interest, they got Senate Bill 81 passed and avoided this fate and future tax liabilities.
But the real story is that the governor’s holds no new oil taxes as sacrosanct and shamelessly holds the industry harmless. His red herring tactic is to mask this protection with policies of no new taxes from any source and to compound the budget dilemma by “fully funding” the previous PFDs with back pay. This creates the perfect set up to pass the entire fiscal burden for services people have historically depended upon to local governments, community nonprofits, the elderly and students. Rather than suffer draconian social-economic impacts, the Governor is betting that our only choice will be to bail out the state with our PFDs. To further promote this false choice, the governor plans to make any new taxes subject to a public referendum (vote) — which is hardly possible given the ongoing recession.
The recession is a naked economic lesson of the past five years of budget cuts. State spending, revenue sharing and investments are essential parts of the economy — along with resource development. Making further drastic budget cuts can only make a bad situation worse and reducing PFDs will also negatively impact the economy. More importantly, the negative economic impacts estimated by various state economists are only the initial impacts. Once a small economy like ours passes through the “bust threshold,” it unravels fast. I remember after 1980s bust, homes and condos which had sold for $200,000 plus could be had for $20,000.
While there are feasible, smart and balanced solutions before us, we will all lose if we abdicate to the governor and his OMB director. This is not the time to entrench along ideological lines, but a time to insist that the Legislature do its work for the common good. While public emotions run high we need an honest discussion on what we need from government and how to pay for it: new income taxes, sales taxes, property taxes, oil taxes, or to do without. One thing is certain: if we do nothing we will lose, and lose big. Make sure your legislator understands you don’t accept the governor’s Box Canyon and that you are expecting a much smarter and more sophisticated solution — a solution that doesn’t crash our economy or rob us our share of the oil wealth.
• Joe Mehrkens is a retired economist and resides in Juneau and Petersburg.