This week (Feb 21, 2017) on The Michael Dukes Show …

Each Tuesday morning at 7:20 am Alaska, I join KBYR AM700‘s The Michael Dukes Show to discuss the latest in Alaska oil and fiscal issues. This week Michael and I discuss the effect on the overall Alaska economy of the House Finance Committee’s proposal to make permanent PFD cuts and adopt an income tax, where the state is headed on retirement costs and what the most important criteria is to keep in mind as the House Resources Committee dives back into oil taxes. The clip starts at my segment.

Listen here or at the widget below for this week’s show. For past episodes, go here.

Scoring the effect of HB 115 on the overall Alaska economy …

moneybwLast Wednesday, Legislative Finance (LegFin) Director David Teal appeared before the Alaska House Finance Committee to discuss HB 115, the Committee leadership’s proposal to cut the PFD and institute income and capital gains taxes.  The stated purpose of the presentation was to discuss modeling the impact of HB 115.  As it turned out, however, the only impact of HB 115 that LegFin had considered was that on government revenues.  The presentation didn’t even remotely touch on the impact of HB 115 on the overall Alaska economyboth the government and private sectors.

Especially in the midst of a recession, we believe that effort — assessing the impact of HB 115 on the overall Alaska economy — is critical.  Government fiscal policy plays a hugely influential role in the midst of a recession.  It can make a recession better, but it also can make it worse, or even much worse.

Because, to our knowledge, none of the Administration, LegFin, the Chamber, or for that matter anyone else has undertaken the effort specifically to score the effect of HB 115 on the overall Alaska economy, we have decided to do so, using the factors developed last year in two studies done by economists at the University of Alaska-Anchorage’s Institute of Social and Economic Research (ISER).  The first — Short-Run Economic Impacts of Alaska Fiscal Options — was published in March 2016 (the “March 2016 ISER Report”).  The second — Permanent Fund Dividends and Poverty in Alaska — was published in October (the “October 2016 ISER Report”). Continue reading

Our view of the way forward on Alaska fiscal policy (and the consequences of taking other directions)

At their invitation, we were part this week of the Fairbanks “Budget Blitz” hosted by the Greater Fairbanks Chamber of Commerce and the Fairbanks Economic Development Commission. The “Blitz” was designed by the two organizations to provide the Fairbanks community with a range of views on Alaska’s fiscal situation and potential responses.

Following presentations Tuesday by Office of Management & Budget Director Pat Pitney and Wednesday by Alaska’s Future new Executive Director Ian Laing, we presented our views on Thursday. The title of our presentation was “Implementing Governor Hammond’s 50/50 Plan,” but as importantly, it also focused in part on our preliminary analysis of the likely consequences on the overall Alaska economy of HB 115, another option currently being considered by the Alaska House Finance Committee. That option proposes to cut the Permanent Fund Dividend (PFD) and implement a capital gains and income tax, taking a significant amount of money out of the private sector to fund Alaska government. Continue reading

This week (Feb 14, 2017) on The Michael Dukes Show …

Each Tuesday morning at 7:20 am Alaska, I join KBYR AM700‘s The Michael Dukes Show to discuss the latest in Alaska oil and fiscal issues. This week Michael and I discuss my concerns with the Alaska House Majority’s new bills to cut the PFD and establish an income tax (HB 115) and to change oil taxes (HB 111). The clip starts at my segment.

Listen here or at the widget below for this week’s show. For past episodes, go here.

 

My written testimony for tomorrow’s Senate State Affairs Committee hearing on SB 1 and 2

Because I am out of the country and several time zones away I am unable to testify in person at tomorrow’s Senate State Affairs Committee hearing on SB 1 and 2.  Instead I am submitting written testimony.  The following is my submission.

Why we believe cutting the PFD has the largest adverse impact on the overall Alaska economy …

2016_03_30-shortruneconomicimpactsofalaskafiscaloptions-p-iii-9

Over the last few days we have been engaged in a debate about ISER’s analysis of the economic effects of various fiscal options.  The analysis is contained in a report, Short-Run Economic Impacts of Alaska Fiscal Options, published by ISER last March (the “March 2016 Report”).  Portions of the report were included also in a presentation by ISER this week before the Senate Labor & Commerce Committee (What do we know about the Alaska economy and where is it heading?“).

The debate has been about the relative effect of cutting the PFD compared with other options.  While various charts have been used in the course of the debate, the most complete is that above from the March 2016 Report, which shows all of the options and the relative “high” and “low” impact of each separately on overall Alaska income and jobs.

The “Income Impacts” side shows the relative “high” and “low” impact of the various options per $100 million of deficit reduction.  The impacts are shown in terms of the reduction in overall Alaska income by taking a given action.

For example, reducing the deficit by cutting the permanent fund dividend (next to last line) by $100 million (and transferring the money to government) results in a reduction in overall Alaska income of between $130 – $149 million.  On the other hand, reducing the deficit by raising $100 million through sales taxes (fewer exclusions, eighth line) results in a reduction in overall Alaska income of between $117 – $134 million.

Comparing the mid-point of each range — which we have used in various presentations to help simplify the discussion — demonstrates that reducing the deficit through sales taxes reduces overall Alaska income by approximately $125 million, while cutting the PFD results in reducing overall Alaska income by approximately $140 million (per $100 million of reduction).  Because the PFD cut results in a greater reduction in overall Alaska income, the PFD cut has a larger adverse impact on the Alaska economy (measured by income) than raising sales taxes.  

Indeed, looking up and down the chart, cutting the PFD has a larger adverse impact on the Alaska economy (measured by income) than any other option on the list. Continue reading

Some thoughts on how the discussion of fiscal issues is shaping up for this coming session

 

Today at their invitation I appeared as part of BP Alaska’s Citizens’ Action Program brownbag lunch series.  The title of the presentation was “An Overview of Fiscal Issues This Coming Session. The invitation grew out of a similar presentation I had made during December’s Law Seminars International Annual Two-Day Conference on Alaska Energy Markets and Regulation, https://goo.gl/ZaYPW5.

Today’s presentation updated the numbers I had used in the earlier presentation and expanded the discussion to include a deeper dive into the “Hammond 50/50” plan.  I also took the opportunity to talk about how I believe Alaska’s current economic recession plays into the session.

The slidedeck I used is above.  It also is available on my “Slideshare” page here:   https://goo.gl/7S5ivC.

Discussing the Hammond 50/50 plan on The Dave Stieren Show

dave-stieren-showWednesday afternoon I joined guest hosts Rebecca Logan and Renee Limoge Reeve on The Dave Stieren Show on AM 750 KFQD to discuss Governor Jay Hammond’s original “50/50 plan” for the use of earnings from the Permanent Fund.

Here was Governor Hammond’s original vision as he described it in his final book, Diapering the Devil:

“I wanted to transform oil wells pumping oil for a finite period into money wells pumping money for infinity. …[Once the “money wells” were pumping] each year one-half of the account’s earnings would be dispersed among Alaska residents …. The other half of the earnings could be used for essential government services.”

By comparison, Governor Walker’s FY 2018 budget proposal only disperses 28% of the account’s earnings among Alaska residents, with the remaining 72% going to government.  By FY 2027 the share going to Alaska residents is down to 26%, with the government’s share at 74%.

As we discussed on the show and detail further in the slidedeck below, Walker’s proposed change hurts the overall Alaska economy, increases poverty among Alaskans and increases income disparity, all of which are bad for Alaska and Alaskans, even more so with the economy already in a recession.

Compared to that, we believe that using Governor Hammond’s original plan — which has never been fully implemented — is capable of fully addressing the state government’s current so-called fiscal crisis in a way that avoids the adverse baggage added by Governor Walker’s modification.

Here is the podcast of my discussion with Rebecca and Renee.  Below that is the slide deck to which the three of us continually referred during the segment.

 

The view going into the #AKLeg session from the House Majority and Minority …

The Alaska State Capitol building, Downtown Juneau, Alaska.Yesterday on my final day this run of guest hosting KBYR AM700‘s The Michael Dukes Show, I was joined by Rep. Lance Pruitt in the 7am hour, and then together by Rep. Andy Josephson and Rep-Elect Jason Grenn in the 8am hour.

Pruitt is a member of the House Minority in the coming session, served on the House Finance Committee last term and will again this coming term and, in addition, will serve as the “House Minority Finance Leader” this coming term.  He described the role during our conversation.

Josephson is a member of the House Majority in the coming session, served on the House Resources Committee last term and will serve as Co-Chair of the same committee this coming term.  Grenn was elected as an Independent, is also a member of the House Majority this coming session and in a rarity for a freshman, will serve on the House Finance Committee.

I asked all three about their priorities for the coming session, focusing on fiscal issues.  The conversation provided some insights into both their thinking as well as some of what to look for generally as the coming session develops.

The podcasts of each conversation follow.  I would recommend them highly to those interested in these issues in the coming session.

The conversation with Rep. Pruitt:

 

The conversation with Rep. Josephson and Rep-Elect Grenn:

Rick Halford & Jack Hickel on preserving the PFD …

ligh-bulbThis morning during my last day this run as guest host of KBYR AM700‘s The Michael Dukes Show we invited former Senate President Rick Halford and Dr. Jack Hickel, the son of former Governor Walter J. Hickel, to join us to discuss various recent proposals to “restructure” (i.e., cut) the Permanent Fund Dividend.

Within the past six months both Hickel and Halford have written op-ed pieces that ran in the Alaska Dispatch News opposing proposals to cut the PFD.  Sen. Halford’s was written first, as SB 128, the Senate’s bill last session to restructure the PFD was heading toward the House.  House should vote no to protect Permanent Fund and dividend (June 15, 2016).

Dr. Hickel’s was written later, after the House Finance Committee had rejected the Senate’s proposal but Governor Walker had gone ahead and cut the 2016 PFD by veto.  Fiscal plan must strengthen both Permanent Fund and dividend (Aug. 23, 2016).

To be honest, when I first read Dr. Hickel’s piece I was surprised, because I had always understood his father to favor using the earnings from the Permanent Fund to bolster state investment in various infrastructure projects over distribution to individual Alaskans.  During the conversation I had the opportunity to ask about that and other things.  The answers — and the discussion as a whole — were greatly enlightening.

If for no other reason than because of who they are and how deeply connected to Alaska they have been throughout their lives, in my opinion the conversation is a must listen for anyone seriously interested in the PFD debate.  The podcast follows:

 

My final message of 2016: we need truth …

letterRegularly during my stints guest hosting KBYR AM700‘s The Michael Dukes Show I use the 6:20am segment to cover my “Top 3” news stories of the day — sort of my equivalent of Michael’s “Bullet Point” segments.

While preparing for Friday’s “Top 3” I ran across that day’s editorial from the Fairbanks News Miner.  In previous editorials the News Miner had been counting down their Top 10 Interior Issues of the year.  Friday’s edition listed the final top 3; understandably, the number 1 issue of the year was “the state budget.”

As they explained why, they said this:

… without such a [fiscal] solution, the Legislature will soon deplete the Alaska Permanent Fund’s earnings reserve, the account out of which annual dividend checks are paid.

That statement effectively repeats something the Governor and others also have claimed Continue reading

An hour with Craig Medred …

craig_medredSome of the time last week during my stint as guest host of KBYR AM700‘s The Michael Dukes Show we spent an hour with a single guest, taking a deeper dive on an issue than the normal segments permit.  We previously have posted the discussion we had last Tuesday along those lines with Casey Reynolds and the one Wednesday that ultimately stretched into an hour with Senator Mike Dunleavy.

The podcast below is the hour long discussion that I had Thursday with long time Alaska journalist, and now blogger Craig Medred (craigmedred.news).  The podcast begins with a segment on Craig’s background, how he came to Alaska and the roles he has played since here.  Then in the second segment (the segment starts at 15:10) we start with a discussion about the blog itself, why he does it and the business proposition (or lack of one) behind it.

Finally, at about 22:15 we start in on Alaska fiscal issues by discussing why he disagrees with the exchange that Casey Reynolds and I had in the earlier, Tuesday segment.   For those interested in taking a deeper dive, the blog piece where Craig expresses that and which we use as the starting point for our discussion is here:  Taxing questions.

And then in the final segment (the segment starts at 33:00) I begin with the question, “You are king of the world … where do we go forward from here [on fiscal policy] in your view.” Its a question that Craig obviously had thought about and led to an excellent discussion for the remainder of the segment.

The podcast is here:  

Reps. Tammie Wilson & Lynn Gattis on lessons learned and looking forward …

gattis-wilsonYesterday (Friday) Reps. Tammie Wilson and Lynn Gattis joined me during my stint as guest host on KBYR AM700‘s The Michael Dukes Show to reflect on the lessons learned from 2016 and talk about the issues going forward into 2017.

Both were members of the House Majority and sat on the House Finance Committee this past session.  Rep. Wilson will be a member of the House Minority and continue to sit on the House Finance Committee this coming session.  Rep. Gattis is not returning but intends to remain active on the issues.

The conversation provides a somewhat behind the scenes view of the how individual legislators responded to the state’s fiscal issues last legislature, how the legislative process dealt with those efforts and what effect that had on the subsequent election. Importantly, the conversation also addresses the assertion, by some, that “the legislature didn’t do anything” to address the state’s fiscal situation last session.

Going forward, the two discuss how the issues likely are to be dealt with this coming legislature and how, from their perspective, Alaskans can best participate in the process.

The podcast is here:

Senator Mike Dunleavy’s Fiscal Plan …

dunleavy-banner10Wednesday, during my run as guest host of KBYR AM700‘s The Michael Dukes ShowAlaska State Senator Mike Dunleavy joined us to preview the fiscal plan he proposes to introduce this coming session in his capacity as incoming Chair of the Senate State Affairs Committee and a continuing member of the Senate Finance Committee.

Despite a bit of self-induced technical difficulty on my end (we crashed into the top-of-the-hour hard break, a talk radio no-no), the Senator stayed with us to finish providing a full preview of the plan and give us the opportunity to ask a few questions.  With a bit of editing — to limit inflicting on listeners a full repeat of the technical difficulties — here is the podcast of the discussion in two parts.  The first is the opening in the 7am hour; the second is the continuation and wrap up in the 8am hour.

Part 1 (7am block segment)

 

Part 2 (8am block segment)

 

Alaska Republican Party Vice Chairman Rick Whitbeck on the PFD …

arpThursday of this week Alaska Republican Party (ARP) Vice Chair Rick Whitbeck joined me for an “Alaska GOP Update” while I sat in as guest host of KBYRAM 700‘s The Michael Dukes Show.

Political commentator Casey Reynolds already has hi-lited one part of my discussion with Rick in this week’s edition of Reynolds’ regular “Friday in the Sun” column in his The Midnight Sun blog.

Who Isn’t On The List? — Alaska Republican Party Vice-Chairman Rick Whitbeck said yesterday on the Michael Dukes Show that he has a list of 46 Republicans who “are either interested in running or people are trying to draft them into running” for Governor in 2018.

That is a pretty good indication of just how vulnerable Republicans think Gov. Bill Walker is at this point.

Whitbeck went on to say the Alaska Republican Party’s challenge is to keep the number of entrants in the Republican primary from ballooning to the point the Party’s message gets lost. That is pretty clearly code for saying the Party doesn’t want more than 3-4 people in the primary because that would give more moderate or labor-supported candidates like Sen. Click Bishop or a candidate with a track record of opposing resource development like richy-rich Bob Gillam a realistic chance of winning.

Of far greater interest to us, however, were Whitbeck’s comments on the PFD.  After Rick argued that cutting the PFD is an economic mistake, I asked him to reconcile that view at the Party level with the boots on the ground action by the Republican-led Senate last session in passing SB 128, a bill which would have permanently cut the PFD immediately in half, and more as time went on.

To his credit, rather than dodging the issue Rick addressed it head on, wrapping up by saying “I hope there is a different approach this [coming] year.”

The following is the full podcast of our discussion with Rick; for those interested in the discussion on the PFD, you can fast forward to the part of the discussion beginning around 8:55.

Two entirely different perspectives on the Permanent Fund earnings stream …

FB Ad Pic (with text)This week I am guest hosting The Michael Dukes Show.  Yesterday (Tuesday) I invited Casey Reynolds to join me on the show during the 7am block to discuss his The Midnight Sun blog (& podcast), the coming legislative session and anything else that came up along the way.

In the final segment of that hour we finally turned to the legislative session and, as part of that, the fiscal issues facing the state.  Quickly, we fell into a discussion about the use of the Permanent Fund earnings stream, particularly that portion used to fund the Permanent Fund dividend, which then led to a discussion as much about “who owns” the stream than anything else.  Because we were in the middle of that discussion as we approached the top-of-the-hour break we continued it over also to the first segment of the 8am hour of the show.

What I didn’t realize at the time but subsequently learned from a listener was that Casey also had talked about the issue — and my position — the preceding weekend on The Midnight Sun podcast.  Because his comments during the podcast are a good introduction also to the position he took during our discussion I have included both clips with this post.

For those of you that want a quick orientation before listening to the clips, here is what Casey said on his podcast during a discussion with his co-host, Forrest Dunbar about the

Continue reading

Michael Dukes’ interview of OMB Director Pat Pitney & Chief of Staff Scott Kendall (Dec 22, 2016)

Yesterday Walker Administration OMB Director Pat Pitney and Chief of Staff Scott Kendall joined Michael Dukes on his, The Michael Dukes Show (6-9am each weekday morning on KBYR AM700), to discuss the Administration’s proposed FY 2018 budget.

The full interview — which starts at 35:30 of the above clip — is well worth the listen (it’s about 14 minutes), but if you only have time for one bit I would recommend going to 41:45 and picking up there.

Here is the question that starts that segment:  “The economy is in a recession.  … When you guys put together the budget … did you analyze … the impact on the Alaska economy … of what the budget proposals would do to the recession?”

The answer?  To paraphrase, we looked at the ISER studies and knew the proposals would hurt the overall economy.  Then why did you do it?  Because business [my interjection, GCI] wants “certainty.”

My comment:  Uhhhh, Pat, you still could have “certainty” by adopting the original sustainable budget model, cutting spending to somewhat lower spending levels and preserving the PFD (and with it, the Alaska economy).  So, what’s really going on is the “businesses” you are talking to want more than just “certainty;” they want the “certainty” of higher sustained state spending levels.

And you agreed to propose it, knowing that it comes at the expense of the economic health of both the overall Alaska economy and average Alaskans.  Just … wow.  

Implementing Governor Hammond’s “50/50” Plan for the use of Permanent Fund earnings …

Earlier this fall we wrote a piece discussing Governor Hammond’s original plan for building the Permanent Fund and thereafter using the earnings derived from the fund. “Fully implementing Governor Hammond’s 50/50 plan (or, how to find another $1.5 billion in annual revenue without PFD cuts and taxes)…”, https://goo.gl/7Ct8B5.

As reflected in his final book, Diapering the Devil (https://goo.gl/FFTi9M at 15, 19), Governor Hammond’s vision was simple:

“I wanted to transform oil wells pumping oil for a finite period into money wells pumping money for infinity. …[Once the “money wells” were pumping] each year one-half of the account’s earnings would be dispersed among Alaska residents …. The other half of the earnings could be used for essential government services.”

.As we noted in that piece, while the first and second steps have long since been implemented in the form of the Permanent Fund (the “money wells”) and PFD (“one-half of the account’s earnings would be dispersed among Alaska citizens”), the third and final step — the “other half of the earnings could be used for essential government services” — never has.

Our earlier piece discussed how to — and the importance of — implementing that final step.

Yesterday, we turned the piece into slide deck form and discussed it with the Fairbanks Chapter of the Alaska Support Industry Alliance.  A copy of the slide deck is above, or can be viewed and downloaded here:  https://goo.gl/m1W1Jh.

We at Alaskans for Sustainable Budgets will be talking about this more — lots more — in the coming weeks and months.

Alaskans for Sustainable Budgets Founder Brad Keithley to discuss “Hammond 50/50 Plan”

FB Ad Pic (with text)Alaskans for Sustainable Budgets Founder Brad Keithley will be publicly discussing the need for and implementation of Governor Hammond’s original 50/50 plan for the use of earnings from the Permanent Fund two times over the next two weeks.

The first will be tomorrow (Wednesday, December 7) at the monthly luncheon of the Fairbanks Chapter of the Alaska Support Industry Alliance,  https://goo.gl/Yl9jJj.   The second will be as part of a panel discussion next Monday (December 12) afternoon during Law Seminars International Annual Two-Day Conference on Alaska Energy Markets and Regulation,   https://goo.gl/ZaYPW5.

In Diapering the Devil, Governor Hammond described his vision for the use of Permanent Fund earnings this way: Continue reading

Alaskans for Sustainable Budgets Founder Brad Keithley responds to Senator Pete Kelly

FB Ad Pic (with text)Alaskans for Sustainable Budgets Founder Brad Keithley today issued the following response to incoming Senate President Pete Kelly’s statement yesterday (https://goo.gl/P4mJx2)  supporting the “restructuring” of the Alaska Permanent Fund:

“I disagree with Senator Kelly’s approach to the extent he is continuing to call for a cut in the Alaska PFD.

In a report last March the University of Alaska – Anchorage’s Institute for Social Economic Research (ISER) found cutting Alaska’s Permanent Fund Dividend (PFD) to be the ‘most regressive’ and to have the ‘largest adverse impact’ on the overall Alaska economy of all of the state’s fiscal options.

In a subsequent report just this past October one of the authors of the earlier report went on to find that ‘reducing the PFD by $1,000 will likely increase the number of Alaskans below the poverty line by 12-15,000 (2% of Alaskans).’

And cutting the PFD is hugely unfair to Alaskans.  According to the ISER reports, ‘[f]or every $100 million raised with PFD cuts, the ten percent of Alaskan households with the lowest income lose 3.3 percent of per-capita disposable income, compared with only 0.1 percent among households with the highest incomes.’ Continue reading

A personal note: Today I turn 65 …

Today is my 65th birthday.  It doesn’t feel any different, but contemplating the day’s approach for the past few months has provided some opportunity for reflection and thought about what happens from here.  I never have been one to think about “retiring” and heading off to Sunset City once I reach 65.  Now that I am here, that view certainly hasn’t changed.  But as I have reflected over the past few months, I have realized also I have the resources and opportunity to rearrange my priorities at this point if I have the desire to do so.  And I have realized that I do. Continue reading

Why Sen. Kevin Meyer’s defense of SB 128 opens the door to substantial increases in oil taxes …

Fiscal CliffLast week we wrote a piece with the title, Two questions for Senate President Kevin Meyer this coming Tuesday …https://goo.gl/4URKrN.   The piece outlined two questions we intended to ask Senator Meyer at an upcoming forum about SB 128 — the bill which permanently would have cut (i.e., taxed) the PFD received by individual Alaskans by more than half and transferred the difference to government revenues.

The bill subsequently was voted down in the House Finance Committee, but threatens to return this coming session.

The moderator of the forum directly asked the first question and Senator Meyer later answered the second in the course of responding to another question.  Understandably, the answers largely were a defense of SB 128, but in the course of answering those and one other about the PFD Senator Meyer used a phrase that has triggered some additional thought on our part. Continue reading

Two questions for Senate President Kevin Meyer this coming Tuesday …

gmail-ak-policymakers-panel-novThis coming Tuesday evening Alaska Common Ground is hosting a post-election panel discussion on Alaska’s fiscal situation.  On the panel are Senate President Kevin Meyer, Rep. Ivy Spohnholz, Rep.-Elect Jennifer Johnston, State Tax Division Director Ken Alper.

According to the invitation (at left), the question being put to the panel is this:

The State of Alaska’s deficit this year is more than two-thirds of the budget, and this is the fifth year in a row savings have financed the deficit. Those savings we have relied upon to finance the deficit look very likely to run out in less than two years. What is the plan to avoid having the budget airplane crash into the fiscal cliff?

While artfully phrased, the set up — “the savings we have relied upon” — leaves a significantly misplaced impression.   Continue reading

Some observations on the Permanent Fund and PFD

Yesterday we posted a commentary focusing on how to implement a portion of Governor Hammond’s still highly relevant vision for the Permanent Fund.  See, Fully implementing Governor Hammond’s 50/50 plan (or, how to find another $1.5 billion in revenue without PFD cuts and taxes), https://goo.gl/7Ct8B5.

That piece arose out of some work we have been doing overall on the Permanent Fund in preparation for taking a more active role this upcoming legislative session on fiscal matters as part of the Alaskans for Sustainable Budgets effort.

Today we spoke to the Alaska Support Industry Alliance “Emerging Leaders” cohort on that and some additional topics related to the Permanent Fund and PFD.  The slide deck is above and also available at https://goo.gl/E7mD1L.

Our concluding observations were these:

  • The earnings stream from the PF is not being used to its maximum potential to help solve the fiscal crisis
    Hammond: “The other half of the earnings could be used for essential government services.”   It’s time to implement that vision.
  • How we calculate Hammond’s “other half” is, literally, a billion dollar (annually) issue
  • Cutting the PFD:
    — Makes Alaska a much more government-centered economy (more like Angola than Texas), and
    — Has a large (ISER: the “largest” of all options) adverse impact on the overall Alaska economy

The slidedeck explains how we arrive at those.

Fully implementing Governor Hammond’s 50/50 plan (or, how to find another $1.5 billion in annual revenue without PFD cuts and taxes)…

ligh-bulbIn discussing the purpose behind the creation of the Permanent Fund and later the Permanent Fund Dividend former Governor Jay Hammond outlined a very simple, two part plan:

The first related to the creation of the Permanent Fund itself:

I wanted to transform oil wells pumping oil for a finite period into money wells pumping money for infinity. …

The second focused on what to do with the earnings, once the “money wells” were pumping:

Each year one-half of the account’s earnings would be dispersed among Alaska residents …. The other half of the earnings could be used for essential government services.”  Diapering the Devil, https://goo.gl/FFTi9M at 15, 19.

Through Constitutional amendment (Art. 9, Sec. 15, https://goo.gl/rSxZ9n) and statute (AS37.13.145, https://goo.gl/rfScqh), the state has implemented the first and the first half of the second (“one-half of the account’s earnings would be dispersed among Alaska residents”) parts of the plan.

The state never, however, has implemented the second half of the second part of the plan (“The other half of the earnings could be used for essential government service.”).  Instead, the state repeatedly has drawn on savings when it has needed supplemental sources of money to fund essential government services rather than turning to the “other half” of earnings. 

Now that some have suggested the use of savings should be reduced — and replaced by taking money from the state’s private economy through PFD cuts and/or taxes — we have examined what it would take to implement the final step of Governor Hammond’s 50/50 plan. Continue reading

Finding Alaska’s Future: The FY 2018 Sustainable Budget (updated with video)

On Friday we rolled out Alaskans for Sustainable Budgets FY 2018 sustainable budget number in presentations in Fairbanks before the Interior Alaska Republicans, and in the MatSu Valley before the Alaska Republican Assembly.  The slide deck is above, as is a video of the presentation Friday evening before the Alaska Republican Assembly. (Note:  the video has been added subsequent to the publication of the original post.)

The roll out comes earlier than in past years, as a way of putting an updated, FY 2018 sustainable budget number in front of the Administration and legislators in advance of the election and subsequent organization.

The number is based on oil price projections made by the federal, and non-partisan Energy Information Administration in July of this year as part of its Annual Energy Outlook 2016.   While the state also publishes oil price projections, the latest one, published in the Department of Revenue’s Spring 2016 Revenue Sources Book, is significantly out of line with the EIA and other recent forecasts, came in the middle of a debate over whether Alaska needed so-called “new revenues” in which the Administration was pushing a tax and PFD cut narrative based in substantial part on a low oil price future, and thus, quite frankly, is of significantly questionable credibility and value.

Going forward, we at least will use — and will urge others to use — oil price projections published by reputable, non-partisan sources rather than those published by an Administration (whether Republican, Democrat or Independent) pushing a political agenda based on one view or another of oil prices.

The long term sustainable budget number for FY 2018 is $4.02 billion.  The material assumptions that go into the calculation are included on the slide deck.

Bill Walker is becoming the new Sean Parnell …

how-keep-job-recession-e1452010557125Late last week we wrote a column analyzing the state of Alaska’s overall economy and the effect that Governor Walker’s PFD cut was having on it (“Yes, Alaska is now formally in a recession and Bill Walker singlehandedly is making it much worse …,” https://goo.gl/2EMcms).

In response a regular reader offered the observation that, reading the column, they were struck by the irony of what this Administration was doing compared to the last.

Through government overspending the last Administration (and legislatures) created an economic bubble, breaching fundamental economic policy at the high end of a commodity cycle by creating a level of economic activity (and expectation) that was unsustainable over the long term, hyping the then-current government economy at the expense of those to come. Continue reading

Why the #AKLNG hearings have us thinking about Don McLean’s “the day the music died”

As readers will know, in addition to this blog we also regularly publish more frequent, shorter pieces on our Facebook, Linked In and Google+ pages.  Links to those pieces are available in a box down the right hand column of this page, but on infrequent occasions we also have published them here when we believe they have more than the usual significance and want to ensure they have the widest possible distribution.

Yesterday’s piece summarizing our view of the two days of legislative hearings this week on the #AKLNG project is one such instance.  The piece follows:

Friday’s “First Post” from Alaskans for Sustainable Budgets: We are considering nominating Don McLean’s “The Day the Music Died” (official title, “American Pie”) as the official theme song for the last two days of hearings before the Joint Senate and House Resources Committees on the#AKLNG project.

For those of you that weren’t born when the song was popular (a larger segment of the population than used to be the case), the song is McLean’s early 1970’s reflection on the day three idols of late-1950’s pop music died in an Iowa plane crash. It was, in his terms, “the day the music died.” Continue reading

There are two state fiscal issues that matter this election cycle and many candidates are getting one badly wrong …

fiscal-cliff-pulling-backAs we close in on the end of the first round of this election cycle — the primary is this coming Tuesday, August 16 — it is important to remember that there are two state fiscal issues that matter this year.

The first is how the candidate stands on state spending levels.  The second — injected into this cycle by the Governor and the Senate — is how the candidate stands on cutting the PFD.

Some try to minimize the second, arguing to one degree or another that the state’s financial condition is too far gone to be salvaged without permanently cutting the PFD and converting the difference to support state spending.

But that attempt to minimize the importance of maintaining the PFD is wrong and overlooks the fundamental reason both issues are important. Continue reading

Alaska’s Fiscal Situation: Past, Present & Future — an update

As regular readers will realize, at the request of Daniel Hamm, its Chair, we occasionally brief the Alaska Republican Assembly on the current status of state fiscal issues and our thoughts on how to deal with them.

We did that again this week, with a focus on what happened this past session(s), where that leaves the state’s fiscal condition, what the current outlook is as we start to think about FY 2018, and alternatives for dealing with that, admittedly somewhat initially dismal, outlook.

As explained in the presentation, I continue to believe there is a solid fiscal future ahead for Alaska — without resorting to permanent PFD cuts or significant taxes.  But it requires taking steps to implement Jay Hammond’s vision for Permanent Fund earnings and getting immediate control over what has become one of the biggest current expenses in state government — reimbursed oil credits.

This coming session may provide the last great chance to bring the state’s fiscal situation under control before more drastic measures become necessary.  The presentation outlines how we think that can be accomplished.

The update is above, or also available here (video) and here (slidedeck).

Why we need to halt the reimbursement of oil credits — and how …

Fiscal CliffThis column will not be popular with some readers. But it needs to be written.

As readers realize, Alaska is facing a significant financial challenge.  Part of that is self-inflicted by not tapping all available revenue sources.

Untapped revenue

As we have previously discussed on these pages, part of the Permanent Fund earnings stream always has been intended to be used to support government.  As former Governor Jay Hammond said when discussing his vision behind the Permanent Fund:

“I wanted to transform oil wells pumping oil for a finite period into money wells pumping money for infinity.”  Once the money wells were pumping, “[e]ach year one-half of the account’s earnings would be dispersed among Alaska residents …. The other half of the earnings could be used for essential government services.”

Inexplicably, instead of establishing a mechanism for doing just that, Governor Walker instead has done the one thing Governor Hammond strongly cautioned against — tapping the Permanent Fund Dividend, the portion of the “account’s earnings [otherwise to] be dispersed among Alaska residents.” This year the result is to have left roughly $1 – $1.25 billion in potential new government revenues on the table (50% of FY 2016 statutory net income), while at the same time taking roughly $650 million out of Alaska’s private economy.

The larger part of the problem

But the much larger share of the problem is driven by continued overspending.

As most readers will know, some legislators have claimed that the budget passed this Continue reading

Rick Halford & Brad Keithley on protecting the PFD …

Talk of Alaska (5.24.2016)

Click here for a link to the program.

Earlier this week, former State Senate President Rick Halford and Keithley Consulting President Brad Keithley appeared on Alaska Public Media’s “Talk of Alaska” to discuss why the Permanent Fund Dividend (PFD) should not be changed or “replumbed” as has been proposed this session by the Walker Administration.

Their joint appearance carries with it a significant amount of irony.

Following Walker’s 2014 election as Governor, Halford was selected to serve as Co-Chair of the Walker-Mallott Transition Team based on his deep understanding of and connections throughout the state, and Keithley was selected as the opening speaker at the first meeting of the full transition team following the election.  Keithley’s role was to outline the economic situation that Alaska faced and potential ways for dealing with it.

The irony is that each bases his opposition to the Administration’s “replumbing” proposal on the very reasons they were chosen to be part of the transition effort.

Halford believes that a PFD cut will have a deep, adverse and unjustified effect on the people of the state, and Keithley believes not only that it is unnecessary in the face of ongoing developments in oil markets, but also has the worst adverse impact on the overall Alaska economy of any of the fiscal options currently under consideration.

The website for this edition of Talk of Alaska is here.  A podcast of the discussion is available by clicking on the small speaker icon half way down the page.

Spending caps (or at least spending cap “guidance”) …

HFIN Hearing (4.13.2016)Last Tuesday afternoon I was sitting in my home office in Anchorage (working on taxes, actually) when I received a call, telling me that HB 311, this session’s version of a bill first introduced by Rep. Charisse Millet in 2013, was up for hearing before the House Finance Committee at 8:30am the following morning.  The bill, which requires the Governor to submit as part of his annual budget the “sustainable budget” number calculated consistent with the “Goldsmith/ISER” approach, had received two hearings in the prior legislature (2013-14) (here and here) but hadn’t received any attention from the Committee this session prior to the call.

As I described in my subsequent testimony, the approach contained in the bill could be used as a fiscal plan (which I have advocated in the past), as a spending cap (which I also have advocated) or as a spending guide.

Never one to pass up an opportunity to talk about sustainable budgets, by 8:30am the next morning I was in Juneau, with a presentation which combined my thoughts with those that Dr. Goldsmith previously had submitted in support of the bill (the slidedeck is below). Continue reading

Given my shot, what I think is important for Alaskans to understand about the #AKbudget and #AKoil …

At the invitation of Greg Huff, the Director of the Alaska Council on Economic Education, I was the evening’s guest lecturer at yesterday’s session of this year’s “Economics Spring Forum,” an annual 3 credit course for teachers focusing on economic and financial issues. The Forum is sponsored by the Council in conjunction with UAA’s Center for Economic Education. Continue reading

This week (Feb 7, 2017) on The Michael Dukes Show …

Each Tuesday morning at 7:20 am Alaska, I join KBYR AM700‘s The Michael Dukes Show to discuss the latest in Alaska oil and fiscal issues. This week Michael and I break down the renewed #AKOil tax debate, why some in the business community are pushing for #PFD cuts (as they work to retain spending on oil tax credits and dodge income and sales taxes) and why the University is having internal problems. The clip starts at my segment.

Listen here or at the widget below for this week’s show. For past episodes, go here.

This week (Jan 31, 2017) on The Michael Dukes Show …

Each Tuesday morning at 7:20 am Alaska, I join KBYR AM700‘s The Michael Dukes Show to discuss the latest in Alaska oil and fiscal issues. This week Michael and I discuss proposals to revise the current Constitutional restriction on spending (Art. 9, Sec. 16, goo.gl/42Mdgt) to make it more effective, Sen. Dunleavy’s SB 1 & 2 to restore the other half of last year’s PFD (https://goo.gl/w3kP0n), and signs of life from #AKLNG. The clip starts at my segment.

Listen here or at the widget below for this week’s show. For past episodes, go here.

This week (Jan 24, 2017) on The Michael Dukes Show …

Each Tuesday morning at 7:20 am Alaska, I join KBYR AM700‘s The Michael Dukes Show to discuss the latest in Alaska oil and fiscal issues. This week Michael and I discuss last week’s #AKLeg hearings on the state of the Alaska economy & Dermot Cole’s recent column on the “Hammond 50/50 Plan” (goo.gl/kpsuYY). The clip starts at my segment.

Listen here or at the widget below for this week’s show. For past episodes, go here.

 

This week (Jan 17, 2017) on The Michael Dukes Show …

Each Tuesday morning at 7:20 am Alaska, I join KBYR AM700‘s The Michael Dukes Show to discuss the latest in Alaska oil and fiscal issues. This week Michael and I discuss what the “Upper 10%” (of Alaskans, by income) don’t get about #PFDcuts, the good news in Alaska oil and why the UA faculty likely is complaining about the Administration. The clip starts at my segment.

Listen here or at the widget below for this week’s show. For past episodes, go here.