As this page has discussed on other occassions, Alaska state government spending has rocketed out of control over the last six years. Fueled by increased revenues resulting from the passage in 2007 of substantial revisions to the oil tax structure (called “Alaska’s Clear and Equitable Share” or “ACES”), state General Fund spending has grown from an average of $2.5 billion in the years before the passage of ACES, to $4.5 billion in the four years following, to now, most recently, $6.72 billion for FY 2012 and $7.6 billion for FY 2013.
With those increases, state spending far exceeds sustainable levels. The University of Alaska Anchorage’s Institute of Social and Economic Research (“ISER”) most recently has estimated the state can sustain General Fund spending in the range of $5.6 billion indefinitely (this is up slightly from $5.3 billion estimated the year before). Spending above that level — as has occurred the last two years — comes out of the pocket of future Alaskans. As ISER puts it, at increased spending levels “[t]he fiscal burden [on future Alaskans] will grow every year ….”
As importantly, the increased spending levels also have put in jeopardy something else that is critical to Alaska’s future — reversing the decline in oil production. Based on testimony by the Director of the state Office of Management and Budget at the end of this spring’s Special Session, enacting the Governor’s proposed tax reform would send the state budget into an immediate deficit. The reason is not because the proposed tax reductions are too generous. Instead, the reason is that spending levels have risen so high that there is no longer room to accommodate the reduced revenue levels tax reform would require. Continue reading