Alaska Fiscal Policy| Gaining traction on sustainable budgets …

From the Alaska House Majority: Representative Charisse Millett, R-Anchorage, listens to a colleague prior to her bill hearing Friday before the House Finance Committee. Millett introduced House Bill 136, which would require the governor to submit certain financial information to the Legislature before each legislative session to show proposed sustainable funding levels for state services.

Earlier this session Representative Charisse Millett introduced HB 136, “An Act requiring the governor’s fiscal plan to include certain information.”

As readers of these pages will recall, a recent report from the University of Alaska-Anchorage’s Institute of Social and Economic Research (ISER) concludes:

Right now, the state is on a path it can’t sustain. Growing  spending and falling revenues are creating a widening  fiscal gap. In its 10-year fiscal plan, the state Office of  Management and Budget (OMB) projects that spending the cash reserves might fill this gap until 2023, as the adjacent figure shows. But what happens after 2023?

Reasonable assumptions about potential new revenue sources suggest we do not have enough cash in reserves to avoid a severe fiscal crunch soon after 2023, and with that  fiscal crisis will come an economic crash.

As explained in the ISER report, the solution is “to save more and restrict the rate of spending growth.  …  In fiscal year 2014, Alaska’s state government can afford to spend about $5.5 billion. … All revenues above the sustainable spending level of $5.5 billion … would be channeled into savings.”

The purpose of HB 136 is to require the Governor to calculate and provide to the Legislature each year as part of the Office of Management and Budget’s 10-year plan Alaska’s current sustainable spending level, calculated in the manner outlined in the ISER report.

HB 136 does not mandate that either the Governor or Legislature restrict spending to the identified level.   But the reporting requirement created by the bill is a critical step in enabling the Governor and Legislature to start driving toward that goal.

As the ISER report puts it, spending above the sustainable level passes a “fiscal burden” to future generations of Alaskans.  As I have separately explained, spending above that level also undercuts long term oil investment.  (See “Alaska Oil Policy| The Need for a Sustainable Budget,” Thoughts on Alaska Oil & Gas (Jan. 16, 2013)).  The purpose of HB 136 is to provide the Governor and Legislature with the information necessary to take the steps required to avoid those outcomes.

Last month, Senate Finance Co-Chair Pete Kelly chaired a joint hearing of the Senate and House Finance Committees to discuss the issues surrounding Alaska’s current fiscal situation and the potential role of sustainable budgets.  (See “Alaska Fiscal Policy| Moving toward a sustainable budget for Alaska …,” Thoughts on Alaska Oil & Gas (Mar. 19, 2013)).

Following on that, yesterday the House Finance Committee held its first hearing on HB 136.   The webcast archive of the hearing is here.  The portion dealing with HB 136 begins at 49:10 into the hearing (2:23pm).  The materials used during the hearing are here.

While some had questions on technical details, during the hearing several of the committee members spoke favorably of the bill’s purpose.

At the end of a nearly two-hour hearing, the bill was referred by Committee Co-Chair Bill Stoltze to the Subcommittee on Fiscal Policy, to continue the discussion in a series of hearings to be held  over the interim throughout the state.  The Subcommittee is to be chaired by Rep. Costello, with Reps. Austerman, Holmes, Thompson and Gara as members, and with Chairman Stoltze and bill sponsor Rep. Millett also participating. 

Since the hearing, Reps. Tammie Wilson, Costello and Gattis already have signed on as co-sponsors.

Frankly, committing HB 136 to this sort of broad discussion appears to be a significant step forward.

As demonstrated at the hearing, Rep. Millett’s HB 136 is an excellent starting point for engaging in a broader discussion of why and how to move Alaska toward a sustainable budget.  By putting it at the core of an interim committee that will be engaging Alaskans around the state, Alaskans inevitably will become more aware of both the future the state faces by continuing on its current path, and what it will take to redirect that path toward success.

Sometimes, observers call that gaining traction.  That appears to be what is happening with sustainable budgets as a result of Sen. Kelly’s earlier hearing and yesterday’s specific focus on HB 136.