On Tuesday of this week (June 25, 2013) the Anchorage Daily News published a letter to the editor from Sharon Leighow, Governor Parnell’s Press Secretary, responding to a Compass piece published earlier in the month from Bella Hammond, former Governor Jay Hammond’s widow.
In the earlier piece, Ms. Hammond urged Alaskans to sign the petition currently circulating in the state seeking the repeal of SB 21, the Governor’s recent oil tax bill (and which the Administration prefers to call the “More Alaska Production Act”). Ms. Hammond argued that absent repeal, Alaska faces a difficult economic future.
With all due respect, Ms. Hammond’s piece is wrong to its core. As the University of Alaska – Anchorage’s Institute of Social and Economic Research (“ISER”) made clear in its analysis of the state’s fiscal situation published before the start of the recent legislative session — and based on ACES, the tax structure Ms. Hammond extols in her piece — Alaska currently is headed for an “economic crash” of historic proportions.
As ISER points out, the problem isn’t the state’s revenue structure, it is its spending levels. Simply put, Alaska is currently spending away money that it needs to be putting currently in the state’s retirement account — the “nest egg,” as ISER puts it — on which the state will need to rely once oil revenues decline below sustainable levels. Ms. Hammond’s piece avoids that issue entirely.
Apparently stung by Ms. Hammond’s criticism of his bill, however, the Governor fired back on Tuesday through his Press Secretary, Ms. Leighow. In pertinent part, Ms. Leighow claims as follows:
The governor is committed to controlling spending and, as we are already doing, utilizing some funds from the Statutory Budget Reserve to ensure Alaska remains financially sound.
Our financial future is bright and Alaskans can be optimistic that we will turn around the production decline with the More Alaska Production Act.
With all due respect to the Governor, that argument is as fundamentally wrong as Ms. Hammond’s.
First, the Governor is not controlling spending. In the first sentence of its January analysis, ISER unequivocally states “[i]n fiscal year 2014, Alaska’s state government can afford to spend about $5.5 billion.” Ignoring that warning, in May the Governor signed a spending package for FY 2014 of $6.8 billion. And, adding insult to injury, the Governor has stated an intent to sign spending packages of similar size for the next four years in a row.
These spending levels are the second highest in the state’s history. Simply put, far from “controlling” spending, by any measure Governor Parnell is leading a full on charge to spend more than any previous Governor in Alaska’s history.
Second, the state’s financial future is not bright. Even the Governor’s own 10-year budget plan, submitted at the beginning of the legislative session, shows deficits by the end of the 10-year period, if not before. ISER’s January analysis extends those plans beyond the 10-year period and shows the ultimate, disasterous consequences of the direction. The conclusion: “we [the state] 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.”
In her letter, Ms. Leighow — like the Governor before her — appears to claim that SB 21 somehow changes this trajectory (“Alaskans can be optimistic that we will turn around the production decline with the More Alaska Production Act”).
But the claim is too cute by half. Notice that the claim is not that SB 21 will turn state revenues around; instead, the statement only talks about production. (Because the tax rates under SB 21 are lower than under ACES, increased production does not necessarily mean increased revenue. Production has to increase by alot in order for the effect also to turn state revenue.)
Moreover, nothing in the various and extensive analyses provided during the hearings on SB 21 show any different results than those forecast in the Governor’s own 10-year plan and the ISER analysis.
In short, rather than shaping a bright future, the Governor’s spending approach is leading Alaska toward a huge financial cliff. The policies are, in essence, the functional equivalent of a wage earner in his 50’s deciding to spend today what he desperately needs to be putting in his 401(k) for retirement. It feels good today, but will wreck havoc on him and his family once he reaches retirement.
Put bluntly, the Governor is spending away the economic viability of future Alaska generations in order to buy more trinkets for current Alaskans.
Yesterday, during his talk radio show Casey Reynolds nailed Ms. Leighow’s letter to the wall, took aim and made mince meat of it. If you are interested in these things — and every Alaskan should be at least to a passing degree — I highly recommend you listen in. The discussion of the letter runs from the 11:35 to the 20:00 minute marks.