Why I am contributing to DeLena Johnson …

Sometimes I think I am in a unique position. I don’t have a state job or contract and don’t want one. I have never asked the Alaska state government to fund a pet project or cause because I believe those are private (not state) responsibilities, and so, contribute my own funds and if it is bigger than me, invest my time to raise the remaining funds privately from others.

I don’t really care if I am “banned” from a given set of offices or hearing rooms in Juneau, or even from the Capitol itself, because I don’t go there often and can live without ever going there again. And I don’t work — anymore — for clients that don’t want to “make waves,” or as happened a few years ago when I started this blog, clients who, when they make their annual visit to Juneau to meet with legislative leadership have to contend with leadership putting me on the list of “troublesome” things that leadership wants to talk about (now that was an interesting discussion at the time).

Instead, all I want out of Juneau and the legislators and other government officials that go there is smart government, a real (i.e., not fake) sense of long-term fiscal responsibility and an eye for what their actions today are doing to Alaskans of future generations.  

Willie Hensley — who teaches the best college class I have taken in my lifetime and I will likely continue to retake in the future as many times as he will have me — has a great saying, “the past 35 years (now, almost 37, since the start of flow from Prudhoe) have been the best out of Alaska’s last 10,000.”  My goal is to see state government work to extend that streak indefinitely into the future, and not — as I deeply am concerned the current Administration and Legislature are on track to do — let the streak end toward the end of this decade or the beginning of the next.

All of which explains in substantial part why I am writing this column, and indeed, why I may be the only person in Alaska (see the first two paragraphs above) in a position to write it.

To put it bluntly, I am contributing to DeLena Johnson’s run for State Senate because I think her opponent, Bill Stoltze, while probably well intentioned, is seriously undermining Alaska’s next twenty-five and fifty, not to mention its next 10,000 years.

In 2013, before the start of the 28th Legislature (which serves from 2012 – 2014) the University of Alaska-Anchorage’s Institute of Social and Economic Research (ISER) had this to say about where Alaska was headed:

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 ….

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.

And what has happened in the two years since that report was issued?  Nothing good.  Indeed, Alaska has gone further backwards.

In the last two years the Legislature has passed and the Governor has signed back-to-back the two largest deficit budgets in Alaska’s history.   In the last two years alone the Governor and Legislature have drained $6 billion — 35% — from the states two primary current savings accounts.

In previous columns I have talked extensively about “sustainable” levels of spending.  Alaska is in a unique position, if it limits current spending to a given level and saves (or doesn’t draw from savings) the remainder, to be able to sustain the same level of spending, adjusted for inflation and population growth, well into the future without the need for imposing taxes, or drawing from the Permanent Fund earnings.

Two years ago the level of spending the state could sustain was $5.5 billion, the same level that the state spent in FY 2011, before the subsequent huge runup in spending and deficits.  But that level was dependent on the state reducing spending in the then-current year to $5.5 billion.  It didn’t; in fact the Legislature passed and the Governor signed a spending package that totaled $7.2 billion, pulling down state savings by $1.9 billion in order to fund the resulting cash deficit.

As a result, after the first round of deficits by the current Legislature, the sustainable level dropped to $5 billion.  But again, that level was dependent on the state reducing spending in the current year to that level.  And again, it didn’t.   This year the Legislature passed and the Governor signed a spending package that totaled $6.2 billion, pulling down state savings by what is currently estimated as another $1.6 billion in order to fund the resulting cash deficit.

While the full extent of the damage from the second round of deficits won’t be known until after this year’s fall revenue forecast (due in December), even assuming some increase in long term revenue as a result of SB 21 the long-term sustainable level of spending likely has now dropped to something in the range of $4.75 billion, a level of spending the state hasn’t seen since 2007.

In short, in just two short years the current Governor and Legislature have taken roughly $750 million annually (that’s three quarters of a billion dollars  annually) out of the pockets of future Alaskans.   Put another way, in two short years the Governor and Legislature have recessed the fiscal sustainability of Alaska state government by 7 years, back to 2007 levels.

In the past ISER has warned that if the state does not bring spending under control, future Alaska generations will be faced with the need to implement “a broad based [sales or income] tax and use of a portion of the earnings of the Permanent Fund” in order to sustain even minimal levels of government spending.   By failing to get spending (relative to revenues) even remotely under control the last two years and, as a consequence, dropping the state’s sustainable level of revenue by $750 million annually, the current Governor and Legislature have made the prospect of taxes and a decline in the PFD from the level at which it otherwise would have settled a virtual certainty for future Alaskans, possibly beginning by the end of this decade.

In short, in the last two years the current Governor and Legislature effectively have passed a significant tax increase on future Alaskans, simply because they couldn’t muster the leadership necessary to return spending to the level it was three short years before.

What does this have to do with Bill Stoltze?  As Co-Chairman of the House Finance Committee during the last two years Stoltze has been at the heart of the runup in spending and the failure to control costs that has put the state in the financial situation outlined above.  As Co-Chairman he was one of the critical gatekeepers to the state’s fiscal well being — and on his watch the gates were left wide open.

In short, a significant part of the responsibility for the impaired fiscal outlook that future Alaska generations increasingly face is on his hands.

But you don’t have to believe just me to reach that conclusion.

Every two years a consortium of the Alaska State Chamber of Commerce, the Alaska Support Industry Alliance, Prosperity Alaska and the Resource Development Council of Alaska issue what they call the “Alaska Business Report Card” that grades the actions of the Governor and Legislature during the previous two years.  If anything, this group bends over backwards to support the current incumbents, which they perceive to be more in tune with business than the opposition.

Despite that bias, however, this year’s report card says the following about the fiscal performance of the three levels of state government over the last two years:

The Governor.  “Governor Parnell has been far less successful in trimming the size of state government and reducing its unsustainable unrestricted general fund spending. The positive trend in reversing the growth of spending is acknowledged, as is the difficulty of reducing spending, however the State’s fiscal cliff looms large. Alaska needs more leadership from the Governor on this very important strategic issue.”

The Senate.  “[A]s with the House Majority and the Governor, the Senate Majority allowed unsustainable unrestricted general fund spending. The positive trend in reversing the growth of spending is acknowledged, as is the difficulty of reducing spending, however the State’s fiscal cliff looms large. As a result, the grades of the members of the Senate leadership team (President, Majority Leader, and the co-chairs of Finance and Rules chair) were downgraded.”

The House.  “The … blemish on 28th Legislature’s House Majority was unsustainable unrestricted general fund spending. The positive trend in reversing the growth of spending is acknowledged, as is the difficulty of reducing spending, however the State’s fiscal cliff looms large. As a result, the House Majority leadership’s grades (Speaker, Majority Leader, co-chairs of Finance and Rules chair) were downgraded.”

The current generation of Alaska’s leaders have put Alaska’s fiscal future at risk simply because they couldn’t stop spending.  Bill Stoltze has been at the absolute center — in military speak (which I learned during my Air Force years stationed in the Pentagon), ground zero — of the problem.

Sometimes when I think about these issues I refer back to a Wall St. Journal editorial from a few years ago that discussed the loss by Republicans of the federal House of Representatives in 2006.    “It isn’t easy to spend so much money so egregiously that even Nancy Pelosi could campaign as a relative fiscal conservative, but the Tom DeLay Republicans managed the feat in 2006,” said the Journal.  Bill Stoltze has become the Tom DeLay of Alaska.

To be honest, in an ideal world Johnson could be a stronger candidate.  While she has a solid track record as a fiscally conservative Mayor of Palmer, she has not committed to decline joining a legislative caucus if the next caucus adopts the same rule as used during the last session, requiring all members of the caucus to vote for whatever budget comes to the floor from the Finance Committee.

My problem with that rule is that it essentially redelegates the vote entrusted by the voters to each legislator to a select group of “legislative leadership” who ultimately decide what budget comes to the floor.  As the Alaska Business Report Card makes clear, during the current Legislature leadership has become part of the problem, not the solution.  Leaving open the possibility that she may join the caucus even if the rules remain the same means that Johnson may prevent herself from the outset from voting as she has committed to her constituents.  In a previous column, I already have criticized one other legislator for engaging in the same bait and switch on the House side, and likely will others as well as the current election season progresses.

But as the campaign continues to unfold over the remaining few weeks I remain hopeful that Johnson — and her constituents — will realize the importance also of making this further commitment.

And more importantly there is another factor at play.  Stoltze already has demonstrated from a leadership position he is unable to reign in excessive spending.  Remember, on his watch this last Legislature passed back-to-back the two highest deficits in Alaska’s history and drained more than 35% ($6 billion) out of the state’s two current savings accounts.

He has had his opportunity to build Alaska’s fiscal strength to last the next 50 years, and toward the next 10,000, and failed.  Its time for someone else to try.

For that reason I am making a significant contribution today to DeLena Johnson’s campaign to assist her in having the resources necessary to continue the discussion on these issues.  As with others who have crossed Stoltze in the past, that act may get me banned from all sorts of things, but I can live with that.  I will have done my part in furthering the vision of making Alaska’s economic future a continuation of the last 37 years, rather than maybe a not-so-slow reversion to the times before.