Alaskans can handle the truth, even if some are in denial …

Screenshot 2014-10-12 16.48.51Earlier this week, as part of the “It’s Our Future” campaign, we started running web ads that asserted simply, and correctly, that if those legislators who have voted for state budgets since 2012 are “allowed to continue spending Alaska’s money at the rate we are on, you can kiss the #PFD goodbye.”

We made equally clear that, in casting votes to continue spending far in excess of sustainable levels, those same legislators necessarily are “eyeing” the Permanent Fund earnings because, as the state’s best economic analysts have made clear there will be nowhere else for the state to turn to for revenues at a point in the not too distant future .

The reaction by some has been humorous, in a Greek tragedy sort of way.  Rather than deal with the statement on the merits, a few have resorted instead with variations of “you lie.”  I suppose when you don’t have the facts on your side that’s about the best you can do.

But the truth is the state’s best economic think tank repeatedly has made very clear what direction the state is headed based on the budgets that these legislators have voted to enact — and they have gone ahead and voted for them in any event.

Two years ago, before the start of the first legislative session after the 2012 election, the University of Alaska-Anchorage Institute of Social and Economic Research (ISER) issued this warning:  “Right now, the state is on a path it can’t sustain. … Reasonable assumptions … 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.”

In two previous reports (2009 and 2011) ISER had already outlined the consequence of what comes next if the fiscal crisis reaches that point.  This is what they said as far back as a 2009 study:

… state general fund revenues are projected to exceed state expenditures until 2015, after which time annual revenues fall below annual expenditures. Starting in 2015, the state begins to draw down accumulated balances in the general fund and constitutional budget reserve. Revenues from the development of a gas pipeline starting in 2020, the phasing in of a state personal income tax starting in 2022, reduction in the Permanent Fund dividend by half, and diversion of remainder of the earnings of the Permanent Fund to support general fund expenditures starting in 2023 largely offset declining oil revenues for a decade but eventually they are insufficient to forestall a downward trend in general fund revenues ….

And what happens when revenues become “insufficient”?  Conversion of the remainder of the earnings from the Permanent Fund — and elimination of the dividend entirely — to support general fund expenditures.

Other than the fact that expenditures started exceeding revenues in FY 2013 — two years earlier than the 2009 forecast, and consequently the other dates also have moved closer in time — not much else has changed since the analysis.

In its early 2013 warning, ISER outlined a solution which avoided these consequences.  It was relatively simple:  “What can the state do to avoid a major fiscal and economic crisis? The answer is to save more and restrict the rate of spending growth. All revenues above the sustainable spending level of $5.5 … would be channeled into savings.

Frankly, at the time ISER made the recommendation that was not a big step.

While the state had spent significantly more in the intervening two years as part of the Bipartisan Coalition-led “stimulus” packages signed off on by the Governor, all that the Governor and the legislature elected in 2012 had to do was go back to the spending levels the state had adopted in FY2010, when the then self-styled “fiscally conservative” Sean Parnell was first running for election as Governor and total unrestricted general fund spending was $5.47 billion.

Indeed, the day after the 2012 election, the new Republican-led Senate Majority promised to do exactly that, listing “develop sustainable capital and operating budgets for current and future generations” as one of its top three “Areas of Focus.”  Many in the House said the same.

But the Republican-led legislative supermajorities elected in 2012 didn’t follow through — in fact their leadership led them backwards.

In the two years subsequent to the 2012 elections the legislature passed and the Governor signed the second (FY2014: $7.2 billion) and fourth (FY2015:  $6.2 billion) largest budgets in state history, both of which spent savings, not added to it.  Indeed, while many legislators like to brag about the so-called spending “cuts” they enacted during their term, they didn’t manage even to reduce the budget back to the levels that existed just two short years before they took office, much less to the sustainable levels promised following the 2012 election.

As a consequence, the state’s sustainable spending target has moved further and further away.  After the first session — and the largest deficit in state history — ISER lowered the sustainable target to $5 billion.  This coming year, after the second session — and the second largest budget deficit in state history — it will be even lower.

In short, rather than addressing the problem as they promised during the 2012 campaign and, again, immediately following their election, the legislature and Governor instead have gone in the opposite direction, keeping the state on the path outlined by ISER in its 2009 report — the one that ends — and these are ISER’s words, not mine — in “reduction in the Permanent Fund dividend by half, and diversion of remainder of the earnings of the Permanent Fund to support general fund expenditures starting in 2023,” and then because even those steps “are insufficient to forestall a downward trend in general fund revenues,” ultimately the elimination of the dividend entirely.

Put another way, if those legislators who have voted for state budgets since 2012 are “allowed to continue spending Alaska’s money at the rate we are on, you can kiss the #PFD goodbye.”  And the truth is that neither the candidates nor those who are responding with variations of “you lie” have produced a shred of economic analysis to the contrary.  Indeed, even the business community recognizes that the state is going in the wrong direction — and that the legislative leadership is playing a significant role in that.

The irony is some of those who are resorting to the “you lie” responses are the same who, in the past, have encouraged me to “name names” when talking about budget issues.  Despite other conjured up explanations, that is all that is going on here.

It’s time to put faces to the actions.  Personally, I think Alaskans can handle the truth, even if some are in denial.

One response to “Alaskans can handle the truth, even if some are in denial …

  1. What hasn’t been stated, that I have yet to see, anyway, is the impact of the falling price of oil on the State’s revenue stream.
    Further, we keep sending the same idiots back to Juneau.’
    And, the Governor keeps signing the appropriations bills.
    With the same players, what changes?
    I am not so worried about the economic issues, as we are too far along for anything to change–there will be fiscal calamity. The oil companies have said they will resurrect the oil patch in AK, but that has yet to produce anything of any significance. I am more worried about the rule of law represented by the NG mess. Rape is not something that is usually allowed to be ignored.
    I am a hard R conservative, but will vote Constitution Party if nothing else, as I cannot condone Walker’s Faustian deal, nor Parnell’s incredible conduct fiscally and as the State’s military commander.
    We are in deep kimchee.