The following ran as a Community Perspective piece in both the online and print editions of the Fairbanks News-Miner (Wednesday, January 28, p. A6) under the headline “Gov. Walker on track to sustainable budget,” as a Commentary in both the online and print editions of the Anchorage Dispatch News (Thursday, January 29, p. B4) under the headline “The urgent need for a sustainable Alaska budget,” and as a My Turn piece in both the online and print editions of the Juneau Empire (Tuesday, February 3, p. __) under the headline “Urgent need for a sustainable budget.”
During the fall, a large number of candidates campaigned on the theme of putting in place a sustainable budget. For example, on his campaign website Governor Bill Walker said this, “I will make the hard choices necessary for a sounder fiscal future, including putting in place a sustainable budget.”
When asked during the campaign what they meant by sustainable budgets, most candidates, including Governor Walker, referred to work on the subject by Dr. Scott Goldsmith of the University of Alaska-Anchorage’s Institute of Social and Economic Research (ISER). According to Goldsmith, a sustainable budget is a spending level which, if implemented today can be maintained indefinitely into the future, adjusted for inflation and population growth.
In other words it is a baseline revenue level which both current and future Alaskans can count on indefinitely without resorting to income or sales taxes or a diversion of the permanent fund dividend.
There are three primary benefits to a sustainable budget.
First, it treats all Alaskans fairly, both this and future generations. Spending more than the sustainable level may make life better for current Alaskans, but at the expense of inevitably forcing future Alaskans to bear the brunt of income and sales taxes to maintain even a minimal level of government services.
Second, sustainable budgets smooth out Alaska’s revenue stream. Rather than running from one side of the state’s fiscal boat when oil prices are high, to the other when oil prices are low, sustainable budgets enable the state to chart a balanced, centered course that keeps the Alaska budget steady from year to year, without the need for imposing economy-dampening taxes or spending cuts.
And third and most importantly from the standpoint of Alaska’s private economy, sustainable budgets create a favorable fiscal climate for citizens and other investors by removing the otherwise ongoing threat of continually changing tax rates and approaches.
Consistent with his campaign pledge, in last week’s budget address Governor Walker took the first step toward putting in place a sustainable Alaska budget by proposing to cut current spending levels to $5.5 billion from the roughly $6 billion in spending proposed by outgoing Governor Parnell.
While there is more to be done –Walker himself has described this proposal as the first step in a three year plan – it is significant movement in the right direction.
Not surprisingly, however, those with vested interests in maintaining higher spending levels oppose the effort.
For example, some argue that, because it limits current spending to long-term sustainable levels, the approach is somehow “anti-growth.” They argue that spending more currently on things like dams, roads and bridges will lead to more development in the future which justifies going over the sustainable levels now.
But that approach is seriously flawed. Most of the things that those taking that position want to spend state money on now never will return money to the state. The Knik Arm Bridge, for example, won’t even pay for itself, much less produce a return on the state funds its proponents want to “invest.”
As a result, while going down this path may leave future Alaskans with a bridge, it also leaves them with significantly lower state revenues on which to operate, resulting in taxes, a diversion of the PFD and investment-dampening fiscal uncertainty. What some characterize as “growth” now quickly turns into depression later.
Others argue that a sustainable level isn’t, in fact, sustainable, because it depends, like the current approach, on future oil price and production levels. They point to the fact that the ISER-calculated sustainable number has fallen from $6 billion four years ago to a projected $4.5 billion currently.
But a large reason for that drop isn’t as a result of changes in projected oil price and production levels. Instead it is the fact that the previous Governor and legislature spent significantly above sustainable levels over the last four years, draining the state’s fiscal assets and, thus, an important source of future state revenues.
In fact, because the approach relies also on financial return levels, which tend to run counter-cyclical to oil price levels, a sustainable budget produces a much more stable revenue stream than Alaska’s current approach.
Alaska can have a bright and resilient future by adopting sustainable budgets. It needs to start now. Those interested in building a sustainable fiscal future can help by writing and calling your legislators throughout this session urging that they support and adopt sustainable budgets.
Brad Keithley is president of Keithley Consulting, LLC, an Alaska-based and focused oil, gas and fiscal policy consultancy, and founder of Alaskans for Sustainable Budgets.