The coming week in House Finance …

The House Finance Committee this week is scheduled to mark up and take action on a Committee Substitute for the proposed Operating Budget.

Given the state’s current fiscal situation, this is a critically important week in Alaska’s history.  As proposed by the Governor, the Operating Budget stands at $5.47 billion, 97 percent of proposed state spending this year and as a result, responsible for driving the budget not only well beyond sustainable levels, but even well beyond the first step the Governor previously has said must be taken in the near term to reduce spending to sustainable levels.

Through substantial efforts, collectively the House Finance Subcommittees early last week proposed substitutes which bring the total within sustainable levels.  But public testimony Wednesday and Thursday was filled with those affected by various of the proposed cuts, seeking reinstatement of “just their piece” of course, but in the aggregate proposing to drive spending back over sustainable levels.

The House Finance Committee this week is tasked with weighing those requests against the overarching goal of staying on track toward achieving the goal of a sustainable budget.   Following is the note I sent to the leadership of the House Finance Committee — Co-Chairs Rep. Neuman and Thompson and Vice Chair Rep. Saddler — this morning as they start the week.

(For those interested in following this week’s events, the Finance Committee’s schedule is here.  A list of and contact information for those on the Committee is here.)

Sun, Mar 8, 2015 at 7:51 AM

To: Rep.Mark.Neuman@akleg.gov, Rep.Steve.Thompson@akleg.gov, Rep.Dan.Saddler@akleg.gov

Re:  HFIN Operating Budget Mark Up

This note is again to commend you, as the leadership of the House Finance Committee, on the work you have done so far on the FY 2016 Operating Budget, and to urge you to continue to hold the same bottom line as you complete work on the revised draft Committee Substitute this coming week.

At one time or another all of you have said that you support sustainable budgets.  As I outlined in my previous note, earlier this year Scott Goldsmith updated his work on Alaska’s sustainable budget, concluding that the current level of state spending Alaska can maintain on a sustainable basis is $4.5 billion (UGF, operating and capital spending combined).  As outlined in ISER’s studies over the years every dollar spent above that reduces the state’s fiscal assets and lowers the sustainable levels available to current and future Alaska generations.  Frankly the failure to achieve a sustainable budget over the last few years has contributed significantly to reductions in sustainable levels from $6 billion (FY 2013), to $5.5 billion (FY 2014), to $5 billion (FY 2015) and now to $4.5 billion.

Notwithstanding that effect, those seriously looking at this issue have concluded, given that the reductions from current levels need to come from the Operating Budget, the appropriate way to achieve that level in the current environment is to step down the needed reductions over three years, to $5.5 billion for FY 2016, $5.0 billion for FY 2017 and $4.5 billion by FY 2018.  Assuming the legislature maintains the Governor’s minimal capital request of $150 million, achieving the objective for this year means that Total Operating Appropriations (Agency and Statewide Operations, combined) must not exceed $5.35 billion.

As I congratulated you for in my previous note, through the efforts of your Subcommittees the current draft CS reflects Total Operating Appropriations of $5.29 billion, demonstrating clearly that the first step in achieving a sustainable level is doable, and frankly, leaving a little room for a slightly higher capital budget.

Having established that the level is doable, it is important not to let that achievement go unrealized.  None of you or others in the House Majority should want to run on a record that shows the first step toward achieving sustainability was well within your grasp, and then it slipped away.

I realize that there has and will continue to be a great deal of pressure among various interest groups to reinflate the proposed budget levels for this or that program.  Certainly, those that have become dependent on state spending have a vested interest in maintaining it, regardless of whether in the aggregate it hurts Alaska as a whole.  In many respects this behavior reflects Alaska’s version of what economists refer to as a “Prisoner’s Dilemma.”

But as you well understand when sitting as the House Finance Committee you have a greater obligation to look out for Alaska as a whole.  While some shuffling of priorities within the amount is understandable, Alaska’s overall fiscal future and security depend on limiting this year’s final total operating appropriation to $5.35 billion or below.   Through the work of your subcommittees you have successfully taken the first important beach head in restoring fiscal stability.   As the leadership of the full Committee, it is critically important not to give it back.

Please do not hesitate to let me know if I can be supportive of your efforts in doing so.  This is a critically important time in Alaska’s history and, through the subcommittee’s efforts you have developed the tools to play a very important role.  I and others look forward to the opportunity to publicly commend you and the other Committee members when you do.

Brad

Bradford G. Keithley
​Keithley Consulting, LLC​
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