My thoughts on the final House Operating Budget …

Wednesday the full House Finance Committee, and last night the full House passed CSHB 72(FIN), the Committee Substitute for the Operating Budget submitted earlier this session. As readers of these pages know, I have followed and commented extensively on state fiscal matters generally, and the progress of this year’s Operating Budget specifically.  My comments on this year’s Operating Budget have been reflected most recently here and here,  My thoughts on the votes taken this week — and even more importantly, where we go from here — are captured in the following letter I sent this morning to the Chairs of the House Finance Committee and Subcommittees.

Fri, Mar 13, 2015 at 6:13 AM To: Rep.Mark.Neuman@akleg.gov, Rep.Steve.Thompson@akleg.gov, Rep.Dan.Saddler@akleg.gov, Rep.Bryce.Edgmon@akleg.gov, “Rep. Lynn Gattis” <Rep.Lynn.Gattis@akleg.gov>, Rep.Cathy.Munoz@akleg.gov, Rep.Lance.Pruitt@akleg.gov, “Rep. Tammie Wilson” <Rep.Tammie.Wilson@akleg.gov> Re:  Congratulations on CSHB 72(FIN) This is to ​congratulation you​ as Chairs of the House Finance Committee and Subcommittees​ for passing ​in Committee ​and moving ​through the ​full House ​yesterday an Operating Budget that is within the parameters needed to advance toward a sustainable budget over a three year period.  Assuming the Senate ​(and if needed, subsequent Conference) ​meets the same bottom line objectives when the Operating Budget is taken up there and that the Capital Budget stays within the range reflected in the Governor’s proposal, your actions have taken the first step in a three-year process which, once completed, will bring long-term fiscal stability to the state. ​I emphasize three-year process because it is critical to remember that the work of restoring fiscal stability has only begun this year, it is not yet completed. As you are aware, Scott Goldsmith and others at the University of Alaska-Anchorage’s Institute of Social and Economic Research (ISER) have long worked on and advocated a plan to put Alaska’s budgets on a sustainable path.  Earlier this year Dr. Goldsmith updated his work, concluding that the current “sustainable budget” level is $4.5 billion (UGF, operating and capital spending combined).  Assuming that the Governor and Legislature return in future years to a historical norm of roughly $250 million/year in capital spending, this means that total operating spending must be reduced to $4.25 billion (UGF) by FY 2018, the end of the three year transition in order to achieve long-term sustainability. The version of the Operating Budget ​you and the full House​ passed this week provides for a total operating budget of $5.3 billion (UGF), down from $5.44 billion in the Governor’s proposed budget.  While those actions halt the increasing trajectory of past operating spending and begin to turn the state’s fiscal ship around, as is apparent from comparing the current level of spending with the ​level needed to achieve sustainability there is more, much more that needs to be done to secure Alaska’s fiscal future. To that end it​ is important for you to use a portion of the Committee’s (and subcommittees’) time the remainder of this session, and during the coming period between sessions, to identify the areas and means by which the Operating Budget can be reduced to $4.75 billion (FY 2017), and then to $4.25 billion the session following that (FY 2018).  Given the realities, Alaska state government​, including the formula programs,​ must learn to live within a significantly smaller fiscal footprint going forward.  Thoughtfully re-envisioning the state’s operations to fit that smaller fiscal footprint will take effort​ and should continue unabated.​ It also may be useful to schedule a hearing on the sustainable budgeting approach sometime during the remainder of this session to help Alaskans better understand the fiscal issues the state faces and the appropriate path to the solution. I appreciate the reductions in spending you already have made and the additional reductions required in the future are significant steps, but necessary if Alaska is to be fair to both current and future ​Alaska generations and to maintain the state’s attractiveness as a place for long-term investment.  Without taking those steps, work by ISER and others have made clear that Alaskans will be faced with broad-based taxes and the use of a portion of the earnings from the Permanent Fund.  As importantly to the state’s economy, investors looking at making significant upfront investments dependent on long term payouts will be ​increasingly ​reluctant to follow through on those steps if faced with an uncertain state fiscal climate – and the prospect of new or increased taxes – at the time their projects would begin to produce revenues. As I have said previously, please do not hesitate to let me know if I can be supportive of your efforts as you continue to face these issues.  This is a critically important time in Alaska’s history.  Again, I commend you on your efforts thus far. Brad Bradford G. Keithley 645 G St., Ste 100, No 796 Anchorage, Alaska 99501 CELL/TXT:   214.675.0038 FAX:          214.279.0692 (efax) E-MAIL:       bgkeithley@gmail.com WEB:          http://bgkeithley.com