Daily Archives: February 5, 2016

A Sustainable Alaska Budget …

BGK (State Senate Affairs 2.4.2016)

Yesterday, Scott Goldsmith and I testified before the Senate State Affairs Committee on SB 128 (the Governor’s fiscal bill) and SB 114 (Senator McGuire’s fiscal bill, which GCI has been using in its presentations).  The video of the hearing is here.   Scott’s testimony starts at 17:05:00 into the video, mine at 1:10:00.

Both of us testified using the Goldsmith sustainable revenue model, and both of us concluded, though for different reasons, that the Legislature should not enact PFD cuts or broad based taxes this year.  Scott believes that such revenue measures may be needed in future years; based on the outlook I believe is appropriate to the state’s current fiscal situation I am not as certain.  The slide decks follow:

Based on my outlook (at slide 10) I conclude that the current sustainable revenue number is $4.3 billion (compared with a current, FY 2016 budget of $5.4 billion).  As I outlined in the testimony (at slide 11) I believe that spending can be reduced to or near this level with the effect of avoiding PFD cuts or taxes.

In his testimony Scott compares different approaches to deriving a number, using various inputs and timeframes (at slide 15).  Using a 3-year moving average, which is designed to smooth out what otherwise might be year-to-year jumps due to changing oil values, he concludes that the current sustainable revenue number is $4.39 billion.

Separately during my testimony I expressed significant concerns about the effects of cutting the PFD on Alaskans and Alaska’s private economy (at slides 16-18).  Scott did as well (at slide 18).

In its coverage of the hearing (For lawmakers, 3 options to tap Fund earnings) the Juneau Empire listed the approach as a third option before the Legislature this session (in addition to the Governor’s and Sen. McGuire’s proposals).  Alaska Dispatch News columnist Dermot Cole had his own take on the hearing, and another view from Alaska Commons — which confuses some of the testimony to create a conflict between Scott’s testimony and mine similar to what Dermot initially did in writing his column (until “Goldsmith and Keithley told me they do not believe there is a contradiction …”) — is available here.

To some degree the morning hearing was an opener for a subsequent hearing later in the day to take broader public testimony on the Governor’s proposed approach.  As several of the state’s media outlets reported, there was significant opposition to cutting the PFD during that hearing .  (Alaska Dispatch News:  “Governor’s budget plan picked apart as Alaskans debate Permanent Fund changes;” Fairbanks News-Miner, “Public testimony opens for new PFD plan;”  KTUU, “Alaskans weigh in on proposal to finance government with Permanent Fund earnings;” KTVA, “‘Don’t touch my PFD’ Public weighs in on Governor’s PFD proposal“).  In part the later hearing provided real life examples of the concerns Scott and I raised in the morning about the adverse effects on Alaskans and the private economy from cutting the PFD.

It will be interesting to see where this goes. I anticipate it won’t be the last time this session we have the discussion.