Late last week I spoke to the Valley Republican Women’s Club (Thursday) and the Kenai Chapter of the Alaska Support Industry Alliance (Friday). The subject for both was A Way Forward on the Alaska Budget.
As I have continued to speak to Alaskans about this issue over the last several weeks in both public forums and elsewhere I increasingly have come to realize that the current debate over Alaska’s fiscal situation ultimately boils down to two issues: first, the outlook for future oil (and LNG) price and production levels, and second, the perceived ability to cut state spending further from current levels.
If you believe the out-years (beyond three years) of the price and production forecast reflected in the Department of Revenue’s Fall 2015 Revenue Sources Book (RSB) are undeniably accurate, or if you believe that spending cannot be cut significantly from current levels, then you come to one conclusion.
On the other hand, if you believe as I do both that the out-year forecast contained in the Fall 2015 RSB may be overly pessimistic and that state spending can be reset successfully nearer levels which are more reflective of the 11-year period extending from FY 1995 – 2006 (the last time Alaska went through a low revenue cycle), adjusted for inflation and population growth — in other words, on what economists refer to as a real (apples-to-apples) basis — then you come to different conclusion.
The slide decks I used in making last week’s presentations cover my thoughts on both issues and a resulting way forward. The slide deck I used Friday with the Alliance Kenai Chapter is above. The slide deck I used Thursday with the Valley Republican Women (which is the same as Friday’s in a slightly different order) is available here.
One key slide — and the one I use to start the substantive portion of the presentation (at p. 4 of the above) — shows the state’s revenue forecasts for the last three years. Those demonstrate that the pessimism about the state’s fiscal position which underlie various, current fiscal restructuring proposals is based on a single, one year view of Alaska’s out-year revenue picture.
Applying a different set of out-year assumptions (included on p. 5 and explained on p. 7) which I believe are more, or at least equally reasonable to those underlying the Fall 2015 RSB, demonstrate that it may be possible for the state to continue to achieve a sustainable, long term budget, without the need permanently to adopt other revenue measures, such as cutting the PFD or instituting broad based taxes.
Those with whom I have discussed these issues certainly are aware of proposals this session by the Governor, Sen. McGuire, Rep. Hawker and others to make dramatic, permanent changes in the way the Permanent Fund is operated, the Permanent Fund Dividend is calculated and/or the adoption of a broad based state income or sales taxes.
As I outline in the presentations, however, in my view those suggestions are unneeded — and indeed, economically dangerous — overreactions to the current situation, driven by a combination of the continued overhang of past excess state spending levels and what I view as overly dire predictions of future revenue levels from the Administration.
During the course of the presentations and the conversations that follow, there has been broad support for the view that taking steps substantially to revise the PFD or institute broad based taxes this session are, at best, premature, and that the Alaska legislature instead should focus this session exclusively on bringing government spending down to long-term sustainable revenue levels and filling the remaining gap between the state’s current cash and sustainable revenue levels by drawing from the state’s significant savings accounts.
As an alternative legislative approach I have suggested instead using HB 311, a reintroduction of last Legislature’s HB 136. The bill requires the Governor to provide each year an estimate of the state’s long term sustainable revenue level as a guide to be used in setting the following year’s budget. The bill easily can be turned into a spending cap, or if some believe warranted, a replacement for the current Constitutional provision (Art. 9, Sec. 16) which is supposed to set a long term ceiling — but doesn’t effectively — on legislative appropriations.
For those interested in taking a deeper dive a video of the Thursday presentation to the Valley Republican Women’s Club is available here.
I look forward to additional opportunities ahead to continue this discussion. Engaging directly on the assumptions underlying the conclusions others are drawing is an important piece of educating Alaskans on their current fiscal options.