Two questions for Senate President Kevin Meyer this coming Tuesday …

gmail-ak-policymakers-panel-novThis coming Tuesday evening Alaska Common Ground is hosting a post-election panel discussion on Alaska’s fiscal situation.  On the panel are Senate President Kevin Meyer, Rep. Ivy Spohnholz, Rep.-Elect Jennifer Johnston, State Tax Division Director Ken Alper.

According to the invitation (at left), the question being put to the panel is this:

The State of Alaska’s deficit this year is more than two-thirds of the budget, and this is the fifth year in a row savings have financed the deficit. Those savings we have relied upon to finance the deficit look very likely to run out in less than two years. What is the plan to avoid having the budget airplane crash into the fiscal cliff?

While artfully phrased, the set up — “the savings we have relied upon” — leaves a significantly misplaced impression.  

While those savings — presumably, the SBR and CBR — may run out in two years if oil prices don’t recover, spending isn’t cut further and the second half of Governor Hammond’s original plan for permanent fund earnings (more on that on a moment) isn’t implemented in the meantime, that isn’t the full extent of Alaska’s savings.

Currently, Legislative Finance forecasts there will be a total of $12.7 billion in “undesignated reserves” (i.e., “savings”) remaining at the end of FY 2017 next June 30.  https://goo.gl/u1No6p  at 3.

As a result, even if the deficits projected by the Administration are accurate — a highly unlikely scenario given the ongoing recovery in oil prices forecast by the non-partisan Energy Information Agency, https://goo.gl/lpVAwh at 11 — the state’s total savings (not just those we have “relied upon” thusfar) are adequate to finance continued “spending as usual” for more than another four years.

But aside from that, this forum provides an opportunity to ask Senate President Kevin Meyer two questions that have been on my — and others’ — mind since the Senate passed SB 128 last session — the bill which would have, if House Finance hadn’t voted it down, permanently cut the PFD.

I am posting them in advance here in order to give him — and his staff  — the opportunity to reflect on them before Tuesday.

The First Question

The first question is this:

Senator Meyer, in his final book, Diapering the Devil, Governor Hammond said this about his vision for the Permanent Fund and the use of the earnings from the Permanent Fund:

I wanted to transform oil wells pumping oil for a finite period into money wells pumping money for infinity. … [Once the money wells were ‘pumping money,’ in other words, producing earnings] each year one-half of the account’s earnings would be dispersed among Alaska residents …. The other half of the earnings could be used for essential government services.”

Legislative Finance currently projects by the end of FY 2017 there will be over $9 billion accumulated in the account containing the “other half” of the Permanent Fund earnings — what Governor Hammond said could be used for “essential government services.”

Shouldn’t the government use that — and the continuing additional “other half” being produced annually in earnings — for, as Governor Hammond put it, funding government services, before considering whether to cut into the PFD — the one-half Governor Hammond envisioned being dispersed among Alaska residents?

(And please, don’t use the fallacy that Governor Walker trots out when asked similar questions.  See Bill Walker’s “Pants on Fire” claim about the PFD, https://goo.gl/kPL363.)

The Second Question

The second question is this:

Senator Meyer, currently the overall Alaska economy is in a recession.  Alaska’s overall Gross State Product has declined for two quarters in a row, the technical definition of a recession.  As you know from your own company — and from looking at others in your own industry — many jobs have been lost in Alaska’s private sector as well — many more, in fact, than have been lost in the government sector.

Most economists agree that in a recession, the last thing government should do is take money out of the economy.  Many argue, in fact, that government should put more money into the economy.

And it matters where it goes.  Not all money has the same effect in the economy.  And not all cuts have the same effect on the economy.

In a study last March, three economists from the University of Alaska – Anchorage’s Institute of Social and Economic Research said this as they analyzed all of the state’s various fiscal options:

The reduction in the PFD is the most regressive of all. For every $100 million raised with PFD cuts, the ten percent of households with the lowest income lose 3.3 percent of per-capita disposable income, compared with only 0.1 percent among households with the highest incomes [note: that is a 33x disparity]. … The impact of the PFD cut falls almost exclusively on residents, and it is highly regressive, so it has the largest adverse impact on the economy per dollar of revenues raised.

And one of those economists in a subsequent study recently concluded additionally that:

Reducing the PFD by $1,000 will likely increase the number of Alaskans below the poverty line by 12-15,000 (2% of Alaskans).

Given that Alaska already is in a recession, many in the private sector are losing their jobs and suffering reduced income and that we know the PFD is the “most regressive,” has the “largest adverse impact on the economy” of all the options,” and likely will put a an additional staggering 2% of Alaskans below the poverty line, isn’t cutting the PFD absolutely the last fiscal tool government should be using, rather than the first?

See you Tuesday; I am looking forward to it.

Note to Brad ...

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