In the past few days Governor Parnell has been making the rounds of various talk shows, touting his accomplishments in anticipation of the end of the current legislative session and the coming election.
One of those claimed accomplishments relates to the budget, but in order to claim success in that area he is engaging in a shell game, hiding a big part of state spending under another cup in order to make his budget numbers look better. It’s not honest and is something which should significantly trouble those concerned about Alaska’s current budget — and Alaska’s fiscal future.
The shell game surfaced earlier this week, when Governor Parnell made an appearance on The Glen Biegel Show, an early morning Anchorage talk show. In response to the host’s question about “what is the state doing about its deficit,” the Governor said this (podcast beginning at 5:35):
The main thing we are doing is reducing government spending …. For example, two sessions ago the level of spending was at $8 billion, this last session it was at $6.9 billion, this year I’ve proposed $5.7 billion ….
It’s the last part that’s untrue. At a minimum the budget the Governor proposed this session is $6.4 billion, and in the context of being compared to previously enacted budgets, more likely in the range of $6.7 billion.
The shell game relates mostly to how the state’s contributions to PERS and TRS (Public Employee Retirement System and Teachers Retirement System) are accounted for in this year’s state budget.
In all previous years the PERS/TRS contribution has been included as part of the Operating Budget; the contributions made to PERS/TRS in each of the two previous budgets the Governor mentions is included in the amount. This year, however, the Administration has treated PERS/TRS differently for budgeting purposes, removing the contribution from the Operating Budget and ultimately putting it in a separate bill not reflected at all in his proposed budget.
The difference is significant. Last year, for example, the state’s PERS/TRS contribution was $633 million (Legislative Finance Division, State of Alaska Fiscal Summary at line 27).
The amount of this year’s contribution depends on who is talking. The options are $500 million (the Governor’s current proposal that he also talked about during the interview), $703 million (what the Governor said in the interview the amount would be if his separate proposal is not adopted) or $975 million, the amount that the state’s consultants told the Alaska Retirement Management Board last August (at p. 7) is required from an actuarial perspective.
Whatever the amount is, however, it’s not effectively zero — the amount included in the $5.7 billion number touted by the Governor.
The Governor’s comparison of “$5.7 billion” to past budgets also is misleading because, at the time he announced the number in December he made clear it did not include an amount for “legislative priorities,” the earmarks (for things like tennis courts) that legislators add to the budget as it works its way through the process and which is included in the numbers for the prior years.
Subsequent to his announcement, one member of the House Finance Committee said she expected this loophole to enable “the Legislature to be able to add $200 million to $300 million in additional projects to the budget.”
As a consequence, comparing apples to apples the Governor’s proposed budget for this year is somewhere between $6.4 billion ($5.7, plus $500 million for PERS/TRS, plus $200 million for “legislative priorities”) and $6.7 billion ($5.7, plus $708 million for PERS/TRS, plus $300 million for earmarks).
Why does that matter?
Well for one thing it matters — a lot — when the Governor isn’t straight with Alaskans about their finances. As in each of our households, budgets are one of the central indicators of the state’s financial health. If the Governor can’t be straight with Alaskans about what he is doing on that, it undermines his credibility when he talks about other fiscal issues, such as the effect on the state of SB 21, the oil tax reform bill.
If he is willing significantly to misstate the case on the state’s budget, why shouldn’t Alaskans be concerned he is doing the same thing in other areas.
But more importantly it is lulling Alaskans into a false sense of security about the state’s fiscal condition.
Spending is only one half of the state’s budget; the other half is revenues. And state revenues are dropping at an alarming rate — far faster than even the Governor claims to be dropping spending levels.
According to Department of Revenue data, in the two previous years (Fiscal Years 2013 and 2014) that the Governor used for his comparison state revenue levels were $6.92 billion and $5.3 billion. This year, the Department now projects revenues to drop to $4.52 billion.
As a result, by focusing simply on spending levels the Governor is masking what truly is going on with the state’s financial condition.
In the last year prior to those the Governor used for his comparison the state ran a budget surplus of — in other words put into savings for future Alaskans — $2.47 billion. In the two years the Governor used for his comparison, the state started running in the red, with deficits of $860 million and, this current year, $1.90 billion.
At a spending level next year of $6.5 billion, the increasingly best case outcome now given the Governor’s actual proposed budget and legislative action since, the state is projected to head for a deficit of $1.98 billion — the highest in the state’s history and, in one fell swoop, nearly 15% of the state’s remaining fiscal reserves.
By focusing solely on spending — and being less than honest about even that — the Governor is attempting to mislead Alaskans into believing that he is being a good steward of the state’s finances. The truth on the other hand, is that cuts in spending are not even keeping up with the drop in state revenue and this Governor fast is burning through Alaska’s cash reserves at the very time sound fiscal policy requires that he should be building them up.
Misdirection is one of the keys to running a good shell game. The Governor seems to have mastered that. Unfortunately, that is not a talent that Alaska needs right now; instead, it needs someone willing to help Alaskans understand the hard fiscal choices that we are facing. This Governor seems unable – or at a minimum, unwilling — to do that.
