My good friend Chris Birch wrote an op-ed in the ADN last week entitled “A Dividend Alaska Can Afford.” It detailed three options to close the $1.2 billion deficit created by payment of a $3,000 PFD. You can read it here.
I’ve known Senator Birch for decades. He is a reliable conservative everywhere from the Chugach Board to the Anchorage Assembly to the Legislature. He is one of the Good Guys in Juneau. For him to pen this sort of article ought to tell us a lot more about what is going on in Juneau than anything else. It also tells us that we need to move the Legislature, though that will be a topic for another time.
In his article, Chris notes that a $3,000 dividend blows an additional $1.2 billion hole in a budget that is already $1.6 billion in deficit. He proposes three ways to pay for it: Additional $1.2 billion budget cuts, raise an additional $1.2 billion in new revenues, or pull it all from the earnings reserve, the location that Bill Walker stashed the $3,773 in PFD payments he vetoed the last 3 years in office. The piece concluded with the conclusion that a $1,200 PFD is the ultimate right size.
So where do we go with this? Better yet, what is going on?
We are still seeing the political fallout from Bill Walker’s theft of PFD via executive veto. That theft gave the legislature the political cover and set the precedent for endless spending of the PFD, something they have embraced with gusto over the last few years.
Governor Dunleavy was elected in part to put a stop to that. He proposed a balanced budget with a full payment of a PFD based on the traditional formula along with repayment of the money that Walker took. Total budget cut under Dunleavy is $1.6 billion. To lock this into place, he also proposed three constitutional amendments to cap spending and lock the PFD into the constitution.
So far, both Houses of the Legislature have refused to embrace the budget cuts or move the amendments. We are at the point in the process where the House which did not approve any PFD at all is negotiating with the Senate that passed a $3,000 PFD. Expect the final number to be somewhere on the low side of the middle.
There have been some very good things out of the Legislature so far. The Senate proposal to get to Dunleavy’s budget cuts in two years rather than one is a good one, though neither House has passed a budget even a quarter of the way there. A Senate proposal to change the formula for computing the PFD from its current 70 – 30% to a 50 – 50% split is another one. That hasn’t moved either. And finally, we have two Republicans in the House leave the democrat dominated majority last week. While happy news, that is only a start.
Politically this is easy for democrats and difficult for Republicans. Democrats can simply keep on spending at the current rates until all the money is gone and slap on a tax of some sort. All their constituent groups will be taken care of. The unions, Bush, greens and public employees will all continue to get their piece of the pie.
Republicans have a much more difficult road, as they have to figure out how to cut our way to balance, which will then be used against them by democrats and statewide media in subsequent elections. In this workup, spending the PFD becomes the single easiest thing for them to do, which appears to be where they are going.
I still think there are a few things we can quickly do to get to where we want to go. On the cut side, I believe we need to consider a 50% spending cut in education at all levels. This means that online instruction, distance education, and vouchers are in our future. Total public education spending in FY 2018 was $1.5 billion. The FY2018 UA budget was $920 million. It appears that Medicaid expansion added $394 million to the state budget between 2015 and 2016. That needs to be rolled back entirely. Finally, the governor and legislature ought to lock in a hard freeze for COLAs on PERS / TERS and state employee salaries for the next five years. This will take the long-term pressure off spending. And yes, I am a PERS guy.
On the revenue side, all we need is more product down TAPS. In 2018, the State made $2.89 billion off an average 518,400 bbl/day down TAPS, or around $15.26/bbl shipped. Double the throughput and you double the revenue. More precisely, at the 2018 averages, for every 100,000 bbl/day we put thru TAPS, the State of Alaska receives an additional $557 million / year in revenue from the oil patch. Do this 3 times and we are balanced right now, today at current spending levels. Nobody in the Legislature is talking about this either.
So, my message to my conservative friends in the Legislature is that we can talk about right sizing the PFD all day and night as long as you guys get to work controlling spending and moving the Governor’s proposed amendments. If it takes a couple years to get from here to there, so be it. Spending is easy. Installing hard caps on future spending not so much.
Alex Gimarc lives in Anchorage since retiring from the military in 1997. His interests include science and technology, environment, energy, economics, military affairs, fishing and disabilities policies. His weekly column “Interesting Items” is a summary of news stories with substantive Alaska-themed topics. He is a small business owner and Information Technology professional.
