Legislature must approve a fiscal plan

  • By Gov. Bill Walker
  • Thursday, May 19, 2016 10:53am
  • News

It’s time to solve our fiscal problem. The price of inaction is too high.

As the Legislature nears the end of the constitutional 120-day session, I am gravely concerned about the possible outcome.

Our state is in a difficult fiscal position. Due mainly to world oil prices and our over-dependence on oil, we have only about one-fifth of the revenue we need to balance the budget. And that’s after several years of budget cuts and almost no capital investment.  

That’s why I kicked off a series of statewide conversations last spring. Using input from hundreds of Alaskans, we developed the New Sustainable Alaska Plan, which we released in December. Since then, my team and I have had more than 400 meetings with legislators on the plan—and I have gone door to door to individual lawmakers’ offices to answer questions.

The plan closes the budget gap within three years through a combination of spending cuts, structured and sustainable use of permanent fund earnings, and modest tax increases. The plan will remove the uncertainty hanging over Alaska because it balances the budget in a way that’s sustainable for the foreseeable future.

But it requires action this year.

Why? Some say we can just take money from the permanent fund earnings reserve to balance the budget this year—without restructuring for sustainability—and address the larger problem next year.

It’s true – with a simple majority vote, legislators could crack into the earnings reserve to patch the budget hole on a one-time basis. There’s about $7 billion in the reserve, enough to cover next year’s $4 billion deficit and permanent fund dividends.

But it will cost us dearly.

It’s likely the earnings reserve would be emptied in the following fiscal year, and once it’s depleted, there will be no funds for dividends.

That’s not the only problem.

Taking that much money out of the earnings reserve would substantially reduce the value of the permanent fund. That in turn would reduce the fund’s earnings potential. How? A fast and large draw-down does not allow for the fund to keep up with inflation—and reduces the fund’s purchasing power.

It would leave us with $150 million to $200 million less that can be drawn annually under a rules-based framework such as the one I have proposed in the Alaska Permanent Fund Protection Act.

You heard that right. If we take a $4 billion bite out of the permanent fund earnings reserve this year, we’ll generate some $200 million less in income every year going forward.

I don’t know about you, but I’d rather not have to raise another $200 million in taxes – every year. 

That’s the price of procrastination.

And what does this shortcut buy us?

Nothing. The options won’t be any better next year; they will be worse. We’ll have the same budget gap and less income with which to fill it.

And by delaying action, we leave all the uncertainty hanging over us. 

Bond rating agencies have told us they will further downgrade Alaska’s credit rating if lawmakers do not take action this year to fix our systemic budget imbalance. A lower bond rating increases the cost of many public projects, and sends a chilling signal to private investors.

Several Alaska business owners told me last week they are withholding planned investments until lawmakers address the fiscal gap. The current uncertainty means business owners can’t predict what kind of taxes they may face, or what public services and infrastructure investment might be lost if we hit the fiscal cliff with no plan.

Alaskans are wondering if they’ll lose their jobs, if their home values will fall, if they’ll have to leave the state.

What’s frustrating to me is that there’s no need for any of this. We have sufficient wealth that, properly structured, can provide significant income for the long term. A combination of thoughtful budget reductions and modest tax increases across a variety of sectors will close the rest of the gap. We can fix our problem without significant economic disruption.

It requires some politically uncomfortable decisions, but they are fiscally responsible decisions.

If we enact the New Sustainable Alaska Plan this year, we can provide for continued permanent fund dividends for Alaskans. Alaskans will still pay the lowest personal taxes in the nation. Most critically, we can look to the future with confidence.

I commend those legislators who have shown the political courage to support my plan.

I have told lawmakers the plan is written in pencil, not pen. As long as the end result meets basic tests of fairness and sustainability, I will approve it.

The last day of this legislative session is May 18. Please join me in calling on lawmakers to put Alaska’s fiscal house in order now! We need to remove the uncertainty and make sure we don’t eat our seed corn.

This legislative session may be as consequential to Alaska’s future as the very first session following statehood. We must act now with the same fortitude and “can-do” spirit used by our forefathers to build this incredible state.

Bill Walker is the governor of Alaska.

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