Thousands of Alaskan families likely breathed a sigh of relief May 31 when the legislature passed its budget to avoid a government shutdown less than 24 hours before the deadline to issue layoff warnings. Last year, pink slips did go out. Nothing has been done yet this year to ensure we don’t repeat this next year.
Once again, the legislature voted to balance the budget by drawing down the constitutional budget reserve. In just two years, we will have drawn $7.6 billion from savings.
Here are the effects:
— Less than $3 billion will remain — which means we cannot use the CBR to pay for the budget next year.
— The bond markets have twice warned another draw on savings without a structured fiscal plan would prompt a further downgrade of Alaska’s credit rating—which means it will cost more to build projects that generate jobs.
— Next year, we’ll face the same problem — with fewer resources with which to fix it.
— Permanent fund dividends are in jeopardy.
We still need to fix the underlying problem: our revenues fell by 75 percent in the past three years, and we can’t keep balancing the budget on savings.
Polls show a majority of Alaskans want to put Alaska on a sustainable budget path now. We have the tools, and the legislature has 17 days to use them. In December my team and I introduced a comprehensive plan — a mix of spending cuts, sustainable use of permanent fund earnings and modest tax increases.
We have significantly reduced state spending. The administration and the legislature together cut the budget 22 percent since I took office.
— We reduced capital spending from $595 million two years ago to $90 million for the upcoming fiscal year.
— The state has 1,300 fewer employees than a year ago. In nearly all labor negotiations, employees have agreed to suspend cost-of-living adjustments, take two to ten furlough days, and pay increased healthcare contributions.
— Almost every state agency has been cut at least 16 percent in general funds in the last two years. The Department of Commerce, Community and Economic Development was cut by 50 percent. Alaska State Troopers took a 9 percent reduction. The Governor’s Office budget is 27 percent smaller than it was two years ago.
But with just over $1 billion in expected revenue, we could close every school, university campus and prison — and it still wouldn’t balance the budget. We will continue to reduce the size of government but cuts alone won’t close the deficit.
The second part of our plan, the Permanent Fund Protection Act, restructures the use of permanent fund earnings. Absent significant change, the permanent fund earnings reserve — the source of permanent fund dividends — will be depleted by 2020. That means no more PFDs in less than four years.
The third part of our plan proposes modest increases to mining, fishing, motor fuel, alcohol and tobacco taxes, and bringing back a small income tax.
With a $4 billion shortfall, it may be impossible to please everyone, but to the extent possible, we have incorporated feedback from the extensive public process we conducted over the past year. We have tried to balance the impacts so no one is unduly burdened. Our proposals are not unreasonable.
— We proposed an 8-cent motor fuel tax increase. In the past year, gas has fluctuated $1.50 a gallon on average in the state of Alaska — and we are talking about an 8-cent tax. The last time Alaska had a motor fuel tax increase was more than four decades ago. Even with our proposal, Alaska will have the second-lowest motor fuel tax in the nation.
— Alaska has not increased mining taxes since the 1950’s.The mining industry grossed $2.3 billion in 2014 with a $570 million net income. We are proposing a $7 million tax increase.
— The fisheries industry grosses $1.7 billion a year from Alaska’s waters, according to a 2012 federal study. Last year, the state spent $26 million dollars more to manage the state’s fisheries program than we collected in taxes. We are proposing to collect $20 million more in taxes. We will still spend more to manage fisheries than we generate.
Before home values plummet and economic investment dries up, Alaskans need their legislators to put the state on a sustainable path — now. Kicking the can down the road means the cloud of uncertainty follows us into the future. Our options are more limited next year, as we will have less money in the bank.
And where uncertainty exists, growth cannot occur.
Our fiscal imbalance is a stumbling block in the way of our progress. Once we remove it, we can seize opportunities to diversify our economy — through agricultural exports, a gasline and renewable energy. The time for bold action is now.
Bill Walker is governor of Alaska.
