What others say: Focus on cuts has avoided other half of the equation

  • Tuesday, April 14, 2015 8:30pm
  • Opinion

Alaska’s multibillion-dollar budget deficit cannot be closed through cuts alone. This is a fundamental truth, and even a basic understanding of the math involved makes it an obvious conclusion. But that inescapable reality has apparently not yet sunk in among many members of the Legislature, as only a small minority have talked openly about the pressing need to bring significantly more revenue in to state coffers before reserves are exhausted. Fewer still have had the courage to bring forward bills that would increase revenue.

There’s no time to delay this discussion because of its potential political consequences to elected officials. The discussion about how to close the budget gap, not just shrink it, needs to start now.

The state has two accounts on which it can draw in times of budget shortfall: the Statutory Budget Reserve and the Constitutional Budget Reserve. Pulling from these accounts is more difficult for the Legislature than spending out of the state’s general fund, but it can be done, and must be if the state is to remain fiscally solvent in the near term. The combined balance of these accounts is a little shy of $12 billion.

Doing simple math, the state’s budget deficit stands in the vicinity of $3.5 billion to $4 billion for the coming fiscal year. Cuts made by the state House to the budget would decrease that sum by about $230 million — a meaningful sum, certainly, but not even a tenth of the total required to balance the budget. That means absent changes from current revenue projections, Alaska will be drawing on its savings to the tune of more than $3 billion per year, enough to exhaust its two major savings accounts in four years at best.

At that point, the only meaningful account the state will have left will be the cherished Alaska Permanent Fund, the current value of which stands at $54.5 billion. If Alaska’s history is any guide, the state needs a revenue plan in place before it is forced to draw directly from the permanent fund’s balance to pay for state government, as plans to use the fund for that purpose have been deadly to the careers of Alaska politicians since the fund’s inception.

In its session this year, the Legislature has cut what the state can afford without major reductions in services, though some argue the body has cut beyond that point. Further cuts would not only recoup less and less value, they would impact greater and greater numbers of the state’s residents. What can be done with cuts has been done — as former Gov. Walter Hickel said, “You can’t cut your way to prosperity.”

It’s time to again put increased revenue proposals on the table.

There have been precious few members of the Legislature bold enough to take a step down this road. Chief among them locally is Sen. Click Bishop, R-Fairbanks, who last week introduced a “head tax” bill to help fulfill the state’s commitment to education and discussed other potential revenue sources such as a state income tax, sales tax and the Percent of Market Value plan for the permanent fund.

A statewide sales tax and an income tax, depending on the percentage, would likely contribute about as much to closing the gap as the cuts already made by the Legislature. The revenue mechanism that has the potential to go furthest toward closing the deficit is the POMV plan for the permanent fund, and it’s one that legislators should revive.

The POMV plan was designed by the Alaska Permanent Fund Corp.’s board of trustees more than a decade ago as a way to protect as much of the fund as possible while simultaneously providing for the state’s transition away from oil as its dominant revenue source. As defined by the trustees, POMV “would limit yearly withdrawals from the fund to no more than 5 percent of the fund’s market value, averaged over five years.” Of that 5 percent, about half would go toward permanent fund dividends and the other half would provide funds to shore up state government. Crucially, the restriction on touching 95 percent of the fund’s value would ensure that the principal of the fund wouldn’t be significantly diminished — assuming a usual rate of return, it would be the fund’s new earnings that would be in play. The plan has been debated before, and has the support of the fund’s managing body. It’s not a grab at the fund — rather, it helps ensure the fund will remain as safe as possible.

Alaskans don’t like talking about measures to increase revenue — rare is the person who enjoys new taxes. But it’s time for legislators and residents alike to have that discussion. POMV should be the first option on the table, though it won’t solve the state’s budget deficit by itself. It’s time for the Legislature to step up to the plate and enact a comprehensive revenue plan by this time next year. Alaska can’t afford to wait.

— Fairbanks Daily News-Miner,

April 12

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