Nearly 60 years ago, delegates gathered at the University of Alaska Fairbanks to chart a course for a state that didn’t exist yet. The dozens of men and women who gathered on the campus in late 1955 and early 1956 to hammer out the Alaska Constitution did a remarkable job, standing the Last Frontier in good stead in decades since. In 2004, UAF again hosted a convention, the Conference of Alaskans, aimed at finding a way forward as the decline of the state’s oil economy was beginning to cause problems. Next weekend, UAF will once again host such a gathering, with a challenge as great as any faced by the state since the drafting of the Alaska Constitution: How will Alaska return to a sustainable budget?
Put plainly, the 29th Legislature’s response to the state’s budget crisis has been a mess. In fairness to legislators, a $4 billion budget deficit is too great a sum to tackle in 90 days, which may go some distance toward explaining why it has taken lawmakers more than 130 to complete their business this year.
In their budgets, the majority caucuses in the Legislature have focused exclusively on cuts as a means of reducing the budget deficit. This is likely partly due to the ideological makeup of the Republican-led majority, which has far more appetite for reducing spending than increasing revenues to match government’s current size.
There are two major issues with that approach. The first is math: as former Gov. Wally Hickel said, “you can’t cut your way to prosperity,” and with a deficit of the size Alaska currently faces, you can’t get close to a balanced budget with cuts no matter how much prosperity you’re willing to sacrifice. Cutting all of the state’s employees would only cover about half of the gap.
The second issue is that as the session has drawn on and cuts have moved from generalities to specific items, it has become clear that Alaskans don’t have much stomach for more cuts than the Legislature is planning on making this year, which cover no more than an eighth of the $4 billion gap. Residents in Talkeetna and Girdwood, who will lose their local Alaska State Trooper posts, feel too much has been cut already. Closer to home, the Fairbanks North Star Borough Assembly added $4.5 million in additional funds to the local school district’s budget to stave off the elimination of dozens of full-time positions in local schools.
The question that arrives from the reality that substantial additional cuts aren’t likely in the cards is simple: What can Alaska do to increase revenue and bridge its multibillion-dollar budget gap?
The answer may be complicated. Some options for increased revenue have already been floated — Sen. Click Bishop, R-Fairbanks, put forth a proposal for a “head tax” aimed at providing more education funds. Other proposals have included statewide sales and income taxes.
Taxes on residents won’t cover the gap by themselves, either, unless instituted at levels onerous enough to have many of the same negative effects that massive cuts would. The best bet for a sustainable solution to cover a good deal of the deficit is the Percent of Market Value plan drafted by the Alaska Permanent Fund Corporation in 1999 and selected as the best budget-balancing option by the Conference of Alaskans in 2004. As envisioned by APFC, the POMV plan would provide more than $1 billion each year to help provide for state services while also maintaining and stabilizing permanent fund dividend payouts to residents.
Even POMV, however, won’t cover the whole gap. A set of tools will have to be sent forward to balance Alaska’s budget, and the state needs input from all sectors of its residents and industries. Gov. Bill Walker’s conference next weekend is an important step in a long-overdue conversation on how Alaska can move forward as oil revenues wane.
— Fairbanks Daily News-Miner,