As Alaska’s legislators prepare to return to Juneau for this year’s session, a question hangs in the air: What can Alaska afford?
It’s a question lawmakers once didn’t have to consider so closely. In most of the years since the development of the oil fields at Prudhoe Bay, state revenue — dominated by oil and gas production taxes — offered a comfy sum for legislators to allocate. Not only was there enough money to provide for the state’s operational needs and a substantial amount of capital spending, there was no need for state residents to pitch in for state services they enjoyed.
Those days are gone now. And it’s time for the state’s legislators and its people to decide what we’re willing to pay for.
Alaska’s economy has often been referred to as a “three-legged stool,” held up by oil revenue, federal (particularly military) spending and all other industries. In late 2014, a price crash in the global oil market broke the petroleum revenue leg right off the stool, and Alaska’s leaders discovered it’s very hard to balance on a three-legged stool with one leg missing.
Fortunately for the state, previous years when oil revenues were high allowed legislators to sock away billions of dollars in savings accounts. Unfortunately for the state, it was easier for legislators to spend from these savings accounts than make the hard decisions that would put Alaska on a path to a balanced budget. Though the Legislature was willing to make cuts from state departments they perceived to be overweight, there was no similar urgency or even meaningful attention given to replacing lost oil revenue through other measures. Now the savings accounts are almost all gone, and most of what’s left is in the Alaska Permanent Fund earnings reserve — the account out of which annual dividend checks are paid.
So, what can Alaska afford? It might be easier to enumerate what it can’t. Alaska can’t afford another year in which legislators kick the can down the road, depleting savings and endangering not only the permanent fund’s earnings reserve but also its constitutionally protected corpus. Alaska can’t afford spats between the Legislature and the governor that derailed progress during the last legislative session. Alaska can’t afford for its citizens to sit on the sidelines, unrealistically demanding that they not have to shoulder some of the fiscal burden for state services while squawking whenever an item that affects them gets cut.
What Alaska can afford is what its people are willing to pay for. Even a dramatic recovery in oil prices wouldn’t be a long-term solution to the underlying problem of dependence on one big revenue stream. Items like a permanent fund earnings restructuring and instituting state taxes will likely infuriate many Alaskans, but it’s hard to do the budgeting math in a way that provides a realistic level of services without them. The concept of helping pay for the services government provides has been foreign to Alaskans for a generation, but it’s the way all other states provide for their residents’ needs. Alaska is a special place, but not so special that it can operate forever without contribution from its people.
In Juneau this year, legislators should think about what Alaska can afford and what it can’t. Ultimately, the state can afford what its people are willing to pay for. And what it can’t afford is another year of inaction on revenue from the Legislature.
— Fairbanks Daily News-Miner,
Jan. 8, 2017
