April 7, 2016
Serving Midtown, Spenard, and UMed
State Capitol Bldg. Rm 9
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Governor Bill Walker
Lt. Governor Byron Mallot
Alaska Budget 101
Dear Friends and Neighbors,
We all know something about budgets and balancing a checkbook. The concept is fairly simple. Money (also called revenue or income) comes in, and money goes out as spending. Of course we don’t want our spending to exceed our income. We all know what happens when we spend more than we have. Getting back on top of our debts can be a painful and lengthy process.
These are clearly difficult times. You can see it, hear it, and read about it in nearly every news story coming out of Juneau. There are hashtags like ‘#allaboutthebudget,’ hotlines and slogans like “time to act.” And yet, all indications from the Senate Majority are that they plan to smash the piggy bank to “balance the budget,” and simply not address new sources of revenue until next year, or later.
It’s time to act now - not next year, and not four years from now after we’ve run out of savings. That’s not what responsible people do. We need to address the real issues that have created our deficit. Until recently oil has funded roughly 90% of our operating budget. I don’t doubt that oil prices will rise again, but this is a wake-up call. It is important to diversify our revenue and reduce our dependence on a single income source. This is the only way to establish sustainable budgeting for years to come. And it’s important that the revenue we take in from the production of our oil is reasonable and fair.
Without getting too deep into the weeds, I would like to paint Alaska’s highly complex budget woes in simplified terms, because it’s important that all Alaskans understand the severity of the problem and the consequences of inaction.
Money coming in
We have four major sources of revenue: oil; federal funds; investment earnings; and income from taxes (on things like cigarettes and alcohol), charges for services, licenses, permits, fines and forfeitures – grouped together as a source known as ‘other than oil revenue.’
For Fiscal Year 2017, the budget we’re working on this year, our projected General Fund revenue is about $1.2 billion.
Money going out
The Governor’s proposed operating budget has a deficit of $4.1 billion. The House and Senate have made some drastic cuts to the Governor’s proposed operating budget, (close to $345 million on top of last year’s cuts of more than $800 million). Those cuts may have gone too far, potentially costing thousands of jobs and most likely hurting our healthy industries like transportation and fishing, as well as public schools and our university system.
It’s important to note that the proposed budgets include only about $73 million for oil tax credits even though our actual obligation is closer to $775 million. At some point we have to pay that remaining $702 million by writing checks to oil companies.
Our savings and other pots of money to fill the hole
We have a number of savings accounts or “piggy banks” that can be used, in theory, to fill the gap. This is not a sustainable choice, nor would it address the real problem – lack of adequate revenue.
We have an approximate $7 billion in the Constitutional Budget Reserve (CBR), and $6.6 billion in the Permanent Fund Earnings Reserve. Other funds the legislature could use include: the Alaska Higher Education Investment Fund at around $413 million (this would take money away from the Alaska Performance Scholarship and Alaska Education Grants as is proposed in Senate Bill 208); the Power Cost Equalization Fund (intended to lower energy costs in local communities) at around $900 million; and the Statutory Budget Reserve (SBR) with a recently recognized $280 million.
How long do we have?
The general consensus is that we have approximately three and a half years before we run out of money. The cliff is frighteningly near.
Since last year, the Republican Majority has avoided establishing a sustainable comprehensive fiscal plan. Living on savings is a last and worst option, not the first place we should go.
Economic fallout from inaction and poorly placed budget cuts
Yes, we can and should learn to live with less, but ill-considered cuts to state services will continue to harm and jeopardize opportunities and livelihoods of families and communities. Already the state’s credit rating has been downgraded, with further changes threatening unless the state takes the necessary steps to adopt a comprehensive, sustainable fiscal plan.
Balancing on the backs of children and seniors
You hear from Democrats in both the House and Senate that balancing our budget should not come from cuts to seniors and children. There is ample evidence that if we fail to provide necessary education and resources to students at a young age, we are setting them up for future failure and even a higher risk of incarceration later in life – at a far greater cost than providing quality education up front.
The University of Alaska is a powerful economic driver for the state, but the proposed cuts devastate its ability to continue its current generous return on our investment.
Why would we devastate institutions, savings accounts, and vital services that have taken years to develop? Unfortunately, it’s a simple answer. It’s politics. The entire House is up for re-election this year, as is half the Senate. No one wants to put their name next to the word “taxes.”
We need to enact real solutions. We need a comprehensive, sustainable, and fair plan that will impact all Alaskans equitably. We have been hearing from constituents, and we need to turn up the volume so that Majority leadership and finance co-chairs have no other choice but to be statesmen and stateswomen and do the right thing.
The clock is ticking, and I am very worried for the future of our state. It is within the power of this legislature to change the trajectory. The top line of the website for the Alaska Senate Republicans says “Time to Act.” I say “Let’s do it!” Tick Tock.
I’m Berta and I’m still listening,
If you have any questions, please feel free to contact my office.