Paul Jenkins: Can Alaska control spending before it's too late?

By PAUL JENKINSAugust 10, 2013 

Alaska is the richest poor state in the nation. If it does not change its ways -- if it does not stop spending more than it can afford and start socking more away -- it could be among the poorest of the poor in barely a decade or so.

The last governor who attempted to hold the line on spending was Gov. Frank Murkowski, and we know what happened to him. It would be nice to blame the state's fiscal trajectory on Democrats -- they are, after all, responsible for all other evil -- but Republicans have been at the helm.

The good news is we still have time to change. The bad news? The clock is ticking and it is unclear policy makers have a clue about what the future holds.

We have been warned. Guys like economist Scott Goldsmith and Brad Keithley, an oil, gas and fiscal policy consultant and longtime advocate of sustainable fiscal policies, have sounded the alarm for a long while. Spend less. Save more. Ralph Samuels even made fiscal discipline a central theme in his 2010 GOP gubernatorial campaign. It did him no good.

Despite their admonitions, things are unchanged and if fiscal policies remain as they are, future generations will be left holding an embarrassingly empty bag. Now, with next year's election looming, would be a nifty time to start talking about it in earnest.

Goldsmith, with the Institute of Social and Economic Research at the University of Alaska Anchorage, earlier this year wrote a piece titled "Maximum Sustainable Yield: FY2014 Update." It should be mandatory reading for Alaskans, especially office-seekers.

After talking with Keithley recently about Alaska's fiscal future, I dragged out Goldsmith's piece and read it again. It is scary. Mind you, it was written before the misguided effort to repeal oil tax reform. What that could bring is anybody's guess.

"Right now, the state is on a path it can't sustain," Goldsmith wrote in January. "Growing spending and falling revenues are creating a widening fiscal gap."

Our cash reserves may get us through 2023, but after that?

"Reasonable assumptions about potential new revenue sources suggest we do not have enough cash in reserves to avoid a severe fiscal crunch soon after 2023, and with that fiscal crisis will come an economic crash," he wrote.

He estimated state government can afford to spend about $5.5 billion a year in unrestricted General Fund money over the long haul.

Unfortunately, we are spending much, much more. This fiscal year, the budget is something like $6.8 billion, the second-largest in state history -- and Gov. Sean Parnell says the next four years' spending plans will be of similar size. Last fiscal year's was $7.6 billion, the highest in state history.

Keithley wrote on his blog that Alaska's fiscal approach is "the functional equivalent of a wage earner in his 50s deciding to spend today what he desperately needs to be putting in his 401(k) for retirement."

Goldsmith recommends all revenues above the "sustainable spending level of $5.5 billion -- including Permanent Fund income, except the share that funds the dividend -- should be channeled into savings."

He estimates if Alaska has $117 billion in cash reserves and the Permanent Fund by 2023, it "would be on the path to sustainable spending far into the future. But . . . that's twice what the state has in financial assets today. So the state needs to sharply step up its savings rate, starting now."

Goldsmith says we should be shooting for what he calls Maximum Sustainable Yield. That's how much Alaska "can spend each year from its petroleum endowment, or nest egg, and still sustain the value of that nest egg for future generations."

Ten years is a blip in time. The question: Can we change? It is difficult to be optimistic. Politically, it is a nonstarter. Government stops spending only when there is nothing left to spend. No one acts before we are knee deep in crisis, and sometimes not even then - just look at Washington, D.C. There always is incredible pressure to spend and no politician wins election by promising not to bring home the bacon.

Will Alaskans come to understand that the jig is nearly up; that very bad times truly may be just over the horizon? More important, will we demand the state change its spendthrift ways to protect future Alaskans?

Anybody know what houses are going for in Palm Springs?

Paul Jenkins is editor of the AnchorageDailyPlanet.com.

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