Things are going well for Alaskans on many levels. Our economy is perking along; the Permanent Fund is over $50 billion and we just had a big dividend payout; we're close to landing a new Air Force unit for Fairbanks; our oil industry is rejuvenating itself; our big natural gas project is making progress, and we have several mines on the cusp of development, though this industry is facing its challenges on a worldwide level.
Things are rocky in some places, of course. Fairbanks still suffers from high energy costs and our state university system is having to deal with a gut-wrenching set of financial cuts. But overall, things could be worse.
Longer-term, however, the view is more sobering.
Our state's finances are built on a weak foundation. We've known this for a long time but have done very little about it. Alaskans pay no individual state taxes. One industry, oil, pays for 90 percent of the budget and oil has been declining. We're now starting to feel some of the budget pressures because of that -- the university cuts, for example.
Hopefully the oil industry's recent renaissance will stop the production decline and maybe even hike it a bit. That will help, but it's not enough. The state's operating budget is still growing and that will increasingly squeeze us between lower revenues and higher costs.
Here's the equation: Assume modest increases in school funding over several years and continued payments, now at a reduced rate, toward our $12 billion unfunded public employee pension liability. We have to assume rising health care costs that are spread all through state, local and school budgets.
Given the above, the money available for traditional state services, like the troopers and road maintenance, will shrink by two-thirds by 2022.
Ouch.
According to projections by the state Legislative Finance Division, we will have about $604 million available for traditional state services in 2022, compared with $1.9 billion this year. Schools, Medicaid and pensions are not included in that.
How in the world are we going to deal with this? State officials and legislators have long known about this but they're reluctant to talk about it with a public that may react in disbelief. After all, the state is still paying those dividends, right?
However, there are thoughtful citizens and community leaders who are waking up. Commonwealth North, the Anchorage-based business and public policy group, has reactivated its Fiscal Policy Task Force to sort through the problem and suggest possible solutions. The task force meets most Thursdays at noon.
Common Ground, a public policy group that sponsors forums on important topics, held a well-attended all-day seminar on Oct. 4. The political bases are covered here because many Common Ground members are a bit left of center, while many at Commonwealth North are a bit right of center.
This should reduce any partisan squabbling over this. It would be helpful, though, if state legislators joined the discussion along with our next governor.
I'm optimistic that something may come out of these initiatives, but I have to admit I've seen this before. We're had several periodic state financial crunches, some serious, and these motivate people to hold "economic summits" to plot a strategy. Several former governors, including Walter Hickel, Tony Knowles and Frank Murkowski, led these efforts. The crises always ended when oil prices shot up, bailing us out. All the strategies went on the shelf.
This time may be different. Previous crises were caused by oil price crashes. Now production is down, and oil prices are dropping as well. In July they were $110 a barrel. Now they're $90. Costs are still rising, however.
What can we do?
We do have options, although people won't like them. Obviously we need to hold the line on spending, although this is tough given the difficulty in controlling health care costs. We need to grow oil production as much as we can, but we need to be realistic about expectations. Let's not count on the government opening the Arctic refuge to exploration, either.
It may be time to start thinking about two other revenue sources. One suggestion I have is that citizens could pay a bit for their services.
No one likes to pay taxes, but people will support taxes for things they support, like schools and roads. We can't constitutionally dedicate taxes, but we can certainly label a modest tax for its intended use. This can be done -- it's called "designated funds" in budget jargon -- and legislators are usually respectful of the designations, even if they can't be legally bound.
Then there is the Permanent Fund, which was, after all, approved by voters in 1976 to help fund public services when oil money ran down.
The Fund typically earns more income than is needed for dividends, with the surplus being reinvested. I think it reflects poorly on Alaskans to have this income not being used when public institutions, the university for example, are put in dire straits.
The easiest solution on this is to cap the dividends and use the surplus of earnings for public services. I think the public would buy this if it was felt the money was going to good use.
There will always be people saying, "Cut my dividend over my dead body," but I have faith in the common sense of citizens if the arguments are presented honestly and well.
Particularly if we have no real alternative, which I believe is the case.
Anyone have any other ideas?
Sharp cuts to the budget just won't cut it. The public won't accept cuts to schools, or firing state troopers or prison guards, or tying up state ferries.
I would endorse modest citizen taxes, as is done everywhere else, but this won't bring in a lot of revenue because our population is small. Other natural resource commodities can't afford much of a tax load. Jack up taxes on fish? See how far that goes.
But a mixture of these ideas -- holding the line on budgets, modest taxes on citizens and using part of the Permanent Fund income -- would be a good start. That financial discipline will encourage new industry investment, I believe, because firms will have more confidence that profits earned in Alaska won't be entirely taxed away.
These ideas aren't new. They've been around for years. Every economic summit and fiscal blue ribbon commission over the last 30 years has proposed similar ideas. Many of us remember these ideas also in Scott Goldsmith's "safe landing" strategy papers published years ago by the university.
No one paid much attention as long as the oil money kept rolling in. But now the wolf may be in the yard, at least, if not yet at the door.
Legislators and candidates should be talking about this. Until now, most have been fearful, avoiding the topic. I have more confidence in the public, but elected officials have to lead this discussion.
Do our politicians have enough guts to be leaders?
Tim Bradner is a writer for the Alaska Journal of Commerce.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary@alaskadispatch.com.