Imagine you are about to undergo intricate, intensely tricky brain surgery -- the tiniest mistake and you are an eggplant -- when a nurse pats your arm and tells you not to fret; the surgeon has been on his feet for the past three months and is a little frazzled, but he is, by golly, rushing to get to you.
Any thinking person who wants to remain a thinking person might be rattled. "Why not wait?," you could ask. After all, this is a huge deal. Mistakes could be devastating and everlasting. It just must be done, the nurse admonishes, and right now. But I'm not dying, you protest. The doctor has a boat payment, she says.
The stampede to fix Alaska's more than $4 billion budget sinkhole triggered by plunging oil prices and lagging production is beginning to feel a lot like that -- a desperate search for a lightning-quick answer to a thorny problem, under lousy conditions, for dubious reasons. The question? Is quick necessarily best when you are facing a complicated, even Byzantine, task, whether it is brain surgery or fixing Alaska's fiscal mess?
The impulse to fix it fast is understandable. Alaska is up the creek without a canoe, much less a paddle. It is unlikely things will get better anytime soon.They may get worse.
Major oil exporters meeting in Doha, Qatar, last week rejected hoped-for production limits to curb the swelling worldwide oversupply. Reuters reports there are fears government-controlled producers will try to boost market share by cutting oil prices further.
When the agreement fizzled, world oil prices tumbled 7 percent, into the mid-$30 range per barrel, but recovered into the low $40 range. Alaska needs North Slope oil to sell at more than $100 a barrel to break even. It was selling at $42 and change at midweek.
Alaska has real problems, and financial heavies are noticing. Standard and Poor's Rating Services has revised Alaska's credit rating outlook to negative, almost ensuring city and state borrowing costs are going up.
Fiscal hiccups make business investors antsy. Gov. Bill Walker and some of Alaska's richest, most powerful people and organizations with financial stakes in government are pushing hard to get the budget gap plugged -- and right now. They are spending hundreds of thousands of dollars on lobbying lawmakers and the public to get it done.
Walker came up with his New Sustainable Alaska Plan and offered two measures to piece it together -- House Bill 245 and Senate Bill 128. They would cut spending, model the Permanent Fund as a sovereign wealth fund and draw off substantial dollars annually to help pay for public services.
The plan would funnel all of the state's oil and gas production taxes and half its oil and gas royalties into the $53 billion Alaska Permanent Fund, and siphon off up to $3.3 billion annually for government. The other half of the royalties would underwrite dividends, rather than taking them from the fund's earnings -- a bad idea. It would distance Alaskans from the fund itself and virtually assure smaller future checks that would hurt lower-income Alaskans disproportionately.
Walker's bills have been replaced in the House and Senate Finance committees. As amended, the measures would make 5.25 percent of the fund's total value available annually for government. That percentage arguably is too high. You need 2 percent to 2.5 percent for inflation-proofing and a 5.25 percent draw means the fund would have to earn at least 7.5 percent or so annually -- and some years it does not. A 4.5 percent draw makes more sense.
Alaska's red ink problem is a Gordian knot among Gordian knots. A study by the University of Alaska Anchorage Institute of Social and Economic Research concluded closing Alaska's deficit in one year is not a good idea. It said doing so "would have a major impact on an already weakened economy, but not making significant progress on closing the deficit would also have major negative impacts." These guys know their stuff. Why not listen?
Trying to wade through a swamp of undecipherable problems in search of solutions to fix a seemingly unfixable mess in a single year seems quixotic. What is the rush?
The Legislature can draw from the Permanent Fund's ample earnings reserve and the $8.2 billion Constitutional Budget Reserve to make ends meet for a year and use the time to get the right answers on taxes and tax credits, more spending cuts and possible revenue sources. Legislators this year could get started on tax increases for motor fuel and other categories to prove to investors and bond rating outfits the state is serious.
Rushing the process is silly. The idea should be to get it right, not fast.
That ain't brain surgery.
Paul Jenkins is editor of the AnchorageDailyPlanet.com, a division of Porcaro Communications.
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