Would you like to see a plan to cover next year's state budget deficit without tapping the Alaska Permanent Fund earnings, inflation-proofing or dividends? So would I, so here it is.
First, consolidate and merge Alaska's four independent lending agencies:
Total net worth of these Alaska-owned public companies is $3.15 billion. Merging them so they each can use the remaining net worth can free $3 billion to balance the upcoming 2017 fiscal year. Consolidating the independent agencies this session could make me believe that right-sizing Alaska's bloated government is finally under way. Without reorganizing government, the budget will continue to expand.
To prove the lavish capitalization, compare those agencies to Alaska's four regulated private banks: Mt. McKinley Bank, Northrim Bank, Denali State Bank and First Bank and Trust. The combined net worth of those four banks is $273.12 million. That's a combined capital ratio of 12.61 percent against assets. Apply the same capital ratio to the state agencies. The required net worth is $397 million. Subtract that excess amount (over 12.61 percent), and you can safely preserve the merged agency's mission statements and performance while funding next year's budget with $2,753 million.
In fact, with the proper merger, these agencies could get by with only $150 million in combined capital just like three of the four private lenders do. After all, they have no deposits therefore no depository risk. In 1992, the Alaska State Housing Authority merged into Alaska Housing Finance Corporation without a hitch. So we know it can be done. Returning contributed capital back to the General Fund down to $150 million would free up $3 billion for the operating and capital budgets for fiscal year 2017. That's a pretty good start on deficit reduction.
Senate Finance Chairman Pete Kelly has announced a goal of cutting $700 million out of the bloated, overheated state budget. Good for him. If this roadmap of consolidation is followed, each duplication in the budget will be squeezed out and we will finally have a restructured budget. We can do so without raiding the Alaska Permanent Fund or cutting the dividend.
Alaska has a budget gap of $3.6 billion, according to Gov. Bill Walker. With consolidation savings of $3 billion and cost cutting savings of $700 million plus the standing offer to buy the Alaska Pioneer Homes for $225 million, we can have a surplus for 2017. We can solve next year's budget crisis with no income tax. Look for other fallow pockets of state money and report them to me or your legislators. The state can then focus on opening up new economic opportunities for private businesses to expand and grow jobs in Alaska. Our renewed prosperity will come from those jobs we create.
In an April 11 commentary, Alaska Dispatch News owner and publisher Alice Rogoff advocated a great idea to cut the state's retirement costs through arbitrage. Tools like arbitrage are little understood but readily available in finance. Borrowing the unfunded pension fund liability and getting a positive spread on the money makes sense. I'd like to hear more of this and other innovative ideas to really solve our economic challenges. Arbitrage nets the state money and saves millions for the Public Employees' Retirement System? (PERS) and Teachers' Retirement System? (TRS), the retirement systems for state employees and teachers. We can use these financial tools or we can believe the doomsayers who demand we raise taxes and raid the Alaska Permanent Fund.
The raid of the Permanent Fund and its dividend would create huge damage to the retail sector of the Alaska economy and to individual families. Ask any small business owner how important the dividend is to their business. Ask any rural proprietor what cutting the dividend in half would do to their income.
The power players' justification for cutting the dividend is stabilizing the budget. Don't fix the public budget by breaking the backs of Alaska small businesses or stealing from Alaska families. A bloated bureaucracy won't sustain Alaska's economy. A stable and growing private sector will.
Jim Crawford is a lifelong Alaskan. Born and raised in Anchorage, he has also lived in Fairbanks, Tok and Valdez. He is a real estate broker, self-described fiscal and social conservative and a former chairman of the Alaska Republican Party.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary@alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com or click here to submit via any web browser.