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Two takeaways: Gov. Walker's conference on Alaska finances

  • Author: Rachael Petro
  • Updated: June 29, 2016
  • Published June 9, 2015

As one of the participants privileged to be invited to Gov. Bill Walker's "Sustainable Future" event in Fairbanks, I commend the administration and my fellow Alaskans for rolling up their sleeves and working toward a solution to our state's budget challenges. Given the precarious situation we find ourselves in, tough conversations about spending and revenues are long overdue.

I left the event with two key takeaways: One, Alaskans will not support more taxes without further government spending reductions, and two, a more diverse group of Alaskans needs to engage in the discussion.

Let's start with the first takeaway. In the sessions that I attended, discussion focused on the need to maintain current public services, and the funds needed to keep them going. In those conversations, many of us questioned what kind of taxes Alaskans would be willing to pay without first feeling like the state government had made meaningful spending reductions and become more efficient. Ultimately, this evolved as a theme: only when the governor and Legislature can say to Alaskans with certainty that all possible efficiencies and reductions have been made, will hardworking Alaskans support more taxes. As group facilitator Robin Brena said, the state must prove that government is "lean and mean" before asking for more.

During the event, we were asked to model different revenue and spending scenarios. Unfortunately, the model was flawed. It was flawed because it emphasized the need for more tax dollars, not reduced spending. A participant in my group said this approach was backward; she said that a typical family would first cut its own spending in times of a financial crisis. The model was set up to pile on more revenue sources, not reduce spending. Again, Alaskans will likely support tax increases only when they feel that government is spending existing dollars as wisely as possible.

The model also failed to account for predictable consequences of increasing taxes, either on people or industries. For example, most of us believe in the age-old economic theory that when you tax something, you get less of it. The model allowed us to wipe out oil tax credits, but did not account for the loss of investment dollars and oil production that would result. Similarly, adding a personal income tax would reduce Alaskans' ability to spend money in the economy, but the model did not adjust when those new taxes were added. You can't have it both ways, and the model did not take those realities into account.

Interestingly, the model did allow us to add the revenue generated by a gas line in the out years. This option made it clear that a combination of additional cuts to state spending, combined with using legacy assets like the Alaska Permanent Fund (by adopting an endowment model that could yield $2 billion annually to help fund government, while still protecting a yearly dividend), could bridge the gap until Alaskans realize our long-held dream of getting our vast stores of natural gas to market.

At the end of the day, participants agreed that, in addition to restraining spending and making government "lean and mean," other revenue sources must be tapped. Earlier this year, the governor called on state employees and members of the public for ideas on how to trim government. Commonwealth North released a study titled, "The State's Operating Budget: Critical Crossroads, Choices, and Opportunities." These ideas weren't part of this weekend's discussion, but need to be part of the conversation and solution-crafting going forward.

This conversation needs to include a broader, more diverse group of Alaskans. While the weekend event included some very smart and talented people, the group was decidedly older, had been involved in Alaska public affairs for decades, and arrived with established biases and preconceptions. This is not unusual or inappropriate, but the next phase of this informational effort must include younger Alaskans, as well as those who may not have deeply ingrained opinions on fiscal policy issues.

If we'd had our way, we wouldn't be facing a deficit today. The Alaska Chamber of Commerce has long advocated for a sustainable budget that provides basic government services necessary to attract business investment. It's Alaska's business taxes that have supported Alaska's economic, government and savings growth. We're committed to Alaska's future and setting Alaska on a sustainable path.

Like the participants this weekend we believe further state spending reductions and efficiencies are part the solution, and we support adopting an endowment model (like a Percent of Market Value plan) for the Permanent Fund in order to aid in the transition to a sustainable budget, while still protecting an annual dividend. New revenue sources will need to be carefully considered so they don't undermine Alaska's economic growth.

Thank you to Gov. Walker and his team for kicking off the discussion. Alaskans and the administration need to finish the planned reductions laid out in the State of the State address, and now is the time for tough conversations about our fiscal future. Let's do this, Alaskans.

Rachael Petro is president and CEO of the Alaska State Chamber of Commerce. The Alaska Chamber's mission is to improve Alaska's business climate.

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(at)alaskadispatch.com.

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