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With political will, Alaska can solve its revenue problem

  • Author:
  • Updated: June 29, 2016
  • Published July 8, 2015

Former Gov. Frank Murkowski recently wrote an op-ed advocating the establishment of a Permanent Fund endowment system for partially funding state government. After attending Gov. Bill Walker's "Building a Sustainable Future" forum in Fairbanks and listening to thorough presentations on budget and revenue options, I agree with Gov. Murkowski about creating an endowment plan with the earnings of the Permanent Fund. In particular, I agree with his emphasis on the endowment plan being "an important building block in securing Alaska's future."

An endowment plan, even after protecting the principal of the Permanent Fund and inflation proofing, generates $2 billion to $2.5 billion. The Permanent Fund Board of Trustees also recommends the endowment plan as a way to better manage the Permanent Fund. No other revenue option comes close to generating this much consistent revenue with fewer trade-offs. That's why it came to the top of most participants' list as a viable revenue option.

While participating in the Fairbanks conversation, we were given over 30 different revenue options to choose from when trying to close the budget gap. As a group exercise we got a chance to play around with all options through a computer model that graphically displays how each option affects the budget gap, the reserves, and the Permanent Fund. Participants were randomly assigned to one of seven groups and charged to get to green -- when we reached a sustainable budget through 2020, the computer screen turned from red, to yellow to green.

My group, which included a range of Alaskans from the city manager in Unalaska to a former commissioner of revenue, from a new banker in Fairbanks to an elder from Kotzebue, was one of the few that made it to green. To get to green, we added in Medicaid expansion, an income tax at 15 percent of the federal income tax, reducing petroleum credits, capping PFD dividends at $1,200, increasing mining taxes, establishing a health care provider tax and yes, I'm disappointed to say, a 1 percent sales tax. Although I do not agree that a state sales tax is necessary (we almost got to green without one), I learned that a diverse group of Alaskans engaging in vigorous discussions can envision a balanced budget that works for the needs of Alaska's communities.

You can get a taste of what we got to do in Fairbanks by downloading the model, available online at gov.alaska.gov/sustainablefuture.

For me, another important takeaway was the long-term status of the state's budget. Most Alaskans think the state's operating budget has ballooned over the last 10 years, perhaps because former Gov. Murkowski and others paint it this way. I part ways with Gov. Murkowski's recent op-ed where he wrote, "as we have seen, after 2004-2006 the cost of state government has more than doubled in the last decade." While this narrow slice of budget perspective is not completely wrong, it fails to give proper context. The part of the budget that has ballooned in years of high oil prices is the capital budget. And yes, while the state agency budget has risen, it has risen mostly in response to population needs for health services and education (health and education make up 59 percent of state agency budgets). Gov. Murkowski fails to acknowledge this and the fact that Alaska's population has risen by more than 88,000 people in the last decade.

According to Gunnar Knapp, director of the Institute for Social and Economic Research, "Adjusted for population growth, agency spending per Alaskan did not grow dramatically from 2006 to 2015. After the FY 2016 budget cuts it will be almost the same as the 2006 level." This assessment from professor Knapp shows that the state's overall budget is nowhere near the spectre of overspending that conservative Republicans would have Alaskans believe. You need not take my word for it. Check out professor Knapp's PowerPoint posted on the "Building a Sustainable Future" Web page.

Although we do not have an out-of-control spending problem, most participants felt strongly that the search for more government efficiencies should continue in earnest. To this end, budget Director Pat Pitney informed the conference about six initiatives the administration is pursuing to provide system-wide savings through cross-departmental efforts. Knowing that the administration will continue the search for cuts and efficiencies; knowing that we cannot cut our way to a sustainable budget, the conversation must shift to revenues.

Pushing for action now, I find myself again agreeing with Gov. Murkowski, who warned in his op-ed about the dangers in putting off the endowment plan past the next election cycle. "To do it the following year will be too late -- we'll have depleted the Constitutional Budget Reserve by then. Alaskans have to make the choice now or face the consequences." He's right. The more we put off the revenue discussions, the more we will pay in terms of inadequate reserves and lower bond ratings.

The bottom line is we do not have an out-of-control spending problem, we have a revenue problem and in this regard we do not lack options. The only thing that appears to be lacking is the political will to make the hard decisions. This is where you come in. Become informed, go to the "Building a Sustainable Future" Web page and play with the model or participate in a follow-up forum, then above all else let your legislator know which revenue options you support. Where there's a will, there's certainly a way to a sustainable budget by 2020.

Kate Troll is a member of the City and Borough of Juneau Assembly. The views expressed above are her own.

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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