Skip to main Content
Opinions

Shady budget tricks mask the dire reality of Alaska’s financial future

  • Author: Charles Wohlforth
    | Opinion
  • Updated: February 1
  • Published February 1

Everyone is interested in money, but accounting for it is considered boring and nerdy. That gap in our attention is where con men and politicians do their craftiest work.

To avoid being too self-righteous, I'll admit I have personal experience, not as a con man, but as the Anchorage Assembly's budget chair for five years in the 1990s. My job was to get a majority. On at least one occasion, I found a way to do that by artificially making the budget look smaller.

But that trick was small-time and relatively harmless compared to the hall of mirrors the folks in Juneau have created for themselves. After years of moving money among accounts, shifting spending between years and other games, leaders have confused even themselves.

That confusion matters because the accumulated impact of budget games now significantly understates the severity of Alaska's fiscal gap.

As this election year advances, the lack of agreed-upon numbers threatens our ability to make choices about the state's future. If each candidate presents a different reality, how can a voter pick?

I've already said the details are boring, so I'll summarize what I've learned without getting into the thicket of numbers.

There are two basic pieces of information we need as citizens.

First, how much is the gap?

Second, can the gap be filled with available resources, or will the state need new sources of income?

No one really contends that current income will cover the entire gap, but Senate Republicans think we can sustainably use Permanent Fund earnings to cover most of it and ignore the rest, skating by on remaining savings and ongoing austerity until something better turns up.

It's a legitimate strategy if the numbers add up. As a self-employed writer for 22 years, I employed it more than once, and maybe you have, too. You pay the bills you have to pay at the moment and use savings, grace periods or credit card introductory offers to hold off paying the rest.

But what if the numbers don't add up? What if your finances are structurally unsound and skating by means you are heading onto thin ice? Then the result is bankruptcy.

The House coalition and Gov. Bill Walker have warned of thin ice for several years. They've offered balanced long-term solutions in previous legislative sessions.

But they've also joined in the budget shell games that make answering my two questions harder.

There are two sources of confusion.

First, through the course of the three-year fiscal crisis, clever budgeting made the Legislature and governor appear more frugal than they were. Individually, these tricks may be small potatoes, but they add up to big money over time.

The gap is probably at least $300 million larger than it appears.

Second, by focusing on the struggle for adjournment — getting out of Juneau, as they call it — instead of working out a long-term plan, the Legislature and governor neglected major liabilities. These are the structural items that will undercut the "skating by" strategy.

We're skating toward open water.

Here are three biggies (there are others).

Number one, the oil tax credits.

Tax credits for oil exploration were foolishly generous. The Legislature repealed almost all of them last year, but around $1 billion in credits had already accumulated.

Gov. Walker vetoed past payments, but now has proposed borrowing to pay off the obligation all at once, while negotiating discounts in exchange for the quick cash. The alternative is paying a statutory minimum that would burden the budget for years.

Democrats don't like paying this money, but it is a real obligation. If the House fails to appropriate the minimum payments required by law, the state will be a deadbeat and will be treated as such in the future.

Besides, while the money may have been ill-spent, paying it sooner rather than later will at least support companies trying to develop oil, which salvages some of its value.

Number two, pensions and health care.

The state's pensions are underfunded. A schedule to catch up calls for annual budget increases far into the future. And that schedule is based on pension fund  investments appreciating in value by 8 percent a year, which isn't realistic over the long term.

Health care is the largest part of the state's budget, including the cost for employees and for Medicaid, covering low-income residents. The economic downturn has caused Medicaid costs to spike.

The long-term issue is that health care costs are rising rapidly and the state has no strategy to contain them. Planning on a flat budget when your largest cost is uncontrollably rising represents magical thinking.

Number three, the capital budget.

If the state were a business, its accountant would require it to book about $400 million in depreciation on its facilities. That is the value we lose each year as buildings age, a cost eventually paid either by refurbishing, replacing or abandoning them.

The state is funding only urgent deferred maintenance. It isn't funding major school maintenance at all. Gov. Walker has proposed a payroll tax to catch up, but insiders give that no chance of passage.

To maintain our major roads, we use federal highway funds intended to expand and improve our infrastructure. When pavement wears out, we replace it and call that a new road.

But the bigger issue behind the tiny capital budget is our failure to invest in our own future.

To return to my metaphor, the Senate's "skating by" strategy looks like a family too lazy to care for its own. The house is unmaintained and the walkway buried in snow. Retirement is unfunded and the kids' college savings have been raided to pay bills. Debts go ignored. Health care? Just hope you don't get sick.

Maybe you know people like that. They're not going anywhere. Improving a family's circumstances means striving for more than you've got.

Alaska's government, instead, would continue living on a fixed income, like an old-age pension or welfare payment. The Permanent Fund would be our support. And our trap.

The views expressed here are the writer's and are not necessarily endorsed by the Anchorage Daily News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)adn.com. Send submissions shorter than 200 words to letters@adn.com or click here to submit via any web browser.

Local news matters.

Support independent, local journalism in Alaska.

Comments