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Alaska is a deadbeat state that still spends on shiny new things

  • Author: Charles Wohlforth
    | Opinion
  • Updated: March 28
  • Published March 27

Alaska's government is earning a reputation as a deadbeat, pleading poverty while flirting with doubled dividends and half-baked development schemes.

I don't blame you if you've stopped watching. For three years we've waited for the third act of this legislative morality play, when obstinacy and selfishness would be overcome by the better angels of compromise and love for Alaska.

That's not happening. Now the question is whether we're watching a tragedy or a farce.

Monday, the House split into chaotic factions to approve a $2,700 Permanent Fund dividend that would run down the state's last available savings account, the fund's Earnings Reserve. The rich irony of the moment was that the overdraw would be $900 million.

What's special about that number? It is the reason we have a Permanent Fund. The historic Prudhoe Bay oil lease sale brought in $900 million in 1969. The belief that the money had been wasted was the primary argument for creating the fund in 1976.

The fund wouldn't happen today. In 1976 we didn't have the kind of conservatives sent by the Mat-Su and similar communities, who voted for the big dividend Monday. In those days, being conservative didn't mean simple selfishness.

Whether you are conservative or liberal, leadership comes with a moral core. Traditional liberals idealize fairness. Traditional conservatives value order. There are plenty of ways to bridge those two domains and solve problems, but neither connects with just giving people whatever they want.

An early indication of the Legislature's decline came with the Legislative Information Office controversy that erupted in 2015.

The Legislature had hired developer Mark Pfeffer to remodel its offices in downtown Anchorage. He provided choices and they selected the most luxurious. But by the time the building was done, the state's fiscal crisis had begun and the fancy new offices had become an embarrassment.

Rather than face up to its obligations and the voters' anger, the Legislature simply welched on the deal and moved out, refusing to pay the lease. The building stands empty.

The framers of the Alaska Constitution put maximum power in the hands of the current governor and legislators – not officials of the past. Except for voter-approved bonds and certain constitutional obligations, the Legislature can always renege. State contracts are "subject to appropriation," meaning payment comes only when the Legislature approves.

But the framers assumed Alaskans would elect honorable men and women who would keep their word. Alaska's good credit attests to past leaders' honesty.

Pfeffer is in Superior Court trying to get his money, but he can't overturn "subject to appropriation," words at the heart of the state's case. From now on, landlords will know they need to get paid up front. The state might always walk away.

Oil companies will have to make the same calculation before signing deals.

The state offered irrationally generous tax credits for small companies looking for oil, redeemable for cash. The companies took those credits to banks and got loans to drill wells.

Just as legislators shouldn't have ordered such fancy offices, they shouldn't have blindly invested in random oil projects. They didn't stop the bleeding until last year. By that time, companies had relied on the state's promise many times.

During most of the program, the Legislature automatically paid whatever credits were redeemed. Then, in 2015, Gov. Bill Walker vetoed full payment. Since then, the state has paid into a fund for the credits according to a formula passed in 2007. At that rate, the credits would be paid off in about six years.

Last year, the state paid 16 percent of what was owed. Apparently, that was enough to keep most of the 27 recipients afloat, although officials at the Department of Revenue say lending for development has stopped while banks wait to get their money.

Now Rep. Paul Seaton, R-Homer, proposes to re-interpret the 2007 formula in a way that would slow the payments further. The state's top tax official says that would extend repayment to 20 years. The value of the credits would crash.

Seaton, co-chair of the House Finance Committee, is sure his interpretation of the law is correct. I think he is an honorable man. A legal opinion he obtained says the law is ambiguous.

But that opinion also says the interpretation doesn't matter. The Legislature can do anything it wants. The credits are "subject to appropriation."

Legal and ethical questions are different. A deal was made and the money should be paid.

Gov. Bill Walker has proposed borrowing to pay off the credits all at once, with the state repaying the debt over time. Voluntary discounts on the credits would cover the interest cost. The total amount is about $800 million.

The oil companies and banks approve of the idea. It makes sense for the state. But some legislators don't like the "optics" of the deal.

Seaton worries borrowing would reduce the state's flexibility. He said a future legislature in financial straits could chose to stop paying the credits at all, but would feel more obliged to repay borrowing.

We will get in deeper financial straits if the Legislature increases dividends and doesn't impose taxes. And keeps spending on pet projects.

Once you stop paying your bills, you can afford a lot. But only for a time.

Last year the state's capital budget included $7.3 million to study building a network of Arctic roads. This year, Walker wants $10 million for seismic studies to look for oil in the Arctic National Wildlife Refuge.

The administration admits that amount is too small for a meaningful seismic campaign. Partners who would help haven't been identified. And the seismic data, if negative, could reduce what industry would pay at a lease sale rather than increase it.

Meanwhile, some of those old oil tax credits Alaska issued were also for oil companies to get seismic data, credits that haven't been paid. But this is a bright, shiny new thing. It's much more fun to buy something new than to pay what you already owe.

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.

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