As the state House budget moves over to the Senate, I expect we'll be hearing a lot more about the need for more drastic spending cuts without consideration of modest taxes the Senate has been committed to, in the words of Senate President, Fairbanks Republican Pete Kelly, "applying downward pressure on the budget." At the outset of the 2016 legislative session Senator Kelly declared, "There is nothing that has shown us at this point that a tax is needed and I don't anticipate that will change."
Since Senator Kelly made this statement, there has been an economic analysis worthy of serious consideration by our legislators. With the support of Northrim Bank, Mouhcine Guettabi, an assistant professor of economics at ISER examined what the cost of legislative inaction has been on private investment spending in Alaska.
He concludes "that the direct effects of policy uncertainty is costing the state somewhere between $200 and $600 million in private capital spending. The decline in spending due to policy uncertainty would indicate that waiting is not a costless option. In fact, the losses due to uncertainty are important and similar in magnitude to the ones the economy would experience due to a tax or further government cuts."
When one considers that the House passed bill establishing an income tax generates $700 million, the impact of a tax is relatively offset by the lost investment opportunity and the economic harm caused by further government cuts.
Since both the House and Senate have already accepted that solving the fiscal gap is dependent on using part of the Alaska Permanent Fund earnings, why not stop the uncertainty and add revenues into the mix? Closing the fiscal gap with a mix of cuts, revenues and earnings from the Permanent Fund has been a long recognized path to fiscal stability.
Yet, I fear this report will get overlooked in the stubbornness to draw hard lines around cuts and taxes. If we care about Alaska's overall economic health, then the emphasis must shift away from cuts and toward revenues. To those legislators that think otherwise; that believe more deep cuts are needed, that we've not yet reached bottom, I ask that you bear in mind that from the peak of 2013, the state budget has been reduced by a whopping 44 percent. Just since fiscal year 2015, the state operating budget has been cut by 27 percent.
These are major adjustments downward that are now showing up as real impacts in our communities. Take Juneau for example. In fact, in between floor sessions, legislators could actually take a local tour of budget-cut impacts. To start, I would go across the street to the third floor of the Dimond Courthouse. We would visit the District Attorney's Office of Angie Kemp, who is coping with one less attorney, less office staff and a major rise in "Part 1 crimes" — a category that includes murder, rape, robbery, burglary and theft.
Noting how fewer office staff places more paperwork burden on remaining attorneys, Attorney Kemp says, "We're now more in triage mode." By hanging out in this office, one would see prosecutors deciding which lesser crime to let go of for a later trial date. Misdemeanor crimes are all but gone from the court calendar.
In the same building is the closed child support office. Also if a legislator is in the court building on a Friday, they would see no court proceedings at all. These absences are both due to budget cuts.
Next, on the tour of budget impacts would be the Marie-Drake and Mendenhall River Community School. These are both 30-plus old buildings that languish in disrepair since the elimination of the School Debt Reimbursement Program.
Walking into Marie-Drake, one would immediately notice the poor lighting and ventilation. A stroll into some of the classrooms would reveal that this old building is not an efficient design for students. Not so obvious is the antiquated heating controls that school officials worry will give out any day. Upon stepping inside the Mendenhall River Community School, the need to replace old carpets and wall paint is striking. Less obvious is the water damage to the grounds.
While buildings are one way to show the strain of cuts, the other way is to walk into any middle school classroom and see one hard-working teacher addressing the instructional needs of 30-plus students. With the Juneau School District looking to eliminate 17 teacher positions, over-crowded classrooms will continue. While at the middle school in the Lemon Creek area, I would take a legislator to observe the AVID program, a college readiness program designed for disadvantaged students. Facing less state funds, the Juneau School District is now poised to end this effective and popular program.
If a legislator has the time to drive further out the road, I would stop first at the Alaska Troopers office on Sherwood Lane. While this trooper post is still open, I would note that eight such posts have been completely closed in other parts of Alaska.
Then just past the Troopers office, we'd stop at the Auke Bay Ferry Terminal. There we would see the M/V Fairweather tied up for the winter. Here I would note that the tie-up of this vessel represents a major loss in annual service of Alaska's ferries. As of 2019, the Alaska Marine Highway System will have ferries providing Alaskan communities with 345 weeks of service, instead of the 400 plus weeks of service seen in 2013. Because of the economic dependency many communities have on regular ferry service, these reductions in turn generate negative impacts from Ketchikan to Kodiak.
The bottom line is that from public safety to education to economic life-links, the impacts of state budget cuts are very real and worrisome for a state in recession. The pain is just as visible as is the solution to the fiscal gap. Perhaps with open eyes, the Senate majority will now heed the advice of ISER economists and comprehensively address the fiscal gap while saving millions in lost investment opportunities.