Are we having a constitutional crisis in Alaska? The wholesale rejections of budget cuts by the Senate and House are remarkable. The Senate and House leadership have ignored Gov. Mike Dunleavy’s zero-based budgeting. Fortunately, we are a year ahead in funding our schools, given last year’s forward-funding of this year’s budget. Because the education budget was funded for $1.6 billion last year for this year’s operation in fiscal 2020, the budget is actually in surplus.
In order to look at the fiscal status of our towns who are screaming for more state money, I went online. On the website of the Division of Community and Regional Affairs, you can find the audited financial statements for each town and borough in Alaska.
Let me give you a couple items I found in my reading of communities’ financial statements. First, some accounting terms: A community’s “net position” is assets less liabilities. Similar to net worth, but for nonprofit groups and government. It’s used as a judgment of the financial health and wealth of towns.
Two boroughs in Alaska have net positions in the billions, Anchorage at $3.6 billion and the North Slope Borough at $2.5 billion. Both have their own permanent funds, the North Slope at $645 million and Anchorage at $165 million. The City of Valdez also has a permanent fund of $205 million, as well as a net position of $591 million.
Juneau has a net position of $952 million. The Mat-Su Borough has $889 million; the Fairbanks North Star Borough $531 million. Sitka is $370 million. Kenai, $239 million. Ketchikan, $171 million. The top 10 wealthiest communities have a combined net position of $9.8 billion, with another $1 billion in local permanent funds. I’d say our towns are pretty stable (perhaps a bit overweight) and have excellent reserves to manage their responsibilities. Revenue sharing? What for?
When I ran for the state Senate, I campaigned on protecting the Alaska Permanent Fund and its dividend and reorganizing state government agencies. We are blessed with abundant assets. We must manage them wisely. The Alaska Permanent Fund Corporation has a net position of $47.2 billion and an earnings reserve of $18.9 billion. So much for the notion that we don’t have the money for full dividends. Indisputably, we do.
In addition to APFC, we have far overcapitalized state agencies. Alaska Housing Finance Corporation has a current net position of $1.5 billion. The Alaska Industrial Development and Export Authority, $1.3 billion. Alaska Energy Authority, $1.5 billion. By combining the three, we save millions per year in overhead, just as we did when combining Alaska State Housing Authority with AHFC decades ago. Here’s the good part: Leaving the three with a net position of $300 million, plenty to accomplish their missions, we could transfer $4 billion to the general fund or the Alaska Permanent Fund. Or, we could balance our budget for the next three years. The people should make that choice.
Sen. Natasha von Imhof has described paying out the full dividend as “fiscal insanity, irrational and irresponsible." That description fits raising oil and gas taxes, putting on a personal income tax and taking more money out of the private sector when we have such huge surpluses. Full dividends are earned and due according to Alaska statute. They strengthen the Alaska economy.
I am not suggesting that we do not cut the budget or use the governor’s approach of zero-based budgeting. I support both initiatives as a way of building a strong economic base for Alaska. Reading the financial statements and applying what is learned proves that. Our communities are well set to take on the local challenges we face.
The recent new oil discoveries and increased oil and gas production plus the increasing price of crude brings us closer to the goal of financial stability in Alaska’s cash flow. Reorganization can allow us to focus on repositioning assets to invest in Alaska and grow our private economy. While meeting our public responsibilities, we have the funds to choose our future. Texas has a permanent fund, started in 1854, that just topped $44 billion in August 2018. Of 10 states with permanent funds, ours is by far the largest. By utilizing assets wisely, our private sector can grow instead of funding another huge expansion of the public sector. Reorganizing our public sector is fundamental to our long-term health.
There are real financial consequences of focusing only on preserving the bloated state or local governments. Alaska’s small business community is starved for capital and has been for decades. Look at the oil tax credit fiasco for proof. We need to build private-sector jobs to insure that our kids don’t move out of state for lack of opportunity.
The Alaska Permanent Fund invests $66 billion. The Public Employee Retirement System invests $18.4 billion, the Teachers’ Retirement System $8.9 billion, AHFC, AIDEA and AEA $4.3 billion and the University of Alaska $1.8 billion. That’s $99 billion, virtually all invested outside Alaska. Agency investment contractors redline Alaska investments with our own money.
Alaska’s investment contractors invest Outside, excluding Alaska’s private sector. By comparison, the Texas Education Fund (their permanent fund) by Texas statute invests half of its investable funds in Texas and half of that in Texas real estate. Texas enjoys the fourth-strongest state economy in the U.S., while Alaska is stuck in last place at #51. Using our assets and fostering sound business investment, using the proven Texas model, can grow our private sector economy, not continue to stifle it.
Jim Crawford is a third-generation Alaskan entrepreneur who resides in Anchorage. The Alaska Institute for Growth is a local think tank that studies and reports on and may sponsor projects of sustained economic growth for the Alaskan economy.
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