Alaska’s fiscal future is in crisis. How did we get here?

How did we get here?

We have the most fortunate budgetary situation of any state, coupled with a political crisis about that very budget. As I write this, House majority members are trying to re-pass a Permanent Fund dividend after Gov. Mike Dunleavy vetoed the first $1,100 PFD we appropriated, and we are working to protect programs like WWAMI and higher education scholarships with the “reverse sweep.” Both the reverse sweep and dividend are a victim of hostage-taking tactics by Dunleavy and his allies, but considering how fortunate our underlying budget situation is, we really shouldn’t be in this crisis at all.

Let’s step back for a moment for perspective: Alaska funds most state operations with earnings from our sovereign wealth investment fund, meaning we can pay for core services like public safety, schools, transportation, and public health without any broad-based taxes — and have money left over to write checks to individuals in the form of dividends. Any other Legislature, and any other group of citizens from another state would find such circumstances too good to be true. Yet they are true, thanks to the foresight of leaders like Jay Hammond, Hugh Malone, Chancy Croft, and many others who passed legislation giving voters a chance to establish the Permanent Fund. The Fund now exceeds $81 billion, and can sustainably generate some $3 billion annually for services and dividends without depleting the Fund’s principal.

For decades, oil revenues funded most of our operating budget and dividends. But long-term declines in oil production, and cuts in oil taxes, meant that mode was no longer viable after oil prices fell nearly 10 years ago. So the Legislature and former Gov. Bill Walker made a logical and necessary decision: restructure our budget to operate from sustainable earnings of the Permanent Fund, with the recognition that the 1982 dividend formula (written at a time of four times more oil production) would no longer be viable in the absence of extremely high oil prices. That was the right decision, but many Alaskans still don’t know we depend on Permanent Fund earnings to fund cops, schools and roads. So when a demagogue ran for governor in 2018 with a fantastical promise of mega-dividends without taxes or service cuts, lack of public awareness of Alaska’s budget provided fertile ground for his reckless promises.

The problem with running a gubernatorial campaign based on a massive lie is that after the election, voters expect what a candidate promised. So with his first budget, Dunleavy proposed massive cuts necessary to pay for mega dividends. Alaskans rebelled (and started a recall campaign to boot) and the Legislature rejected the Dunleavy/Arduin budget, which even Dunleavy acknowledged would lead to massive economic pain and population losses.

In his next budget, Dunleavy proposed raiding the Permanent Fund to pay for mega-dividends, on the premise that spending savings is politically less painful that budget cuts or taxes. Fortunately, legislators, the business community, and many voters recognized that depleting the principal of the Permanent Fund would lead to significant cuts in essential services and higher taxes, and we have now rejected Dunleavy’s raid on the Permanent Fund for years running.

This year, Dunleavy got so frustrated at the lack of appropriations for a mega-dividend that he vetoed large portions of the operating and capital budgets — along with, ironically, an $1,100 dividend. This temper tantrum was so irrational that he vetoed tens of millions of dollars in budget items that his own administration asked for, ranging from deferred maintenance for the University facilities to civil legal services for survivors of domestic violence.

In addition, Dunleavy had House minority Republicans block the “reverse sweep.” Thus, we are working in a third special session that is entirely the result of the governor and his minority allies cutting the dividend to zero and threatening programs like higher education scholarships, WWAMI, unemployment insurance-funded training, and dozens of other critical programs affected by Dunleavy’s reverse sweep. To my astonishment, House minority members have even boycotted a floor session to block advancement of the bill restoring a $1,100 dividend, because apparently they don’t want a dividend unless it’s so large that it drains the Permanent Fund itself.

PCE would be at risk too, except thankfully the Alaska Federation of Natives went to court against the administration and protected this essential program. This crisis is tragic on multiple levels: First, there are literally tens of thousands of Alaskans, from the working poor to students, who are in financial jeopardy because of Dunleavy and the House minority’s reckless tactics.

But the problem is deeper: Dunleavy and the House Minority’s demagoguery around the dividend and all the bizarre and destructive antics that it produces has left our state incapable of looking at our future in a productive way. Fundamentally, we have a balanced operating budget, with a surplus to pay dividends, without any broad-based taxes. At the same time, we have some of the highest rates of child abuse, huge needs to bring down class sizes and expand access to pre-K and early childhood education, and dozens of communities with no law enforcement presence. We need to maintain a balanced budget while addressing these issues, and whether we do that with more modest dividends or with enhanced revenue is a debate we should have and resolve.

As long as we have a demagogue as governor, who refuses to engage in a reality-based debate about policy and recklessly endangers longstanding programs like PCE in a harebrained attempt to fulfill fantastical campaign promises, we as legislators are stuck in damage control mode. Make no mistake, damage control is essential right now. However, let’s look ahead and recognize that with the power and security of a well-managed sovereign wealth fund, we could be the most prosperous state in the nation and not merely manage to avoid the latest governor-induced catastrophe.

Zack Fields represents downtown Anchorage in the Alaska House of Representatives, where he co-chairs the Labor and Commerce Committee.

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. Read our full guidelines for letters and commentaries here.