Increased revenues are bringing Alaska’s budget back to baseline

It is encouraging to see promising signs that Alaska’s revenue shortfall may be temporarily correcting itself. The combination of higher oil prices and production, continued growth of investment earnings, and savings to things like the state’s pension system will result in what feels like “extra” funding for the state. Not only that, but a second round of American Rescue Plan Act funds will be released for fiscal year 2023, as well as a high likelihood of federal infrastructure investments.

Now is a good time to recommit to righting the ship – this isn’t a windfall that will benefit Alaska most as one-time expenditures. Instead, policymakers have the opportunity to reconsider some of the reductions that have been made to the budget over the last seven years and use replenished revenues to adequately fund state programs. This is a chance to avoid budget cuts and vetoes that were made in the name of the fiscal gap; it’s a chance to fully fund commitments that have fallen to the wayside and to reprioritize.

Additional projected revenues give Alaska some breathing room to continue working toward a comprehensive fiscal plan. We can consider a phased, step-wise approach that implements the plan over time. All the pieces remain the same -- stabilize the Permanent Fund dividend, implement a broad-based tax and a spending cap, ensure a sustainable Permanent Fund, work toward reductions that make sense, and address the state’s constitutional obligations, infrastructure gap and a balanced budget.

We can consider this increased revenue as a “back to baseline” approach. It provides the state with the revenue it needs to bring its budget -- unrestricted general fund spending, specifically -- back to a baseline consistent with its responsibilities. That means that the state can afford to fully pay for commitments like oil tax credits and school bond debt reimbursement, fully capitalize Community Assistance and reimburse communities for harbor debt, provide an adequate level of funding for school construction and major maintenance grant and matching bonds program. It means that the state can inflation-adjust its base student allocation for education, attract and retain public safety officers and teachers, reinstitute full funding for the university system, and increase funding for public health, child care assistance, the Alaska Marine Highway System, road and airport maintenance, and matching grants for water and sewer projects.

That baseline doesn’t preclude revisiting the PFD, but it also situates decisions still within the context of a comprehensive fiscal plan. It means a strategic approach to the PFD that ensures stabilization so that Alaskans know what to expect each year and removing it from an annual debate that comes at the cost of so many other priorities.

Right-sizing Alaska’s budget recognizes that where we’re at right now isn’t maximizing Alaskans’ opportunity, and in fact is hurting our economy and social systems, and that this additional revenue acts as a baseline for planning for the future. That doesn’t mean we don’t continue to seek efficiencies and effective delivery of programs, but it considers those as part of an overall fiscal policy that includes all the other components.

Instead of fitting this all into a 30-day window to solve, it may be that Alaska has a few years to work within. We can look forward to the second year of this Legislature, and the opportunity to conduct appropriate analysis and vetting as policy makers work on the immediate and the long-term. We have maybe a two-year window to keep at it, having better insight right now into where the economy and revenues are headed, and having some ability to plan for adequate revenues over these two years. That also means that things that may not get solved in an election year can be focused on in the first year of the following Legislature, and work done between now and then to move quickly if needed.

Having revenue sufficient to reset our baseline -- to fully fund programs and partnerships that have borne the brunt of the state’s structural budget deficit -- gives us a window within which we can implement a comprehensive fiscal plan. It’s a window that isn’t rushed, but that involves a step-by-step, iterative approach to addressing Alaska’s sustainability.

Nils Andreassen is the executive director of the Alaska Municipal League.

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