Bill Brokaw isn’t a freeloader. At 83 years old, he moved to the Alaska Veterans and Pioneers Home with his 80-year-old wife eight months ago. For Bill, the move wasn’t strictly necessary, but he joined his wife at the home to help her, he says, as she has Alzheimer’s disease. Both are veterans. Bill pays for their two rooms with a mixture of funds from Medicaid, the VA and his own pocket. His personal share, he says, amounts to $1,742 per month, an amount he can manage on a fixed income. But under Gov. Mike Dunleavy’s budget plan, the Brokaws’ financial picture would quickly fall apart: Under the proposed new cost structure distributed to residents last month, costs for the couple would more than double. And there’s no guarantee that aid would scale with the fee hike, so Bill’s personal outlay could jump by well more than that. He’s worried about eviction.
Stories like Bill’s have poured in to town halls, legislative hearings and Alaska newspapers in the month since Gov. Dunleavy released his budget. Individually, they could have been considered outliers or isolated hard-luck cases. Collectively, however, they form concrete evidence that the governor’s budget would be too much of a fiscal shock to Alaskans and the economy for our state to absorb. Even under a best-case scenario, 7,000 full-time jobs in Alaska would be lost, according to economist Mouhcine Guettabi from the University of Alaska Anchorage’s Institute for Social and Economic research. Given that Alaska’s total nonfarm employment is roughly 330,000 total, that would be a jump of more than 2 percent in the state’s unemployment rate, which at 6.5 percent is already the highest in the nation — far above the overall U.S. unemployment rate of 4 percent.
It took Alaska many years of abundance to reach this level of government spending, and unwinding that growth in one year would be too shocking to the state. Recognizing this fragile moment in Alaska’s economic recovery and the likelihood that cutting $1.6 billion from state spending in a single year would send Alaska crashing back into a recession, members of the Legislature’s Senate Finance Committee have floated their preference for a ‘shock absorber’ solution. This approach would have the state use Permanent Fund earnings to provide a bridge while legislators determined how best to close the gap between revenue and expenditures. This means lowering the PFD for now while the state makes needed but rational cuts to spending over a period of a few years. The Senate’s new plan would offer state services such as education, the university and health care a glide-path to a new normal. It will take political will and discipline, but compared to the governor’s plan, it’s a more responsible approach.
It will also certainly be unpopular with those hoping for a fat dividend check this fall, as the money to help bridge the revenue gap would be taken from the Permanent Fund’s earnings reserve allocation that also feeds the dividend. It would be a similar approach to reductions made last year under Senate Bill 26, which set up a mechanism for splitting earnings between dividend checks and funding state services. It would also be a disappointment for Gov. Dunleavy, who made a pledge to fully fund dividends using the statutory formula the centerpiece of his campaign.
But disappointment is better than disaster, and paying out full dividends at the expense of the state’s bedrock services would risk the latter to avoid the former. Legislators must reduce state expenditures — it will make the task of closing the revenue gap that much less difficult to manage. But to do so quickly, without taking the time to look at the likely impacts of those cuts, would result in social and economic harm from which Alaskans like Bill Brokaw and his wife can’t easily recover.