The budget battles in Juneau this year were bruising, but at the end of the legislative process, the result was hundreds of millions of dollars in cuts and a budget that more closely resembles the one that existed in the mid-2000s. That’s a level more appropriate to Alaska’s current revenue picture; oil prices then were about half what they are today, and production was about double its present level. The decade-and-a-half that followed was a rollercoaster ride for Alaskans: a spike in oil prices that enabled government spending at higher levels than ever before, followed by a dizzying, almost relentless drop from 2015-2018 during which the state’s spending addiction came crashing down.
At this point, few Alaskans need be told that leashing our government spending to the vicissitudes of oil revenue is a bad, bad idea. There has been much discussion of fixing the problem from the revenue side, and solutions on that side of the ledger progressed in the form of 2018′s Senate Bill 26, which enables the spending of a portion of Permanent Fund earnings on government services as well as the Permanent Fund dividend. The rhetoric over that split — as well as other revenues, such as oil taxes or individual income and sales taxes — has become so heated that it threatens to stifle the state government’s ability to do its job effectively.
It’s time to do some work solving the problem on the other side of the balance sheet: expenditures.
Gov. Mike Dunleavy attempted to balance the budget from the expenditure side, but he cut too much, too fast, and lost his political mandate because of it. Cutting a dangerous growth with a scalpel carefully, over time and with an eye toward the welfare of the patient, is called surgery; cutting as quickly as possible with a meat cleaver is called butchery. But Alaskans made their voices heard to their legislators, ultimately resulting in a budget that may not be as small as it eventually needs to be, but which preserves most of the state’s core services at funding levels that let the economy of Alaska adjust to the new normal. The problem, of course, is keeping it that way.
Agreements to be fiscally responsible, or even statutes requiring it, are of little use when push comes to shove. The state Supreme Court has held that the Legislature has free rein to ignore statutes in the course of its budgeting, and history has shown that Alaska’s budget inevitably expands when revenue increases, despite the good intentions of those who intend on not blowing through our next windfall. Believe it or not, the state does have a constitutional amendment imposing a spending cap. Unfortunately, it was passed in 1982 (coincidentally, the year of the original PFD statute), and was anchored to a peak in state spending that has rendered it practically nonexistent since; this year, the state could have spent more than $10 billion rather than the $4.3 billion it used from the general fund and still not exceeded the cap. In the coming legislative session, a spending cap anchored to a year in which spending is at a more reasonable level, would keep Alaska’s spending in check. But just as importantly, it would make discussions about revenue and the PFD easier, because it would be a sign that our government is doing its part to contain spending, not just to increase the pots of money it can draw from. Hand in hand, each fiscal priority aids the other.
Certainly, there would be allowances to make — for inflation and population growth, for instance, and some recognition that occasional emergencies such as the opioid crisis or a major disaster will require that additional resources be brought to bear on a short-term basis. But those should not be sticking points that derail the goal of a state budget held to reasonable spending levels.
Despite the acrimony of the last few months, Alaska has made good progress toward fiscal sanity and a budget that balances. A constitutional amendment resetting the state spending cap at a more reasonable level would help ensure that progress isn’t lost the next time oil prices rise.