Parnell and Walker feud over Alaska's 'fiscal free fall'

With Alaska facing a third straight year of massive deficits, and plunging oil prices threatening to make matters worse, the leading gubernatorial candidates are battling over the budget.

To date, Gov. Sean Parnell has centered much of his attention on what he says was a "promise" by Bill Walker to cut the budget 16 percent in one year without saying where.

Walker in fact said in a Sept. 5 radio interview that the budget needs to be cut about 16 percent. He said he would balance the budget after getting input from agency heads, and that doing it in one year keeps the problem from getting bigger.

But it was no promise or a plan to do so, said his campaign spokeswoman, Lindsay Hobson. "He was not proposing to cut 16 percent in one year; rather, (he was) saying this is what it would take to balance the budget in one year," said Hobson.

Walker now is targeting a reduction of 5 percent and says everything is on the table for review by division managers. "We'll sit down with them and find out what efficiencies can be made and what can be done differently," Walker said.

The shifting goals and lack of specifics have drawn criticism from the Parnell campaign.

"A different day, a different answer from Walker on how he's going to cut the budget," said Tom Wright, Parnell's campaign manager, in a recent statement. "We've seen this time and time again from his campaign; Walker has pulled a number out of the air with absolutely no backup information or specifics."


‘We are in fiscal free fall’

Walker has said it's troubling that he's being attacked for highlighting a problem he says Parnell created. The size of the current shortfall -- based on an estimate in March by economist Scott Goldsmith -- receives prominent attention on Walker's campaign website. A ticker on the home page shows a rolling count of "Parnell's 2014 deficit spending" -- more than $2 billion and growing.

"The irony is we're the only candidate who's talking about our fiscal situation, the $7 million a day of our deficit," said Walker. "We are in fiscal free fall."

Parnell and the Legislature have slowed spending from $7.8 billion in 2013 to a projected $5.8 billion in 2015, figures from the nonpartisan Legislative Finance Division show.

But more reductions will likely be needed. Parnell has not provided specifics on where he would cut.

He is working with budget planners to present lawmakers a budget with hundreds of millions more in cuts next year, said his campaign spokesman, Luke Miller.

Walker said he sees a $5.2 billion budget as sustainable, though that could change over time.

Both candidates say that in addition to holding down costs, they'll grow the economy by developing the state's resources. Walker says he'll stop studying projects to death and will develop such things as oil, gas and value-added industries, including seeing the Alaska LNG export project through to completion on Alaska's terms. Parnell, who launched the LNG project that is now in an early phase, says that he's grown the economy and added 16,000 jobs since he took office in 2009. He said with oil production ramping up under his watch, Alaska won't have to dip into reserve accounts to balance its budget.

Walker said Parnell's claim that new oil production will balance the budget "demonstrates his disconnect with the critical realities facing the state." Walker added that "even the most optimistic assumptions about production increases do not translate into a sustainable budget at the current rate of spending."

‘Balanced’ in the eye of the beholder

Parnell has also come under attack by fiscal activist and oil and gas consultant Brad Keithley for claiming to have "balanced" the budget the last two years.

Parnell said in a campaign email blast sent late last month: "With a balanced budget and record spending reductions I made with legislators, a Parnell-Sullivan ticket ensures we live within our means."

In fact, the state has incurred deficits those two years, forcing Alaska to take $2.8 billion from its savings to cover shortfalls.

Parnell's claim was labeled pants-on-fire false by Keithley, who is trying to raise the profile of the state's looming fiscal woes.

Asked how Parnell can claim he's "balanced" the budget, Miller said in an email the state is not in true deficit spending.

"'Balanced' is perhaps a narrow view for Alaska's circumstances," said Miller. "The Legislature would pass a budget based on the price of oil one day, and the next day it would change, leaving the budget out of balance. Instead, legislators and governors for years have balanced the budget with spending reductions and using savings, without utilizing debt to finance the shortfall -- that would be true 'deficit' spending."

Keithley called such a view "Juneau-speak" and not the commonly understood definition of a balanced budget.

Amanda Ryder, senior fiscal analyst for the nonpartisan Legislative Finance Division, said she agrees with Keithley that the claims of a balanced budget are wrong by any common definition. "Most people don't consider a 'balanced budget' withdrawing from savings," she said.

The 2013 deficit was $776 million, Ryder said. The 2014 deficit was $2 billion.


Miller said the state clearly has a "fiscal gap" because oil prices have fallen sharply to less than $90 a barrel. Walker has said the state was already on track to rack up a huge deficit when oil prices were stable at $105 a barrel.

The state still has more than $10 billion in easily accessible savings, largely a result of the former tax system that heavily taxed oil production when oil prices were high. The savings are in addition to the sacrosanct Alaska Permanent Fund, valued at $50 billion. But economists fear those accessible savings will vanish quickly, leaving lawmakers faced with the prospect of raising taxes or tapping the earnings of the fund -- and therefore threatening the beloved dividend sent yearly to eligible Alaskans.

Ryder said the growth in state spending has slowed considerably since Parnell took office. Parnell said in his Sept. 30 email blast and elsewhere that he led legislators in reducing spending by $1 billion in 2013 and $1.1 billion in 2014.

But the 2013 figure, initially projected as a $1.06 billion reduction, ultimately turned out to be a $460 million reduction. The difference came because supplemental spending was added, and because some money was used from savings to pay bills, Ryder said.

Keithley wrote on his blog that Alaskans deserve a truthful discussion.

With the state facing huge deficits, "it is important that the state's leaders speak honestly with voters" about Alaska's finances, he said.

Alex DeMarban

Alex DeMarban is a longtime Alaska journalist who covers business, the oil and gas industries and general assignments. Reach him at 907-257-4317 or alex@adn.com.