Pink slips- ten thousand were recently mailed out to nervous state employees that could take effect July 1st. The state budget storm clouds darkening Alaska’s horizon can be attributed to the Boneless Chicken Ranch Caucus made up of State House Representatives Jim Colver (R), Gabrielle LeDoux (R), Paul Seaton (R), Bryce Edgmon (D), Neal Foster (D), and Louise Stutes (R) who signed a letter sent to House Speaker Mike Chenault refusing to vote to fund the budget out of the Earnings Reserve per our state constitution. What caused the members of the House Majority Caucus to turn invertebrate and not fund the budget? The politics of perception.
This story is complicated if you will bear with me a little as we do a quick dive into the weeds. Alaska has three savings accounts. The first is called the Statutory Budget Reserve (SBR). It can be accessed with a simple majority vote and was fully depleted over the last three years to fund Alaska’s multibillion dollar annual deficits. The second account is called the Constitutional Budget Reserve (CBR) which has about $10 Billion in it that can only be accessed by a ¾ supermajority vote. The State Senate has the votes to access this plump account whereas the State House does not. To get the necessary number of votes in the State House, the minority caucus wants to spend another $100 million on varies areas including a public union a cost of living (COLA) pay increase and Medicaid expansion- hence the stalemate.
There is a third savings account accessible with a simple majority vote called the Earnings Reserve (ER). This account was setup when the Alaska State Constitution was amended in 1976 by Alaska Governor Jay Hammond to set up a perpetual annuity for the citizens of Alaska and to fund state government when oil revenue started to wane. Every year a portion of oil revenue is deposited into the Permanent Fund (PF) that is fund surrounded by constitutional razor wire and is therefore unspendable by the state legislature and has about $54 Billion in financial assets. The interest generated from PF is deposited into the separate Earnings Reserve (ER) account. The Alaska State Constitution in Article 9, Section 15 says, “All income from the permanent fund shall be deposited in the general fund unless otherwise provided by law.” The “otherwise provided for by law” provisions for the Earnings Reserve are to payout our annual dividend checks and to inflation proof the principal of the PF (which was big consideration back in 1976 when double-digit inflation was decimating savings accounts). Today there is approximately $6.4 Billion in the ER account.
“I wanted to transform oil wells pumping oil for a finite period into money wells pumping money for infinity.” – Governor Jay Hammond, father of the Alaska Permanent Fund and the Alaska Permanent Fund Dividend
Enter politics- the house minority caucus wants to keep the debate focused on tapping the Constitutional Budget Reserve (CBR) to fund our $3.1 Billion FY2016 deficit because they can extract financial concessions in exchange for their votes. A simple majority vote to tap the ER would render their additional spending cries mute. Hence, they and their supporters in the media have opened up a public relations smear campaign on the majority caucus implying they would be spending the principal of the PF (which of course is a blatant untruth). Everyone knows Alaskans love their PF and just being associated with spending it crosses all party lines and is political suicide. This threat was enough scare the bones out of the chicken caucus into a clucking feathered morass and hence- our present budget impasse. So what if they ignore the budget solution set forth in the Alaska State Constitution they took a solemn oath to uphold- all politics is perception, and good perception is the key to political longevity. Many political groups are not fooled by these political machinations and will be raising PAC money to fire up the deep fryer to give them the Colonial Sanders treatment in the upcoming 2016 election. However, I digress.
Oh it gets even better. House Bill 2002 is gaining support to avoid paying the ransom demanded by the minority caucus to access the CBR and for avoiding getting their image getting sullied by the minority with a deliberate mistruth. There is a rule that would allow the CBR to be accessed with a simple majority vote if the state were in a cash crisis. How about artificially creating one by dumping the ER into the PF? HB2002 would transfer $4.9B of the ER into the PF to access the CBR this year. Next year, a further $1.5B would be transferred to access it again for a total of $6.4B transferred. Instant problem solved. Oh really?
Most moderates in the center are gathering around this politically expedient path of least resistance where politicians tend to congregate and cluck. This idea is horrendous to those on the far left and the far right. It would instantly deplete 40% of Alaska’s accessible cash reserves, threaten our state bond rating, and bring Brad Keithley’s much warned about “fiscal cliff” closer from 3 years to 2. On the left, tens of thousands of state employee jobs, Governor Walker’s natural gas line, and public programs could face the axe when Alaska runs out of cash much sooner and can’t tax enough to fund them. On the right, massive new state income taxes and industry killing oil taxes could arrive much faster if profligate spending can’t be wound down fast enough- and this year’s legislature is a very bad omen. Those dreamers who think that this stunt will force state austerity sooner without the accompanying crippling state taxes- I have a fully funded natural gas line to sell them. HB2002 would be politically expedient if not financial self-immolation to both the left and the right.
I support the straight ER draw per the Alaska State Constitution despite the inevitable political smearing that would come from the house minority. Elected servants forget that it is not about them and their reelection- it’s about the good of the Alaskan citizens whom they represent. The State House is wrapped around the axle about this smear threat because they are up for reelection in 2016 whereas the State Senate is not.
There is a great long-term solution that avoids unnecessary state layoffs, doesn’t require any new taxes, and preserves the current Permanent Fund principal and dividend check amounts indefinitely. It requires reducing annual state spending to $4.5B (currently about $5.3B is being debated by the State House to spend in FY2016 beginning July 1st, down from $6.2B spent last year). The University of Alaska Institute for Social and Economic Research (ISER) think tank has calculated that Alaska can spend $4.5B per year indefinitely without instituting any new taxes or reducing the PFD check. That number comes from approximately $2.2B in state revenue plus an annual draw from our ER annuity. The solution is pretty simple and was written into our state constitution.
If you feel strongly about this issue, please contact your state legislator. Thousands of state layoffs and a state bond rating downgrade could occur on July 1st if they don’t hear from you. Please call, write, fax, or email at: firstname.lastname@example.org.