The Friday Alaska Landmine Column: This is what happens when you don’t have a balanced plan
The Senate's swing to a full PFD is the understandable consequence of failing to develop a #balanced fiscal plan and Alaska should expect continued fiscal uncertainty until we do
Over the past few months we have been writing a weekly column, published on Friday’s, for the Alaska Landmine. Beginning earlier this year we also started circulating them through our Substack page. For those interested, the previous columns are collected here. This week’s column appears on the Landmine here.
One of the things we have observed about politics over the past few decades is that if you don’t have an agreed plan that takes into account both the right and left on any issue, results are apt to swing wildly from one ditch to the other depending on who is in control at any given moment.
Alaska is filled with examples of that. At the federal level the area available for oil and gas leasing in NPRA (National Petroleum Reserve – Alaska) has been contracted, then expanded, then contracted again depending on which political party controls the White House. The 1002 area of ANWR (Arctic National Wildlife Refuge) has been closed to leasing, then made available, then effectively closed again.
The Senate’s action this week on the Permanent Fund Dividend (PFD) is the latest example. (As of the time this week’s column is being written the House hasn’t yet voted on whether to concur with the Senate’s changes. For the status of that process, see this update from and continue to follow the Alaska Landmine’s front page and Twitter feed.)
Since former Governor Bill Walker initiated PFD cuts in the middle of the last decade – and despite an explicit state statute providing for another disposition – diversions of revenue from the PFD to the general fund have been used as the main tool for closing ongoing state deficits. As we discussed in a previous column, with one exception – Governor Mike Dunleavy’s (R – Alaska) first year in office when they slightly declined – PFD cuts have risen every year through FY22.
As we have explained repeatedly in previous columns, the outsized losers of that approach have been middle and lower income Alaska families, who have been involuntarily compelled to contribute more, in most cases much more, toward the cost of government than they would under other, more balanced revenue approaches.
The clear winners have been the top 20% – and within that the top 5% and top 1% – who have been able to avoid contributing more than a trivial share of their income toward those costs.
In an effort last year to resolve the ongoing debate about the PFD’s role in an overall fiscal plan and find some balanced approach, the Legislature established a bi-cameral, bi-partisan “Fiscal Policy Working Group” composed of both some of the most progressive and some of the most conservative members of the Legislature. As we discussed in a previous column, somewhat surprisingly given the wide ranging views of its membership, the group developed a plan that, if implemented, would settle the issue somewhere in the middle, at a reasonable cost both to middle and lower income Alaska families and those in the top 20%.
But that plan largely has been ignored since its publication. Instead, both House leadership, through its HB 259, the successor to HB 4003 which we discussed at length in a previous column last December, and Senate leadership, through its SB 199 which we analyzed in our column the week before last, have continued to pursue alternatives which would make deep (and fiscally inequitable) PFD cuts permanent.
In short, despite the middle ground approach outlined by the Fiscal Policy Working Group, leadership in both bodies have continued to push one-sided plans which almost completely protect the top 20% from contributing to the costs of government by shifting the burden instead largely onto the backs of middle and lower income – 80% of – Alaska families.
As a result it should not be surprising that when presented with the opportunity earlier this week due to the absence from key votes of a leading opponent, Senate supporters of a larger PFD – one which reverses the disproportionate distribution of costs to middle and lower income Alaska families – pushed through an amendment to the proposed budget incorporating for the first time since Governor Walker’s 2016 partial veto, a full, statutory PFD.
Like NPRA and ANWR, in the absence of an agreed plan that adopts a middle ground, once the numbers favored their side, those who lost previous rounds took advantage and pushed for their own complete, one-sided victory.
Of course, just like the supporters of PFD cuts have gone too far over the past few years in pursuing their agenda, the supporters of the full, statutory PFD are now pushing too far in pursuing theirs.
Supporters of the Senate action note that when viewed over the two year cycle, the FY22 and FY23 budgets largely balance.
Including the deep PFD cuts still included in the FY22 budget, over the two year period total UGF revenues ($12.52 billion) almost precisely match traditional UGF spending ($12.22 billion).
But the problem, of course, is that just like a plan built only on deep PFD cuts overreaches, so does a plan built on paying a full, statutory PFD without any source of other revenue. As our regular Friday “Goldilocks” charts repeatedly show, while a budget built on a full, statutory PFD (without other sources of revenue) balances in the first year and, with spending restraint, maybe for one year beyond that, based on current oil futures by the third and subsequent years the budget will be sliding deeper and deeper into deficit (red above the line).
In short, the approach is not sustainable.
Regardless of the final outcome of the Senate’s budget – whether the full PFD survives or not – our hope is that this experience is sobering to both sides of the issue. We hope that those pushing deep PFD cuts realize that support for that approach is razor thin and that when presented with the opportunity – as occurred earlier this week in the Senate and may occur as a result of any future election cycle – those supporting larger PFDs are fully prepared to push the result to the other extreme.
Similarly, we hope that those pushing for a full, statutory PFD without other sources of revenue realize that, while achievable in a year with extraordinarily high oil prices and still large volumes, their approach is unsustainable even over the near term.
As we explained during the second segment of our “Weekly Top 3” podcast this week, we are not especially sanguine about realizing those hopes.
We are concerned that, flush from their recent success, those pushing for a full, statutory PFD without other sources of revenue will continue to do so, believing that, just as is happening this year, something serendipitous – continued high oil prices, the ability finally to realize long talked about but never achieved spending cuts – will arrive to support their efforts.
Similarly, we are concerned that those pushing for deep PFD cuts will continue to do so, telling themselves that the Senate vote this week was a fluke and that, if only they continue to push hard enough, their goal of protecting the top 20% from contributing any material amount toward the growing costs of government can finally be permanently ensconced in statutes.
But as we’ve discussed before, neither extreme is in the best interests of ALL Alaska families, nor the overall Alaska economy.
What’s needed instead – as is incorporated in the recommendations of the Fiscal Policy Working Group – is a middle ground approach that deals fairly with both middle and lower income Alaska families and those in the top 20%.
If incumbent legislators won’t, we will be looking for challengers in the coming election cycle who are prepared explicitly to sign on to that plan. If there are enough, perhaps then we will be able to stop veering from the ditch on one side of the road to the other.