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We Build Alaska

Brad Keithley’s chart of the week: Everyone knows what the answer is, so why aren’t we doing it

There have been two constants in the last three 10-year plans produced by the administration of Governor Mike Dunleavy (R – Alaska) preceding the latest one. The first is that the administration has underestimated actual unrestricted general fund (UGF) spending in the years ahead. The second is that to balance the projected budget even at those lower levels the administration has relied on some form of “new revenues.”

Here’s the actual amounts of UGF spending for FY20 thru FY23 (dark blue, solid line), as derived from the Legislative Finance Division’s (LegFin) “Budget History” spreadsheet, compared to the projections (colored, solid lines) made in each of the administration’s previous 10-year plans.

While the FY21 plan came close to projecting actual UGF spending in FY21, the FY21 – 23 plans all have significantly undershot actual spending levels since.

Because of slight differences between LegFin and the administration’s projections of current, FY23 UGF spending levels, the most recent, FY24 10-year plan (orange, dashed line) appears for the moment to overstate actual spending levels (as projected by LegFin), but that’s before supplementals and other adjustments that will likely reconcile the two.

But the real story is that, while not always transparently, the Dunleavy administration consistently has included additional, “new,” revenues in its 10-year plans to meet even those artificially low projections.

As reflected in the chart, in each plan the Dunleavy administration has relied on some form of “new revenues” to balance its projected budgets. Put another way, even at the lower spending levels they have projected, each of the plans have admitted “new revenues” are required to balance the budget in both the near and longer-term.

Despite consistently admitting the need for “new revenues,” however, the 10-year plans have been hugely inconsistent about what the source of the new revenues should be.

Sometimes (as in the FY22 and FY23 plans) those “new revenues” have been the diversion to UGF of a portion of current law (statutory) Permanent Fund Dividend (PFD) revenues. Other times (as in the FY21 plan, “Scenario 5: Balanced Approach”) the “new revenues” have been a combination of diverted PFD revenues and a line specifically identified as “new taxes.” In the most recent FY24 plan, the amount of “new revenues” included in the plan are reflected entirely in a line titled “New Revenue Target.”

To us, the most straightforward approach came in the FY21 plan. There, in its “Scenario 5,” the administration recognized that any solution must be “balanced” among three approaches:

Scenario 5 applies a balanced methodology to the budget that includes reductions, revenues, and a change in the calculation of the PFD. It proposes continued reductions in the $300-$500 million range. … Beginning in FY 2022, the draw from the ERA, will be divided equally between the PFD program and revenue available for government spending. This approach has been commonly referred to as the 50/50 POMV.

… Even with these two actions, there will need to be an additional source of revenue to balance the budget …. The past several legislative sessions have illustrated that solutions need to be moderate to earn the people’s approval. Previous proposals involving budget reductions, PFD decreases, and taxes faced skepticism when the Alaskan citizenry believed that they went too far. Proponents of a balanced approach suggest that everyone give a little so that no group of Alaskans faces undue harm.

Regrettably, the administration has wavered from that approach in its subsequent budgets and 10-year plans. Apparently trying to avoid any consideration of “taxes,” the administration in the next two subsequent plans proposed relying solely on PFD cuts (to POMV 50/50) to provide the needed new revenues, and most recently, reversing that, a completely unsupported level of new revenues that, as we explained in last week’s column, is “pie-in-the-sky.”

But while the administration has avoided revisiting it, the need for the “balanced approach” outlined in its FY21 10-year plan has become, if anything in the intervening years, even more clear.

As we noted earlier in this column, the spending levels projected in the 10-year plans consistently have fallen short of actuals. And while, somewhat in response, the FY24 plan projects significantly higher levels than those in the two plans before it, as we explained in our column two weeks ago, even those levels fall woefully short of where spending likely is headed on its current trajectory.

The administration was correct in its FY21 plan – in order to respond to the situation “so that no group of Alaskans faces undue harm … everyone [needs to] give a little.”

The administration is not the only one who, at least at some point, has recognized the need for a “balanced approach.”

Seeking a realistic solution to the ongoing fiscal battles, in the Fall of 2021 the legislature created a bicameral, bipartisan “Fiscal Policy Working Group” to look at the issue. Composed of both some of the most conservative as well as some of the most progressive members of the legislature, few initially gave it a chance of arriving at a consensus.

But it did, and that consensus sounds very similar to the conclusions reached in the administration’s FY21 10-year plan. The Working Group recommended a package that included some spending cuts, some PFD restructuring and some new revenues, along with various mechanisms to ensure each remained in place.

As did the administration’s FY21 10-year plan, the Working Group (referred to in its report as the “FPWG”) emphasized that all three components need to move together:

The FPWG believes the legislature must pass a comprehensive solution. FPWG members do not support addressing only one or two issues to the exclusion of others.

But rather than pick up on the Working Group’s 2021 efforts (as well as its own FY21 10-year plan) and run with it in subsequent budgets and 10-year plans, the Dunleavy administration has gone backwards, relying first in its FY23 budget and 10-year plan on only two components – spending cuts and PFD restructuring – to balance the budget, and now, in its FY24 budget and 10-year plan almost entirely on fairy tale revenues.

We get that the administration wants to find a pain-free solution. The FY24 10-year plan is explicit on that point, by claiming that there are “new, stable, sources of revenue that [can] support State programs without an imposition on Alaskan residents or businesses.”

But, as we explained in last week’s column, the administration has offered no evidence that those exist at anywhere near the level required to close the deficits even the administration admits exist, much less the much more realistic, higher levels that Alaska actually is likely to face in the years ahead.

The simple truth is that Alaskans, themselves, will have to contribute something toward the costs of their own government.

As we put it last year, the fundamental question is simply which Alaskans – who pays – and in what share.

As the administration correctly put it in its FY21 10-year plan – and as the legislature’s 2021 Working Group reinforced – the solution should be a balanced approach, consisting of some spending controls, some PFD restructuring and some new taxes, “so that no group of Alaskans faces undue harm.”

So why then, if both the administration and the legislature recognize that’s the appropriate approach, has neither moved to implement it.

As with most things, the answer lies largely in following the money.

As we’ve explained in previous columns, while middle and lower-income – 80% of – Alaska families would be better off substituting taxes for all or a portion of PFD cuts – the third leg of the “balanced approach” – the wealthiest 20% of Alaska families would be required to contribute a bit more.

And even though, after contributing that “bit more,” the wealthiest 20% would still be contributing less as a share of income than most Alaska families are contributing using PFD cuts, the wealthiest 20% – and their allies in the Legislature and administration – still resist implementing the balanced approach because they would have to pay some more.

In short, they don’t care that the remaining 80% of Alaska families have to face the “undue harm” the FY21 10-year plan warned about. They are more focused on ensuring that they don’t have to give even the “little” that plan proposed.

Ultimately, we may achieve the balanced solution that, at various times, both the administration and Legislature have acknowledged is the one that works best. But it won’t be until the wealthiest 20% – and their allies in the Legislature and administration – accept that they have to “give a little” also.

Brad Keithley is the Managing Director of Alaskans for Sustainable Budgets, a project focused on developing and advocating for economically robust and durable state fiscal policies. You can follow the work of the project on its website, at @AK4SB on Twitter, on its Facebook page or by subscribing to its weekly podcast on Substack.

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1 year ago

My property tax was $900 in 2005. Now my taxes are $3600. Same house built in 1953. Nine hundred square feet of antiquity. When I moved here even a tire salesman could afford a house here.
Now I seriously doubt it now.
What is the future for the common them or they’s.

RG Geiger
1 year ago

Can’t help but wonder who is that 20% in the wealthiest group. Could they be the least productive sector of the economy, Goverment workers themselves and early retirees (15 years! ) collecting Goverment pensions. Only way to get their money seems to be the sales tax but thats assuming they still even live in Alaska.

1 year ago

No thank you on an income tax.