In midst of health/economic crisis, Alaska legislators deliver reasonable budget

The Legislature deserves credit for its action on the budget early Sunday. It won’t get much from those who measure everything in terms of immediate checks from the state government, but leadership isn’t easy.

The compromise plan approved by a bipartisan group of Republicans and Democrats calls for spending about $700 million in Permanent Fund Dividends and for all but draining the Constitutional Budget Reserve.

The near liquidation of the budget reserve is nothing to celebrate, but this is a desperate moment for the country and the state. Given the circumstances and the lack of time, the Legislature had nowhere else to turn. Years of opposition to a balanced fiscal plan collided with the sudden health crisis and crippling blows to the Alaska economy.

The budget for the fiscal year that begins in July is not sustainable.

But it is a measured response to an unprecedented crisis and it leaves room for the Legislature to do more depending upon what happens in the next few months. Spending more money in a targeted fashion to help those hardest hit, as opposed to giving it away to everyone, is the best option.

An unsustainable withdrawal from the Permanent Fund may be necessary. I think the legislative consensus that withdrawals need to be limited if the fund is to survive is sound thinking and good financial management.

If we wait a month or two we will have a clearer picture of the health and economic damage to Alaska. We will see how the federal bailout law is being implemented and what else may be needed from beleaguered state finances.

There has been no leadership on the budget from Gov. Mike Dunleavy this year, though maybe we should be thankful, given what his leadership last year did to Alaska. He withdrew from decision making after the recall effort threatened his political survival. Since he began political distancing, Dunleavy has been all talking points, all the time. He gave no guidance to the Legislature, choosing to sit back and suggest he will resurrect his failed 2019 plan for massive cuts to services if the Legislature doesn’t fix the problem.

He could choose, as governor, to repeat his actions of a year ago and veto hundreds of millions in state spending from health care, education and other services, but that would fire up the recall machine and further cripple the Alaska economy.

The end of the Constitutional Budget Reserve and the collapse in oil prices and the stock market means that a year from now, the state will have no option but to rely in large measure on earnings of the Permanent Fund—and no one knows how much will be available—to pay for state and local government services from schools to health care and road maintenance.

Basic services require funding and that has to come from the fund. A lot of people argue about this, but when I voted for the Permanent Fund constitutional amendment in 1976, it made sense because most people understood that oil money would not last forever and that was a way of extending the benefit of a non-renewable state resource.

A month ago I wrote here, not for the first time, that we need an income tax, higher oil taxes and a PFD cut. If the dividend is to continue in any size, we need a state fiscal plan, something that doesn’t exist yet.

The health crisis and the economic crisis—both of which are much worse than they would have been under a competent president—have accelerated so quickly that it would make little sense to enact an income tax right now. An increase in the gasoline tax, yes, but the state should hold off until next year on an income tax as part of a fiscal plan.

An oil tax increase is still a good idea, but the collapse in prices should worry everyone. The possibility of a slowdown in development is real, given the worldwide chaos in the oil market.

A $1,000 PFD, costing about $700 million, is an expense that we can’t afford, but should continue this year because of the economic collapse.

Any action taken now has to be made with consideration for the present and the future. It requires a balancing act.

That is what the subset of elected officials worried about their next election have a hard time incorporating into their plans.

All of this would have been more manageable had the GOP Senate not blocked all tax proposals under former Gov. Bill Walker. It would still be a mess, mind you.

The extremists will attack the Legislature for only approving $700 million in dividends, claiming it should be $3 billion under the Dunleavy plan to give away money as fast as possible to everyone, regardless of need. They also won’t discuss the big secret within this approach—the federal government, through income taxes is the biggest beneficiary. Out of that $2.3 billion, about $300 million or more would be paid in federal taxes.

That $2.3 billion is irreplaceable and has the earning power to generate billions of dollars in the decades to come, a future benefit ignored by those who would spend it now.