Cracks in the Piggy Bank
The 630 page Statewide Single Audit for last fiscal year came out yesterday. Wait—don’t nod off yet! Auditors don't just catch uncrossed t's and undotted i's, they sometimes shine a light on shenanigans. And while I’ve seen worse audits than this one, I’ve definitely seen better.
There are two really big things the auditors caught this year. Both messes started at the end of the last administration, then Governor Dunleavy doubled down.
Big Issue 1:
Let's take the billion dollar issue first: We lean hard on the Constitutional Budget Reserve to pay for things Alaskans need. We have for 25 years. So how does the money get in there? You'll be shocked to hear sometimes we argue with oil companies about how much they owe. These squabbles often go to court, so sometimes the cash comes in years after it was due. Our constitution says money from litigation and settlements relating to oil & gas taxes and royalties goes into the CBR. (Alaskans first created the reserve after massive oil tariff disputes meant there would be a giant slug of money coming in.)
A few years ago, the Federal Energy Regulatory Commission made a decision lowering Alaska pipeline tariffs. Lower transportation costs means higher values to the oil companies and state, so a bunch of tax and royalty money was due.
But the state inexplicably decided FERC settlements somehow don’t count. That let them keep over a billion dollars out of the CBR in the last three years—a huge dent in our savings. The auditors rightly cried foul.
The governor knows he’s on shaky legal ground here. Tucked away unmentioned in one of his proposed constitutional amendments there's a tweak so tax and royalty money due after a tariff settlement wouldn't have to go to the CBR anymore. Why try to amend the constitution if you don't think you violated it?
Big Issue 1.5:
This mess goes even deeper. See, an oil company can't use a tax credit certificate to pay off settlements due to the CBR. By law, that takes cash. But it appears the administration took at least $15.3 million in oil and gas tax credit certificates to pay these bills.
I say “looks like” and “appears” because the state refused to let the auditor see the files—NEVER a good sign. Hiding the ball from the auditors is a deeply sketchy move.
Big Issue 2:
This one's a Permanent Fund issue. The constitution says “at least” 25% of mineral money goes into the principal of the Permanent Fund. State law says for newer leases, those issued after 1979, it's more: 50%. A few years back, the governor and legislature didn’t appropriate the money (long story,) so the Walker administration put in only the 25% and ignored the higher number on the newer oil fields.
The auditors, ironically (and unintentionally) sounding like a Dunleavy campaign ad, said to follow the law on the Permanent Fund. This one gets into a complicated legal fight about how dedicated funds work. Some good lawyers agree and disagree with the auditors on this one. But here's what's weird: In the last Legislature we tried to solve the problem by putting the disputed amount (about $200 million) into the principal of the Permanent Fund. Governor Dunleavy vetoed it. For all his rhetoric about PFD checks, he's not much for protecting the fund that produces them.
And that's really the bottom line: the administration is unconstitutionally blocking money to replenish our savings account with one hand, while proposing massive overdraws from our investment account with the other. That’s just about the definition of unsustainable.
I appreciate the philosophical stance that all taxes are always bad in every case no matter what. But when you've cut all you can, and you're getting audit findings (and hiding documents from the auditors!) to sneak a few more shekels into the general fund, it's time to reassess. Alaska needs a real fiscal plan, and it needs to include some revenues.
