What Do We Do Next?
The Fiscal Policy Working Group officially finished our work Monday just before the special session started. The report is out!
I talked on the senate floor about how we got to our recommendations, but the short version is: this was a very diverse group of legislators, and getting to some basic agreement was a big deal.
Oh, there are parts of the report I don’t like. No one got everything they wanted. But taken as a whole, it's balanced and financially sound. Now it just has to survive our colleagues and the governor.
Here are the highlights:
- Protect the whole Permanent Fund in the constitution. No more principal/earnings distinction.
- Don’t overdraw the fund. Limit withdrawals to a percent of market value.
- Base the dividend on a share of the POMV.
- Constitutional certainty for the PFD.
- Healthy capital budget.
- Substantial new revenues.
- Budget reductions & spending cap reform.
- Any “transition period” is one time only.
We also agreed we need to build a plan that stands up to fiscal stress tests. Alaskans can't just cross our fingers and hope our financial wishes come true.
That's the outline. Here are the questions I've gotten the most so far:
What’s this “transition period”?
No matter what we do—cut the state budget, pass a tax, constitutionalize the PFD, all of the above—nothing happens overnight. So with the savings gone, how do we get through the next two or three years? The governor proposed a $3 billion overdraw from the permanent fund to get us over the hump. I disagree. I think we should step dividends up each year until we reach our target (probably 50/50) so there's a rising, predictable PFD as we implement revenues and other measures to close the deficit. The group didn't agree on the transition, but we were united in saying that whether we buy time with PFDs below the target or an overdraw, Alaskans need to be sure it won't just keep happening.
What does “constitutional certainty” for the PFD mean?
We agreed there needs to be a PFD. The only way to guarantee that is to put it in the constitution. But how, exactly? We could set a specific formula—something like 50% of each year's POMV draw. Or the constitution could say the state must pay a PFD every year, but leave the calculation in statute. That takes the PFD out of the annual budget fight. If you want to change it, you'll have to pass a bill. Crucially, it also lets future Alaskans do just that. So it will make sense for the state when things change. (If the population shrinks and the fund surges, do Alaskans want a universal basic income? If the population explodes and the fund barely grows, is a miniscule check worth doing?)
Why broad based revenues?
I've thumped on this one before. Today, Alaska's budget comes from oil and the financial markets. That's it. When the economy is growing and robust, we need the state to provide more services for a growing population—from schools to roads to public safety. So there should be a connection between that growing economy and the resources our government has to support it. And we shouldn't hit struggling Alaskans harder than wealthy ones (or let nonresident workers off the hook.) That’s why I support an income tax. (To be clear: the group didn't agree on a broad-based tax type.)
Why spending cuts?
We've been cutting Alaska's budget for years. Services to Alaskans have suffered. You won't be surprised to hear I don't think we need more of that, especially since for years we've heard that once the cuts are made, it'll be time to talk about revenues. Still, the compromise we struck was to cut from the base budget projection. That base included a 2% annual growth in state costs. I'll confess I'm a little dubious, but I think we may be able to hold overall spending below that level without decimating the services Alaskans need.
Please send me any questions you have left when you've read the report. I've asked my colleagues—especially the Finance Committees—to take up the pieces of the package during this special session. There's still a lot of work ahead of us.
