What Kind of Alaska do we want?

A packed crowd gathered at the 49th State
Brewing Company on December 10, 2019  for Alaska Common Ground’s fiscal
forum entitled What kind of Alaska do we want? How
do we get there?
The discussion
featured Senator Natasha von Imhof, Co-chair of the Senate Finance Committee;
Anchorage Mayor Ethan Berkowitz; CIRI Government Relations Vice President, Greg
Razo; Institute of Social and Economic Research economist, Mouhcine Guettabi;
and Atwood Chair at the UAA Department of Journalism, Larry Persily. Thea Agnew
Bemben of Agnew::Beck moderated. The goal of the event was to increase public
knowledge and understanding of the realities of Alaska’s financial situation,
and of potential measures to achieve a positive fiscal future.

Senator von Imhof launched the forum with a
well-illustrated dose of reality (see her presentation slides
). “We are at a
crossroads!” she said. Alaska cannot stay solvent if the state continues to pay
dividends at, or even close to, the current statutory amount. She wants the
legislature to find middle ground for all spending and establish a spending
cap. Though she believes there are still government inefficiencies to be
corrected, she noted that “It takes time and focus and energy to find more
efficiencies…large cuts have to be walked back.”

She and other panelists highlighted the fact that Alaska’s primary
source of revenue for government spending is now through management of the
Permanent Fund as an endowment under Senate Bill 26. State revenue from this
source now exceeds revenue from petroleum production, and, based on current
projections, will continue to do so. The statute established 5.5% as the
percentage of the market value available from the Permanent Fund this year.
Next year it will be 5%. Other endowment systems were studied, and percentages
were carefully gaged and set to protect the principle of the fund.

Greg Razo noted that Alaska’s public
spending must recognize the food insecurity in villages where part of the
economy is subsistence hunting, fishing, and gathering. Climate change is
threatening this ancient and traditional part of Alaska’s economy.

Mayor Berkowitz described how once
generous state assistance to Anchorage has been reduced over the years to a
pittance. Now the state does not even clear sidewalks on state roads within the
municipality. He sees great potential to build the earnings of the Permanent
Fund by investing more money in it. The Mayor advocated dividing the growing
“percent of market value” earnings three ways to establish an ongoing percent
for municipalities, for state services, and for dividends.

Mouhcine Guettabi and Larry Persily
took the lead in emphasizing the economic value of quality of life and the fact
that attracting people and economic development to Alaska depends greatly on
having good state educational systems, transportation, and other public
services. Persily concluded by telling people to look at the math, face
reality, and find the revenues to build the secure and prosperous state that we
want. All speakers noted that establishing ongoing fiscal predictability and
stability would be an economic stimulant. The need for new revenue sources,
such as taxes, was mentioned frequently in describing a positive fiscal future
for our state.

The event was audio recorded by Alaska
Public Media, livestreamed on Facebook, and video recorded by Jenson Hall
Creative. You can watch the video here. Co-chairs of the planning committee for this forum were
Janet McCabe and Cliff Groh. Cliff Groh has written a series of articles for
the Anchorage Press on Alaska’s fiscal issues. You can read one here. If you want to read them all, search for Cliff Groh at anchoragepress.com.

It’s Probably Worse than you Think

By Cliff Groh, Nov 4, 2019, Anchorage Press

Alaska’s fiscal outlook is bad due to factors
such as drooping oil prices, long-falling Alaska oil production, and an absence
of broad-based taxes. The non-partisan Alaska Legislative Finance Division
projects that starting next year, the State faces annual deficits exceeding $1
billion under current law and the most likely assumptions.

But that gloomy scenario probably understates
our fiscal squeeze. Numerous other factors either threaten future revenues or
create pressures for spending to increase.

Let’s start by looking at some of those upward
pressures on the budget: the unfunded liabilities of the state government’s
pension systems; the capital budget; and refundable oil tax credits.

The State of
Alaska is paying off the unfunded liabilities previously built up in the Public
Employees’ Retirement System (PERS) and the Teachers’ Retirement System (TRS)
under an officially adopted payoff plan that runs at least until Fiscal 2039.
Actuaries project that the annual installments under that plan will increase
every year but one, and also project that those installments will total more
than $8 billion over the decades. Changing demographics and shifts in financial
markets, however, could increase that total price tag over the next two

The capital
budget was probably too large in some years of high oil revenues. That spending
for buildings and other infrastructure has fallen substantially in the last half-dozen
years, however, and this year it is less than $150 million in General Fund
spending. Experts see that number as too low. The Office of Management and
Budget estimated in 2018 that the State of Alaska has needs for deferred
maintenance totaling $1.87 billion. One observer’s calculation is that the
annual capital budget should be at a minimum tripled to start catching up on
that backlog.

Then there’s
refundable oil tax credits, an obligation which the Alaska Department of
Revenue estimated at $700 million in June of 2019. The State has proposed to
pay off the credits through a bond program now in litigation while paying zero
for the credits in the current year’s budget. The obligation to pay the oil tax
credits is much weaker legally than the obligation to pay in full the pension
system benefits, which are explicitly protected in the Alaska Constitution.

Now let’s turn to
the revenue side of the equation. Climate change poses a systemic fiscal danger
to our state.

The evidence of
this global phenomenon is all around us. Humans are changing their behavior in
reaction to the changing physical world. The use of electric cars may blow past
gasoline-powered vehicles by 2040. Oil companies are changing their names to
shed their oil-only images and are focusing increasingly on wind, solar, and
other renewable sources. Carbon taxes are likely to further reduce the demand
for oil worldwide. At least one major energy producer—Norway-based Elsinor
(formerly Statoil)—has projected that oil demand could start to decline by
2030, as Alaska Public Media’s Elizabeth Harball noted in 2018.

Climate change
already appears to be reducing oil production from Alaska’s North Slope, as
long-time oil industry observer Tim Bradner has pointed out. The Arctic is
warming at rates twice as fast as regions further south, and those higher
temperatures thaw permafrost and reduce the efficiency of oil-producing

The climate
change news will probably get substantially worse for Alaska. Energy companies
recognize that there is a growing possibility that the warming planet will lead
to significant amounts of oil now ticketed to be produced to end up in the
ground unburned. Some of that oil stranded by climate change is likely to be on
the North Slope, in part because that region is expensive to work in and
high-cost provinces are most likely to be the home of stranded oil.

Over the next
year—and over the next 10 years or so—the downside risks for Alaska on the
fiscal front appear to exceed the upside potential. Alaskans should prepare

Cliff Groh is an
Anchorage lawyer and writer as well as the legislative assistant who worked the
most on the bill in 1982 that created the Permanent Fund Dividend we have
today. He also designed a course he taught at the University of Alaska called
“Navigating Alaska’s Fiscal and Economic Challenges.” This is the ninth
installment of a continuing series on the Permanent Fund Dividend and Alaska’s
fiscal system.

Letter to Legislators re: transferring prisoners out of state

October 26, 2019

Senate President Cathy Giessel and House Speaker Bryce Edgmon:

As a non-partisan, policy-focused non-profit organization, Alaska Common Ground asks the Legislature to find common ground to keep Alaska’s prisoners within Alaska and prevent the use of private, for-profit, out-of-state prisons by the Department of Corrections.

request is based on Alaska Common Ground’s long-standing support for therapeutic
justice, i.e. treating underlying causes of criminal behavior such as substance
abuse disorders, mental health issues, and lack of positive community support. We held public forums on the
subject, listened to a variety of well-qualified experts, and concluded that
therapeutic justice is the best way to close the revolving door in and out of

are several reasons why out-of-state, private prisons are not effective in reducing recidivism.
Sending Alaskan prisoners to distant, out-of-state facilities cuts them off from
all community and family support.  In
addition, private prisons do not have a good record treating the root causes of
criminal behavior. They are profit- motivated and their profit is affected by
the number of individuals incarcerated. There is a built-in conflict between
operating for profit and reducing the number of people incarcerated or
returning to incarceration. In the state’s previous experience, prisoners sent
to private out-of-state prisons often returned as hardened criminals with
connections to criminal gangs.

percent of all prisoners are eventually released. Since most who return to
prison do so because of a new crime, it is greatly in the interest of public
safety to reduce recidivism.

support the Legislature’s appropriation to reopen the Palmer Correctional
Center and house Alaskan prisoners within Alaska. We urge you to require the Department
of Corrections to comply with legislative funding directives and reject
Department of Corrections’ proposal to send prisoners to private, out-of-state


Mylius, Chair

behalf of the Alaska Common Ground Board of Directors

Cc:  Nancy Dahlstrom,
Commissioner, Alaska Department of Corrections

How Did Alaska Get to this Place, and What Are the Options Now?

Fiscal update by Cliff Groh, ACG Board Member, September 30, 2019

After an exhausting and apparently endless seven-month fight
over budget cuts and the size of the Permanent Fund Dividend, the State of
Alaska is set up for continuing struggles over the same issues in the coming
years. You might be tired of it all, but this set of fiscal conflicts is primed
to keep going.

Alaska politics is tumultuous (Mike Dunleavy is the sixth person to be elected Governor in the last six elections, as Governing magazine has noted). Alaska politics is also unusual (try explaining it to people outside the state). One reason for the tumult and the uniqueness is existential. The issues of what the State of Alaska should do and how to pay for what it does raise questions like “What kind of Alaska can we have?” and “What kind of Alaska do we want?”

Let’s set the stage with familiar yet critical facts. Alaska
oil production has fallen by more than 75 percent in the last three decades,
going from over 2 million barrels per day in the late 1980s to less than
500,000 a day now. Meanwhile, oil prices have not stayed high enough to
compensate for the fact that the State of Alaska now has so much less oil from
which to collect royalties and taxes. World oil prices, in fact, bounce around
a lot and in 2019 have been substantially below what they were in the summer of
2014 (even though the Middle East is roiled by war).

The combination of the big decline in Alaska oil production
and unpredictable world oil prices well under historical highs creates a big
problem for our state. From the early 1980s to 2018, the State of Alaska’s
fiscal system was based on having a whole bunch of new oil money coming in, and
that system stopped working about five years ago.

The fiscal system changed in 2018 with the adoption of
legislation—Senate Bill 26—that provides for the use of substantial amounts of
Permanent Fund earnings to pay for conventional public services. Even with that
injection of Permanent Fund earnings into the regular budget, however, the
massive drop in oil revenues in the absence of unrealistically high stock
market returns or an apparently unsustainable long-term run-up in oil prices
means that the State of Alaska still lacks sufficient revenues to pay for the
level of public services a majority of Alaskans seem to want—including a
Permanent Fund Dividend paid pursuant to the formula set out in Alaska
statutes—without instituting a broad-based tax and/or raising oil taxes. That
last sentence runs 86 words, but that’s what it takes to sum up our fiscal
circumstances. (The State of Alaska could always finance itself for a while by
going through all its spendable savings, but that is of course a short-term
strategy at best.)

It All
Seems So Different Now from Last Fall

You have probably observed how this account of Alaska’s
current fiscal situation is at odds with how the Governor’s race went last
year. Former State Sen. Mike Dunleavy ran and won on a platform of super-sized
Permanent Fund Dividends (remember the Dunleavy Dividend of $6,700 promised to
arrive in October of 2019?); no personal taxes; and relatively small and
painless budget cuts.

The Dunleavy campaign’s platform regarding the budget is
crucial and poorly remembered. Independent journalist Dermot Cole and Alaska
Public Media’s Nathaniel Herz have labored to set out what candidate Mike
Dunleavy actually said on the trail in 2018. Candidate Mike Dunleavy promised
to increase spending on K-12 education and not cut funding for the University
of Alaska, Power Cost Equalization (PCE), and the Pioneer Homes—among other
agencies. He also specifically promised not to “lop off and chop off big
aspects” of the ferry system (officially called the “Alaska Marine Highway
System”) and said that there was “no plan to hack, cut, or destroy” that ferry

Instead of making cuts to these popular programs, candidate
Dunleavy said in 2018 that he would save $200 million by cutting 2,000 funded
but unfilled positions, save another $100 million with a voluntary school
district health insurance consolidation plan, and save another $150 million by
making Medicaid more efficient. Dunleavy told the Fairbanks Daily News-Miner in
August of 2018 that “I do not have a specific program I would like to reduce or
eliminate.” When he did identify specific budget cuts he wanted to make,
candidate Dunleavy said that he would axe a $4.5 million study of fast rail
between Palmer and Anchorage and not fund “climatologists.”

the Election, Gov. Dunleavy Dramatically Changes His Positions on the Budget
and the Dividend

Mike Dunleavy was elected Governor on November 6, 2018,
receiving 51 percent of the vote. The next month, the new Governor’s budget
only included funding for a $3,000 Dividend in 2019, while the administration
said that additional funding to pay a larger 2019 Dividend would come in
legislation outside the budget. By January of 2019, the administration had
abandoned the plan to send a Dividend of $6,700 to all Alaskans in October of
2019. Instead, Gov. Dunleavy proposed to pay bigger Dividends in future years
to compensate Alaskans for the amounts the Legislature and former Gov. Bill
Walker had cut Dividends in 2016, 2017, and 2018 compared to what the payments
would have been under the formula for Dividends adopted in the 1980s that is
still on the books. Eventually, Gov. Dunleavy’s demand for the 2019 Dividend
turned out to be that $3,000 that would be paid pursuant to that formula
adopted in the 1980s.

The Dunleavy switch on the funding for conventional public services came in February of 2019, and it was big.

The Governor proposed on Feb. 13 the following budget
reductions compared to the previous year (the figures in this paragraph
represent cuts in Unrestricted General Funds according to the Alaska
Legislative Finance Division):

  • K-12 education—25 percent cut
  • Medicaid—38 percent cut
  • University of Alaska—41 percent cut
  • Department of Transportation and Public
    Facilities (DOTPF)—32 percent cut

The Governor also proposed to:

  • Shift $420 million in petroleum property tax
    revenues from local governments to the State of Alaska
  • Eliminate the endowment for Power Cost
    Equalization (PCE)
  • Substantially increase the fees charged to
    Pioneer Home residents
  • Zero out funding for public radio and TV
  • Cut funding for the ferry system (which is part
    of DOTPF) by at least 65 percent—requiring that the ferries at least be tied up
    for the winter—while exploring privatization

Along with claiming that the public knew that he would
propose big budget cuts when he was elected, the Governor’s defense of his
switch on the budget cuts was that oil prices were lower in December of 2018
than they were briefly in October of 2018.

Note that despite various statements and suggestions to the
contrary, Gov. Dunleavy did not propose in February of 2019 a budget that
aligns expenditures with current revenues. The Alaska Legislative Finance
Division broke out the Governor’s budget proposal as $650 million in reductions
in agency operations, $520 million in cost-shifting from the State government
(primarily or entirely to local governments), and $352 million in use of

Public Protests and the Legislature Reacts

Gov. Dunleavy’s proposed budget cuts galvanized public
opposition. Testimony at legislative hearings ran overwhelmingly against the
proposed cuts, both generally and in their specifics. Letters, e-mail messages,
and telephone calls to legislators’ offices also apparently leaned against the
proposed cuts.

Polling results regarding the Governor’s budget proposal, however, showed that Alaskans were more evenly divided than the public testimony suggested. A poll conducted in late March and early April of 2019 showed that 28 percent strongly supported Gov. Dunleavy’s budget proposal and 21 percent mildly supported it while 32 percent strongly opposed it and 14 percent mildly opposed it. Another public opinion survey taken in late May and early June of 2019 provided similar numbers. That poll showed that 25 percent strongly supported the Governor’s budget proposal and 22 percent somewhat supported it, while 37 percent strongly opposed it and 10 percent somewhat opposed it.

The Legislature rejected most of Gov. Dunleavy’s proposed
budget cuts and re-allocations. The operating budget the Legislature passed in
June at the end of the first special session was $190 million lower than from
the previous year, with most of the cuts coming from Medicaid ($87 million) and
the ferry system ($40 million). (Once again, these figures represent
Unrestricted General Fund (UGF) spending as reported by the non-partisan Alaska
Legislative Finance Division.) In an under-reported move, the Legislature also
voted to make a special transfer of $9.4 billion from the Permanent Fund
Earnings Reserve to the Permanent Fund principal—which under the Alaska
Constitution cannot be spent without a vote of the people—with the announced
intent of satisfying inflation-proofing over the next eight fiscal years.

The Legislature was unable to pass a capital budget and
could not decide on the level of the Permanent Fund Dividend before the end of
the first special session came in mid-June.

Governor Brings the Veto Pen the First Time, and the Legislature Adds Back Most
of the Vetoed Funding in a Second Special Session

Governor Dunleavy responded on June 28 by vetoing more than
$400 million from the budget, adopting much of the approach he had unveiled in
the budget cuts he had proposed in February (which—as noted earlier—was
contrary to the specific statements he made during his gubernatorial campaign).
Prominent among the vetoes announced were $130 million from the University of
Alaska (a cut in line with the Governor’s budget proposal in February) and $77
million from Medicaid (on top of the Legislature’s cut). Among the rest of the
182 line-item vetoes were $49 million for school debt bond reimbursement and
Senior Benefit payments totaling $21 million, resulting in a planned
elimination of the latter program. (These figures were those announced by the
Dunleavy administration’s Office of Budget and Management.)

The Governor also vetoed $5.4 billion of that special
appropriation from the Permanent Fund Earnings Reserve to the Permanent Fund’s

The Legislature’s initial responses to these vetoes were hampered by both a temporary factor and a structural issue. The short-run factor was the Governor called the second special session to be held at Wasilla Middle School, while most legislators gathered more than 500 miles away in the State Capitol in Juneau. The structural issue was that Alaska’s Constitution was intentionally designed to make the Governor one of the nation’s most powerful. A constitutional provision that it takes a ¾ vote of the Legislature to override a veto of an appropriation is a critical element of what makes Alaska’s Governor so powerful. This requirement to line up 45 votes (as opposed to 31 or 40) out of the 60 members of the Legislature in order to override a line-item veto of an appropriation is a giant weapon for the Governor who can make that veto. (Alaska is the only state with a requirement as high as ¾ of legislators to override a governor’s veto of an appropriation, according to the National Conference of State Legislatures.)

Hampered by both impediments, the Legislature failed to
override the budget vetoes. When all the legislators eventually gathered in
Juneau later in July, the Legislature instead passed a new bill that restored
all but about $20 million of the more than $400 million in operating budget
vetoes that the Governor vetoed June 28. (The conflict over funding for K-12
education was put off, as the Legislature and the Governor agreed to put the
issue on hold while the issue of constitutionality for forward funding for
education was resolved in the courts.) The Legislature also approved a capital
budget at the end of July, resolving a complicated funding question called the
“reverse sweep.”

The debate over the Dividend ate up much of the second
special session in July, much as it consumed the Legislature all year. The
Legislature passed a bill providing for a $1,600 Dividend rather than the
$3,000 Dividend based on the formula adopted in the 1980s that the Governor had
sought for months. The votes on the new budget bill—including the different
Dividend figure—were aided by the fact that Gov. Dunleavy’s approach helped
unite in opposition to him a number of Republicans and Democrats who before his
election were not allies.

The Legislature then adjourned in early August and awaited
the Governor’s next move.

The Rise
of the Recall and the Return of Ben Stevens to Power Seem to Change the
Governor’s Mindset on How Much to Cut How Fast

Two other events occurred at the end of July that may have
been related but definitely affected the Governor’s relationship with the
Legislature. A recall effort was announced against the Governor with two
Republicans—one a coal baron—and a Democrat as the three co-chairs. Two of the
five specific allegations in the recall specifically related to the Governor’s
budget vetoes, and signatures came much faster than expected (organizers
submitted just over 49,000 signatures collected in just over a month).

The other notable announcement on July 31 was the
replacement of Tuckerman Babcock as Chief of Staff with former State Senate
President Ben Stevens. Some observers saw Babcock as an ideologue who may have
overestimated the appeal of a $3,000 Dividend in his advice to the Governor,
while the experience of Stevens in the legislative leadership may temper his
counsel. Legislators reported that Gov. Dunleavy moderated in his negotiations
following the naming of Stevens as Chief of Staff. (Given that in 2007 the U.S.
Department of Justice got two men to plead guilty to bribing Ben Stevens (even
though he was never charged—much less convicted—of any crime), some observers
are surprised that he has been put in charge of a public official’s image

Another step in changing the Governor’s image came in the
announcement Sept. 16 that Donna Arduin was out as the Governor’s Director of
Office of Management and Budget. Arduin had been a lightning rod for criticism
of the administration’s budget-cutting approach, and insiders expect that the
threat of recall will lead Ben Stevens to continue to work hard to make Gov.
Dunleavy appear more empathetic.

While the Governor was pondering a second round of vetoes in
August, he announced an agreement apparently aimed at lowering the temperature
on University funding, the target of his biggest operating budget veto in
dollar terms. Gov. Dunleavy signed on August 13 a document approved by the
University of Alaska’s Regents in which the Governor stated his intent to
replace a $135 million budget cut in one year for the University with a $25
million cut in State of Alaska funding for the current fiscal year and another
$45 million cut over the following two years. Skeptics noted that the
Legislature—not the University of Alaska’s Regents—retains the constitutional
power to make appropriations for the University (subject of course to the
Governor’s veto and the Legislature’s power to override such a veto).

The Governor announced on August 19 his vetoes on the budget
bill passed in July. The action attracting the most attention was his decision
to not veto as insufficient the appropriation that would produce a Permanent
Fund Dividend in 2019 of about $1,600. Gov. Dunleavy vowed to fight for a
second check of $1,400 to bring the total Dividend payments to $3,000 for this
year. To get that total of $3,000, he said in a video announcement that he
expected to call a third special legislative session this fall to seek an
additional appropriation from the Permanent Fund Earnings Reserve to pay for
the second check this year.

That same day as the announcement of the non-veto of
Dividend funding that generated the $1,600 payment, Gov. Dunleavy unveiled the
vetoes on the bill the Legislature passed in July adding back funding after his
first round of vetoes. Highlighting the vetoes in Round 2 were $48 million from
Medicaid services (including funding for adult preventative dental Medicaid
services in an intended elimination of the program); $49 million from school
bond debt reimbursement; and $2.7 million for public radio and TV. The Governor
vetoed $5 million the Legislature added back in funding for the Alaska Marine
System; with the Legislature having cut $43 million in funding during the 2019
session, some coastal communities off the road system such as Cordova will go
as much as seven months this winter without ferry service.

Simultaneously, the Governor let stand some of the add-backs
made by the Legislature in July. Prominent in the restorations (that is, the
July appropriations not vetoed) were $21 million for the Senior Benefits
program and $3.9 million for the Alaska State Council on the Arts.

Where Do
the Numbers Stand Now?

Following the vetoes announced in mid-August on the add-back
bill (House Bill 2001), the Alaska Legislative Finance Division reported that
the budget without Dividends was $4.3 billion in Unrestricted General Funds,
which is $486 million lower than last year—a 10 percent reduction. Add in the
approximately $1.14 billion to pay for a Permanent Fund Dividend of $1,606 this
year, and you get to $5.4 billion and a roughly balanced budget for Fiscal Year
2020, the year that runs July 1, 2019-June 30, 2020. Add in another $1,400 to
pay for a second Dividend check this year—and absent new revenues—the State of
Alaska would be in a deficit of close to $1 billion this year.

Coming Up? (Hint: More Proposed Big Budget Cuts from the Governor)

As noted above, Gov. Dunleavy has stated that he expects to
call for this fall a special session—the third special session this year—to
focus solely on paying the second check of $1,400 to make the $3,000 total
Dividend this year that he has promised. Some legislators have said that this
third special session should also address another appropriation bill that would
reverse some of the vetoes made in the second round. Another potential topic at
that potential special session this fall is a new formula for distribution of
Permanent Fund Dividends that would be sustainable in light of the new
realities the State of Alaska confronts. Some lawmakers kick around the idea of
a grand bargain that would resolve these questions simultaneously.

Whatever happens this fall, Alaskans need to know that Gov.
Dunleavy is by all indications committed to additional funding cuts in his
budget proposal for the next fiscal year which by law must be unveiled no later
than December 15. When a legislator pointed out at a public gathering this
summer that Gov. Dunleavy had never proposed a budget that in fact aligned
expenditures with current revenues, Commissioner of Revenue Bruce Tangeman
responded that he was confident that the Governor would do so in that proposal
to be submitted for the upcoming fiscal year. This statement strongly implies
that the Governor’s next round of proposed budget cuts will total $500 million
or more.

K-12 education is the most likely big target for that next
blitz of the Governor’s proposed budget cuts. Recall that the Governor proposed
a 25 percent budget cut—approximately $300 million—to K-12 funding back in
February, and that fight only got sidetracked this year because of the
Governor’s agreement with the Legislature to put the issue on hold while the
courts resolved the question of the constitutionality of forward-funding.

Math and history both dictate that the Governor—who spent
nearly two decades as a teacher, principal, and school district superintendent
in the Bush—reach for the hatchet on K-12 education. Gov. Dunleavy has said
repeatedly that he is determined to align expenditures with current revenues,
and K-12 education is the biggest non-Dividend spending item in the budget.
(And with the Dividend still legally at $1,606, K-12 is the largest
expenditure; it’s the $3,000 Dividend that would make that outlay the biggest
of all expenditures.)

In addition to another wave of budget cuts that will be
fought over in the legislative session starting in January, the Governor seems
likely to continue to push for his three proposed constitutional amendments,
each of which would have a major impact on Alaska’s fiscal system. One
amendment would substantially tighten the existing spending limit. A second
would require all new taxes or tax increases to be approved by both the
Legislature and a vote of the people. The third would guarantee in the Alaska
Constitution the annual payment of Permanent Fund Dividends pursuant to the
distribution formula that has been on the statute books since the 1980s.

What Are
the Constraints on What Can Happen?

In the short run, fear of the recall might slow down some of Gov. Dunleavy’s efforts to cut the budget and reshape the fiscal system. Regardless of what happens with the recall, Alaskans need to
ponder some hard facts about saviors, desires, and goals.

Let’s start with saviors. Alaskans have long imagined or
speculated that various rescuers are coming over the hill to save our state from
making difficult fiscal choices. Those potential saviors have been at various
times ANWR; the gasline/LNG/various other efforts to commercialize/monetize
natural gas on Alaska’s North Slope; offshore oil development; the Pebble Mine;
taxation of non-residents only; and small and relatively budget cuts.
Unfortunately, these rescuers have not arrived, and they seem unlikely ever to
get here due to a number of factors, including economic and technological
changes and (in the case of taxing non-residents only) the U.S. and Alaska
Constitutions. Alaska is transforming, and the announced departures of BP from
Alaska and the flagship Nordstrom department store from downtown Anchorage both
represent aspects of that transformation. No outside force or magic trick is
going to save us, folks, and we must save ourselves.

In saving ourselves, we need to distinguish between desires
and options. Many Alaskans want the State of Alaska’s fiscal system to run as
much as possible as it did between the early 1980s and the mid-2010s. The four
pillars of those three and a half decades were:

  • Large amounts of new oil money generated by
    taxes and royalties regarding oil development
  • Relatively high state spending per capita
    compared to the national average
  • No use of Permanent Fund income/earnings in
    significant amounts beyond the payment of Permanent Fund Dividends or to
    protect the Permanent Fund’s principal from the effects of inflation (this
    latter effort is known as “inflation-proofing”)
  • No general statewide taxes on individuals or
    significant general statewide taxes on Alaska-based corporations

Three out of four of these pillars have fallen. Large
amounts of new oil money stopped arrived in the mid-2010s; the annual budget
has fallen substantially since the mid-2010s and after adjusting for inflation
and population is now below what is was before this fiscal system was created
in the early 1980s; and starting in 2018 the State of Alaska has come to rely
heavily on Permanent Fund earnings to finance the budget. Despite the falling
budget and use of a lot of Permanent Fund earnings/income to pay for
conventional public services, the State of Alaska still has a deficit—and will
continue to do so for any future seeable now—without either raising additional
revenues and/or not following the statutory Permanent Fund Dividend formula.
(To get an idea of revenue options discussed now, the income tax that the
Alaska House passed in 2017 would have generated about $700 million per year,
and supporters of the recently proposed oil tax initiative assert that it would
raise approximately $1 billion annually.)

On top of all that, the State of Alaska also faces pressures
to increase the budget that has recently been going down each year. One
pressure is an aging population, as people over 70 tend to need more medical
care and other services than people between, say, 20 and 40 years of age. A
second pressure is the capital budget; spending for infrastructure has fallen
substantially in the last four years, and most experts see it as too low now. A
third upward force on the budget is the State of Alaska’s officially adopted
plan to pay off the unfunded liabilities for the Public Employees’ Retirement
System (PERS) and the Teachers’ Retirement System (TRS). Regarding that last
factor, the State is paying off the unfunded liabilities on a 25-year plan that
ends in 2039; those payments are one of the half-dozen biggest spending items
in the budget, and they increase each year until the final payment in 2039.

Given current realities, Alaskans appear to want mutually
contradictory outcomes. A lot of Alaskans seem to want big budget cuts in
theory and in general, but rebel loudly when those cuts are made specific and
real and rule out the additional taxes and/or reduction of Permanent Fund
Dividends necessary to finance the actual budget they seem to want. Alaskans
need to figure out what desires are unrealistic and investigate the genuine
options for our state.

The choices among options should be guided by an explicit
discussion of goals. Once again: What kind of Alaska can we have? What kind of
Alaska do we want?


Cliff Groh speaks only for himself in this article.  

What were the original arguments for the Permanent Fund dividend?

By Cliff Groh, printed in the Anchorage Daily News, 9/10/19

I was the legislative assistant who worked the most on the bill that created the Permanent Fund dividend in 1982. Advocates for the dividend offered essentially five rationales during consideration of the legislation that put in place the “equal payments for all” program we have today. The per capita dividend adopted in 1982 was the result of a bill that served as a backup — or backstop — for the original “the longer you’re here, the more you get” dividend created by a law passed in 1980, which quickly became stalled in litigation. The Alaska Legislature passed the bill providing for the per capita dividend as a backstop 11 days before the U.S. Supreme Court struck down the original dividend bill as unconstitutional, and so the first dividends were paid in the summer of 1982 under the backstop bill.

The five arguments for per-capita dividends made at the creation were:

1. Paying dividends out of the Permanent Fund’s income or earnings would build a political constituency to protect the Permanent Fund’s principal against raids by special interests. The logic: The bigger the Permanent Fund, the bigger the Permanent Fund dividend. A variant of this argument was that the dividend would strengthen political opposition to pork-barrel spending and budgetary hyper-growth.

2. Paying dividends would provide greater economic “bang for the buck” than spending the same amount of money on the operating budget, capital projects or loans to residents. A related argument was that compared to the alternatives, dividends would more efficiently allocate the surplus oil money coming into the state of Alaska’s coffers in the early 1980s.

3. Individuals have a right to use a portion of their oil wealth. This argument’s supporters pointed to the Alaska Constitution’s statement that “The legislature shall provide for the utilization, development, and conservation of all natural resources belonging to the State, including land and waters, for the maximum benefit of its people.” Legislators recognized this individual entitlement to state-owned natural resources by adopting findings to the 1980 dividend bill stating that the legislation “fairly compensates each state resident for his equitable ownership of the state’s natural resources….” (The legislation in 1982 that created the per-capita dividend we have today had no findings, however, as some legislators considered such philosophical statements too controversial to include in the bill.)

4. Permanent Fund dividends would deliver benefits more equitably than alternative uses of the surplus oil money. Gov. Jay Hammond — the most important supporter of dividends — contended that the powerful and well-connected were already benefiting from the state’s oil wealth through special-interest appropriations, often arranged behind closed doors. The repeal of Alaska’s personal income tax in 1980 further tilted benefits toward higher-income people, some of whom were non-residents. The state’s highly subsidized loan programs were also cited as examples of inequitable distribution. As I noted in a document circulated in the Legislature during the 1982 session, per-capita dividends by contrast “treat all Alaskans alike — whether they are rich or poor, or whether their home is Adak or Anchorage.”

5. Universal direct distribution of a portion of the Permanent Fund’s income would fortify the safety net for low-income Alaskans. Hammond never thought much of this argument, but legislators concerned over what seemed to them a possible perverse effect inserted “hold harmless” provisions in the 1982 legislation authorizing use of the state’s general fund to offset loss of federal needs-tested benefits caused by receipt of a dividend.

Which arguments make sense now?

Cliff Groh, an Anchorage resident, says he considers his work on the 1982 Permanent Fund Dividend legislation perhaps his most interesting, challenging and fun job ever. Some of this material overlaps with a chapter he co-authored with Gregg Erickson for a book published in 2012.

Read the online opinion piece here.

Vic Fischer’s testimony on constitutional amendments

Interested in watching Vic Fischer’s testimony to the House State Affairs Committee on Tuesday, May 7, 2019? You can find it at this link.

Taxes and the Dividend

John Havelock, Anchorage Daily News, April 14, 2019

The first step in bringing a solution to our state budget issues is to combine a healthy dividend plan with the imposition of an income tax in one bill, possibly avoiding the one-subject rule by treating the dividend as a subset of the tax. The combination would make a Dunleavy veto difficult.

Put together with the dividend, the tax doesn’t seem so bad. You get paid $1,800 into one hand and pay back out of the other – nothing or, in rare cases, the whole thing, depending on how rich you are. Amazing how the majority of Alaskans who make too little to pay much in graduated income taxes are the angriest voices protecting the income of the well-off who would pay almost all the taxes.

It might help if more Alaskans realized that the Permanent Fund dividend is actually a social program, common in other Western countries, intended to support a minimum income floor. Sometimes it is called a “negative income tax.” Also common in Western Europe are forms of child support. Our dividend to babies and children serves the same purpose. The payments to a family with children bring an improved standard of child care.

The PFD’s societal purposes are especially relevant in Alaska with our large, rural, variable subsistence, low income population. The disappearance of the dividend will undermine village life, pressuring thousands of Alaska Natives to choose a life in large cities as the cash floor to the subsistence lifestyle is destroyed.

Of course expenditures are made deserving disapproval. That may be where the notion of “dividend,” a “payment of right,” helps to justify the program as well as saving the state expenditures relating to accountability. The public will favor a PFD but not separate appropriations for rural welfare or child support. We all prefer programs free of the government’s nose in our business.

The PFD is not the root of the state’s budget problem (per Roger Marks); the root of the state’s problem is the absence of a sustaining tax base. In most states, that’s an income tax. A new business coming into the state, bringing in new people, should pay its share. In Alaska, new business cuts everybody’s share. That’s why some economists have called our oil base “a curse.” In a tax-free state, it sets a fixed or declining amount of revenue for the public-service sectors of the economy.

The PFD is a program, a program requiring expenditures, like education, health, justice and welfare, or to cite a federal program, Social Security, which also sends money to people that need it or don’t in varying degrees and then taxes some of it back. Some Social Security dollars are no doubt spent on pleasures not related to specific needs of seniors. But it works and it had the required public support.

Whatever the original theory (and bless Gov. Jay Hammond and his legislative allies), the PFD is now an income maintenance program of critical importance to most of the state.

No doubt, after an income tax, there is still some deficit to be dealt with. At the top of the list for addressing the remaining deficit is a better look at oil taxes. In the era of Govs. Bill Egan, Jay Hammond and Wally Hickel, a split of one-third federal, one-third state and one-third industry was the rough standard for distributing oil revenue. We fall short of that now. We have heard the industry’s cry for 50 years that if you raise our taxes, we will take our bat and balls and go home. It just isn’t true. And handing out oil subsidies is just crazy, suggesting there has been way too much oil influence over the Legislature.

Maybe there is room for more budget cuts, but not much. We have been cutting and ignoring emerging issues (pre-K-12 for example) for too many years already. Maybe there are additional, incidental taxes to levy. A bit more on gasoline, a statewide shot at alcohol — which generates much more in costs than it gives in taxes — and a seasonal sales tax that brings the tourist industry in to pay a better share of the base.

Most of us take special pride in being Alaskans. How many times have you heard about the “old days” when we stopped on the highway anytime we saw someone in trouble? Those stories reflect the theme that Real Alaskans take care of those who need help. We don’t complain about people living on handouts when the economics of the state show that we are all doing just that. The Territorial Legislature passed an income tax. So, let’s call our legislators to a standard, working on a real solution — one that does no injury to Alaska values, one that reminds us to cough up our share as well as taking one.

John Havelock served as Gov. Bill Egan’s Attorney General and was on Gov. Jay Hammond’s Growth Policy Council and Gov. Wally Hickel’s Committee on School Organization. 

He’s also a founding member of Alaska Common Ground. Read the article in the Anchorage Daily News here.

The Alaska I helped build is under attack

Vic Fischer, Anchorage Daily News, April 19, 2019

As one of the founders of Alaska statehood, I am appalled by Gov. Mike Dunleavy’s proposed budget, which drastically cuts funding for K-12 education and the university, and slashes health services for 213,000 Alaskans, half of them children. It reduces support for seniors and undermines the taxing authority of local governments across the state.

The Alaska that I helped to build is under attack. When we wrote Alaska’s Constitution in 1955-56 and achieved statehood in 1959, we established a structure of state and local government to provide essential services. Now, 60 years later, the ideals of statehood and our constitution are under assault by Gov. Dunleavy and his people.

Alaska had education programs before statehood, and Pioneer Homes since 1913. We supported the University of Alaska, which has been preparing young people to advance Alaska’s economy since 1922. The state shared income with local governments since the 1960s. These are not new services; they are foundational infrastructure.

That is how government invests in its young to strengthen our future. That is how we strove to improve the quality of life for Alaskans to be healthy, educated and able to participate in community life.

If enacted, the governor’s proposed budget, legislation and constitutional amendments would radically transform Alaska into an impoverished state. Here are just a few examples of his terrible proposals.

Public Education Article 6, Section 1 of the Alaska Constitution states, “The Legislature shall by general law establish and maintain a system of public schools open to all children of the State and may provide for other public educational institutions.” Several court cases have articulated the responsibility of the state of Alaska to pay for education services throughout Alaska.

The governor’s budget reduces the per pupil appropriation for K-12 schools. This reduction would force school closures across the state and create K-12 class sizes in excess of 40 students. This proposal would make a mockery of our constitutional language and longstanding case law regarding the state’s responsibility for public education and access for all children.

Adding insult to injury, the governor’s attorney general claims that private school vouchers could potentially be used by parents to send their children to sectarian and religious schools — a clear violation of the constitution.

The largest proposed reductions have fallen to Medicaid, which provides health coverage for seniors, children and people with disabilities. Half of the beneficiaries are children. A Medicaid cut of $714 million puts 77,000 Alaskans at risk without health insurance. Perversely, Alaska would lose $465 million of federal matching funds.

Since 1913, Alaskans have maintained Pioneer Homes because we value our elders and are willing to give them a helping hand when they near the end of their lives. The governor’s proposal shifts the cost of care for seniors to the seniors in the Pioneer Homes. The cost to individuals could increase as much as 140 percent.

Basic human decency and our longstanding Alaska values call us to defeat such proposals.

Alaska’s constitution established the University of Alaska as the state university, continuing its role as the institution of higher learning since 1922.

The governor’s budget would cut state university funding by 41 percent, effectively requiring elimination of programs and closure of multiple university campuses.

We cannot have an educated and capable workforce, or solid economic growth, without a strong university. The governor and his advisers may not value our university, but Alaskans do and always have.

The administration assertion that the constitution only establishes a state university, but does not require its funding, is simply ludicrous and not worth responding to.

Article 10 of the Alaska Constitution established the structure of local governments. The boroughs and municipalities are part of the state structure and share responsibilities with the state government.

The governor’s proposal would confiscate hundreds of millions of dollars of local revenue from both fish harvests and pipeline infrastructure, shifting the tax burden onto local homeowners.

Dunleavy also proposed to cut school bond reimbursements to local governments for school construction bonds. Local governments cannot afford this cost shift, and the result would be unprecedented cuts in funds for education, which will force drastic increases in local taxes and reduction of services.

It is unclear whether the governor understands the details of his budget proposals, whose development was outsourced to an appointee from Michigan named Donna Arduin. Neither Ms. Arduin nor the governor have demonstrated any real understanding of the constitutional, economic and social impacts of their radical proposals.

Not surprisingly, Alaskans across the political spectrum have reacted with outrage toward the budget and related proposals. It is important to note that Mr. Dunleavy did not campaign on these proposals, but sprung them on Alaskans after getting elected by promising voters a windfall Permanent Fund dividend. He was not given a charter to destroy everything we have built since statehood and before.

Our state’s future really hangs in the balance: Do we protect our state’s constitutional ideals, our economy, our social fabric and the public institutions that have grown our state for decades? Or do we allow this governor and his appointees to liquidate the wealth and undermine the foundations that Alaskans have worked so hard to establish?

The Alaska Constitution gives the power of appropriation to the legislative branch. The cuts proposed by the governor will result in economic recession. If cuts are required, I ask the Legislature to please moderate their size and their effect on the less fortunate.

Alaska has financial resources garnered from the development of the natural resources located on Alaska’s 104 million acres of land. We also have untapped capacity to raise additional revenue to pay for needed government services. We have a revenue problem. Many Alaskans are willing to help pay for our public services, as we did for many decades.

Lastly, Gov. Dunleavy’s three proposed constitutional amendments tie the hands of future Legislatures facing issues that are unknown to us. Follow the model of the constitution. Allow them to grapple with the problems of the day. Reject the proposals.

Let’s remain true to our Alaska ideals and reject the governor’s proposals. I urge you to stand up in defense of Alaska and its future!

Vic Fischer is the last living delegate of the Alaska Constitutional Convention, 1955-56. He also served in the Territorial House of Representatives, 1957-58, and the State Senate, 1981-86. He was the founding Director of the Institute of Social and Economic Research at the University of Alaska. He lives in Anchorage.

He’s also a founding member of Alaska Common Ground.

Read this on the Anchorage Daily News page here.

Taming the Elephant in the Room

Author: Janet McCabe | Opinion | Anchorage Daily News | Feb 22, 2019

Last month a group of representative community members and economic experts organized by Alaska Common Ground met with an audience in Anchorage to discuss “The Costs of Alaska’s Economic Roller Coaster.” It was an enthusiastic and civil discussion, peppered with questions from an engaged audience and moderated by John Tracy. These people clearly loved Alaska and cared about its future prosperity.

They all emphasized that we were at a turning point in the state’s history and should take a long-term view to achieve fiscal stability. New sources of state revenue were essential. Most reasonable cuts have already been taken. There was also consensus that moderate dividends should be continued. During the discussion Tracy asked the audience for their opinions by a show of hands. Most supported all points of consensus. Video of the discussion can be reviewed online.

This month, Alaska’s new governor, Mike Dunleavy, also chose fiscal stability as the focus of his budget plan. But Dunleavy’s proposals are radically different from those of the Anchorage community leaders. He takes new revenue totally off the table. Faced with the looming fiscal shortfall, Dunleavy would cut $1.8 billion from the budget, eliminating state funds for programs that people rely on and have been developed with years of effort.

On the other hand, he would spend about $1.8 billion for supersized dividends. Sen. Natasha von Imhof, chairwoman of the Senate Finance Committee, has aptly referred to Dunleavy’s supersized dividends as the “elephant in the room.” When questioned about this plan, Dunleavy’s spokespeople say he wants to let Alaskans decide how to spend the money, not government.

Unfortunately, this answer ignores the fact that government – accomplishing together what we cannot do as individuals – is essential to life in a functioning community. Try driving across town when the streetlights aren’t working to clarify this concept.

Dunleavy’s cuts are wide-ranging, but many reduce services to those who are poor or live in small communities and would be unlikely to speak up. When asked about the proposed cuts to maintenance of airstrips in small remote communities, the governor’s spokesperson replied, “We can’t be all things to all people.” Tell that to someone with appendicitis.

Alaskans pay for governmental services at the municipal level, but only minimally at the state level. Across the U.S., per capita broad-based state tax revenues are about $2,600 for all the states. In Alaska, the figure is about $540. John Tracy asked the audience at Alaska Common Ground if they would be willing to pay $2,600 in state taxes. To his surprise, most raised their hands that they would. Taxes should and could be set to spare those with low to moderate incomes, and to tax people who earn in Alaska but reside Outside.

The Legislature has been questioning Dunleavy’s spokespeople on many fronts. A recent exchange involved his move to switch from state-run to private prisons. Would a business whose profit depends on the length and amount of incarceration implement programs that cut the need for incarceration? It should be concerning that the governor chose Wildwood Correctional Center for initial cutting. Wildwood is the prison that had started to implement innovations in prison management from Norway and Ireland that reduced post-release crime by as much as 20 percent, as seen in the documentary “Breaking the Cycle” on Netflix.

Alaska’s legislators are up against a challenge. The governor has veto power over all bills, and our Constitution (Article 2, Section 16) requires an affirmative vote of three-fourths of the Legislature to override a veto of a budget-related bill.

If the legislators want to counter the governor’s plans for Alaska, they will need to work together.

But, it’s possible. Last year’s Legislature successfully worked across the aisle to adopt SB 26, establishing the percent-of-market-value (POMV) endowment system for sustainable annual draws from the Earnings Reserve Account, the spendable part of the Permanent Fund. This year, through a similarly united effort, the Legislature could pass a new bill establishing the annual apportionment of POMV funds between dividends and other governmental costs. If enacted early this session, there would be time for the governor’s expected veto, and for the Legislature to override his veto.

The act should be effective immediately. It would convert Sen. von Imhof’s “elephant in the room” into a manageable reality, protecting the dividend for future generations and leaving part of the state’s current revenue available for state government. The Legislature could then proceed to pass a reasonable budget including needed programs and the new revenue measures necessary to fund them. The public would appreciate it!

Janet McCabe and her family have lived in Alaska since 1964. Her education and experience are in community planning with a specialty in population projection. She is actively involved in several nonprofit organizations, including Alaska Common Ground and Commonwealth North.


The Costs of Alaska’s Economic Roller Coaster

Janet McCabe, opinion piece in the Anchorage Daily News, January 27, 2019

With more of a rumpus than a clear public mandate, legislators must study, learn and think independently as statesmen and stateswomen, and work across the aisle.

Alaska Common Ground invites you to a public forum on “The Costs of Alaska’s Economic Roller coaster” on Jan. 27 from 4 p.m. to 6 p.m. at the 49th State Brewing Co. in Anchorage. A panel of community leaders and ISER economist Mouhcine Guettabi will present their different perspectives on the costs of instability, possible solutions and their vision of Alaska’s future. Do join us and ask questions. Alaska Common Ground forums are free, and everybody is welcome and encouraged to attend.

Read the full article at the Anchorage Daily News here.