Alaska’s Fiscal Reality
Ready to delve into Alaska’s fiscal issues? Here are the slides from House Speaker Bryce Edgmon’s presentation to AFN in October. We’re looking to host a discussion on the issues raised by this information.
Ready to delve into Alaska’s fiscal issues? Here are the slides from House Speaker Bryce Edgmon’s presentation to AFN in October. We’re looking to host a discussion on the issues raised by this information.
Wondering how to vote on ballot measure 1 in the general election this November? We held an event discussing the pros and cons of this ballot measure. You can find out more about this event and watch the video or listen to the audio here.
Thanks again to all of our members and guests who attended Alaska Common Ground’s 2018 Annual Meeting in April and to our members who participated in our recent membership survey. Both provided an invaluable opportunity for us to hear how you think we are doing and what topics you would like us to feature in the future.
Housing, fiscal policy, criminal justice reform, oceans, food security, and the upcoming ballot measures were among the ideas discussed. Additionally, this word cloud shows what our members highlighted as most valuable to them about their experience with ACG, from our neutrality, to staying informed on important issues.
Janet McCabe, ADN opinion piece, April 10, 2018
It’s crunch time in Juneau. Legislators need to pull together and accomplish the essentials!
Next November, most legislative seats plus the governor will be up for election. That fact underlies much of the thinking in Juneau today, intensifying pressure to finish this session’s work and start campaigning.
Legislators are frustrated with their own inability as a group to compromise and reach agreement. Constituents complain — those who rely on the dividend to feed their families or stave off foreclosure, as well as business owners feeling the slowdown of economic recession.
If, as in the past, the value of the Permanent Fund trends upward, the Earnings Reserve will grow and payouts for state operations and dividends will increase.
I urge the Legislature to pass a POMV statute this session, and to cap this achievement by also passing a proposal to stimulate the economy that was developed by Sheldon Fisher, Alaska’s clearheaded and sensible commissioner of Revenue.
His concept, embodied in House Bill 331 and Senate Bill 176, merits full consideration as a way to generate employment in the oil service industry, and pay existing debt without additional cost to the state.
As background, recently the Legislature eliminated the tax credit incentives for new development by small oil companies. They were no longer affordable. But that action left us with previous contractual agreements that must be paid. The state has been repaying these obligations gradually, as allowed by law, but banks will not make loans to the small oil companies based on distant state payments. North Slope and Cook Inlet projects have been shutting down and employment in the oil service sector is declining.
State bonding to make immediate payments on Alaska’s existing debt to small oil companies would provide them with cash needed to employ oil service businesses and restart stalled projects. Yet the state’s bonding obligation could be paid gradually. The state will negotiate with the companies for a discount to cover interest on the bonds, making the state’s cost the same or less than under existing obligations. This is a win-win proposal, putting people back to work in a lagging sector of the economy.
Enacting a statutory POMV system in 2018 is still the primary step toward fiscal stability needed this session, but adding legislation that stimulates the economy, as proposed by Commissioner Fisher, would cap this achievement. With both measures, the 30th Alaska State Legislature could go home with a well-deserved sense of accomplishment.
The memorable statement: “No man’s life, liberty or property are safe while the Legislature is in session” was written in 1866 by Gideon John Tucker. Possibly, he was exaggerating!
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.
A new paper by Cliff Groh, in collaboration with ISER faculty, looks at how the state government has dealt so far with a very big problem: the state’s two largest retirement systems for public employees don’t have enough money to cover future costs of pensions and benefits for state and local employees when they retire. Since discovering the shortfall in 2003, the state has made special contributions of nearly $7 billion to the retirement systems.
But analysts believe it will take billions more dollars in the coming years to balance the funds. That poses a major challenge for the state, in this time of big budget deficits, as well as for local governments, which also need to help pay for the unfunded liability.
To learn more about what the state has done—and might do—to deal with the pension shortfall, download the full paper, History and Options Regarding the Unfunded Liabilities of Alaska’s Public Employees’ and Teachers’ Retirement Systems, or the summary.
If you have questions, get in touch with Cliff Groh at email@example.com.
Thanks, Anchorage Daily News, for asking the public to express opinions on the Permanent Fund, the Permanent Fund Dividend, and the plan for annual “Percent of Market Value” draws from the Permanent Fund that would provide for both government services and dividends (POMV).
In answer to ADN’s request, here are some highlights from Alaska’s history as a state that may provide guidance for the future. After all, one definition of insanity is making the same mistakes repeatedly and expecting different results.
Surprisingly, unexpected disasters have been instrumental in breaking the grip of major economic recessions in the past. Both the 1964 earthquake and the 1989 Exxon Valdez oil spill occurred during serious recessions. Expenditures to recover from both disasters injected enough money into the economy to overcome the economic doldrums. We never hope to be “lucky” again because of disaster, but the lesson is clear that recovery from a recession can be boosted by spending. Cuts in spending have an opposite effect.
There is no doubt that Alaska is now in a recession. The two recent times since statehood when the rate of population growth declined are the late 1980s and today. According to the Department of Labor and Workforce Development, Alaska’s unemployment rate is currently the highest in the nation. Also, like the 1980s, crime rates have soared, especially for theft. Ask businesspeople you meet how they’re doing, and they may say things like “there’s nothing out there” or “I’m just hanging on.”
Uncertainty increases recession by slowing business investment.
The Legislature could address uncertainty and help stabilize the economy by enacting legislation establishing a disciplined POMV process for spending. This system — the same system as that used by many major corporations to protect endowments — has been recommended by the Alaska Permanent Fund Corp. since 2003.
Given the need to stabilize the economy, it is alarming to hear that some legislators are planning to bypass the discipline imposed by POMV, and simply adopt a budget that would spend directly from the Earnings Reserve Account of the Permanent Fund. Legislative spending needs the restraint of POMV to provide stability and protect the dividend.
A look at Alaskan history gives a clear warning of what could happen without spending sidebars. In 1969 when Alaska received a fiscal windfall of $900 million from the oil field lease, legislators competed to fund new projects in their districts. If one district got approval for a library or a community hall, other districts needed similar things. Some economic development projects were clearly boondoggles.
Public alarm at the rapid spending, together with leadership from Gov. Hammond and wise legislators like Hugh Malone, resulted in the constitutional amendment that created the Permanent Fund in 1976. Four years later Hammond urged legislators to adopt a bill creating Alaska’s Permanent Fund Dividend program. He wanted to the give the public a vested interest in protecting the Permanent Fund, and to assure that both rural and urban communities benefited from Alaska’s new oil wealth.
Alaskans received their first dividend checks in 1982. This was fortunate timing, but it did not prevent the recession that occurred because of a fall in oil prices, and expiration of the $900 million construction boom.
The state income tax had been repealed in 1980, and the shortage of funds for essential state services led to further cuts in employment which, in turn, added to the negative ripple effect. The recession was severe.
Hammond ultimately realized that the only solid protection for Alaska’s dividend program was an ongoing source of state income. In 2004 at the Conference of Alaskans in Fairbanks he argued strongly for an income tax, saying his biggest mistake as governor was not to have vetoed the bill repealing the income tax in 1980.
A year later, Gov. Jay Hammond died, having made an enormous contribution to Alaska by leading the establishment of the Permanent Fund and the Permanent Fund Dividend. He was a Republican who saw the big picture, perhaps Alaska’s greatest governor.
Read the full article here.
Author: Cliff Groh | Opinion Updated: December 10, 2017 Anchorage Daily News
An Alaskan spends on average more than $3,000 on health care per year over what the average American spends, according to the latest federal data. That overall comparison, however, masks much bigger disparities for certain procedures and treatments. One Alaskan researching last year, for example, found that the “all-in” cost of her hip replacement surgery in Seattle was well under half what the total cost would have been in Anchorage. (By far the biggest cost difference was in the facility fee quoted by the hospital in Anchorage vs. that charged in Seattle, not the relatively small difference in the orthopedic surgeon’s charge.)
Experts have identified some causes of Alaska’s high health care costs as:
• Hospital margins in urban Alaska that are higher than national averages (the most recently released study shows that Anchorage hospitals have margins almost three times the national average);
• The relative shortage in Alaska of beds at facilities with skilled nursing and other behavioral health centers that would allow some patients to avoid expensive hospital stays;
• Limited competition and/or leveraging of market power by some medical providers — particularly specialty physicians such as orthopedic surgeons, neurosurgeons, and cardiologists — that keeps prices/fees higher than they would be otherwise (although some Alaska medical practitioners appear to make only 1/50th — or even 1/100th as a few specialist practitioners do per year and some family practitioners are clearly struggling financially, the top is quite high in our state; one neurosurgeon more than tripled his annual income by moving north, going from $1.5 million in Washington State in 2007 to $5.5 million in Alaska in 2009).
• A regulation adopted in 2004 establishing “the 80th percentile rule” for medical provider compensation that critics say has boosted some medical specialists’ fees;
• A statute adopted in 1998 that appears to make it difficult to rely on managed care to hold down costs;
• A slowness to adopt value-based compensation for medical providers instead of the traditional fee-for-service model of reimbursement;
• Expensive medical infrastructure built at least in part for convenience that Alaska may not be able to afford;
• Wasteful overutilization of certain procedures and treatments that are particularly profitable for physicians on the Last Frontier given Alaska’s unusually high reimbursement rates.
Alaska Common Ground will take a deep dive into the difference between the health care costs of Alaska and those of the rest of the country at an event Wednesday evening, Dec. 13. This event — the third of at least four events on our state’s high health care costs — is at the 49th State Brewing Company, 717 W. Third Ave., from 7 p.m. to 9 p.m. The Anchorage Public Library is cosponsoring this series, which is financially supported by the Alaska Humanities Forum. This event is open to the public and free, with a requested donation of $10.
Important players in the health care field will hash out on Wednesday the relative importance of the factors set out above — and others — in the high costs of Alaska’s health care. Participating that evening will be physicians, a hospital CEO, a state of Alaska regulator and other knowledgeable observers. There will be an opportunity for the audience to ask questions.
Folks, this is your chance to learn more about this critical topic in a congenial environment. You should come, as your health and wealth may depend on it.
Cliff Groh is chair of Alaska Common Ground, a nonprofit and nonpartisan organization devoted to helping Alaskans understand and reach consensus on the major issues facing our state. If you are interested in watching the video from the previous two events in the health care series, you can see video of each at http://akcommonground.org/can-alaskas-high-health-care-costs-be-cured/.
You have a good chance to hold down your medical bills through preparation, research, negotiation, and keeping a good attitude. Let’s walk through some recommendations by category. As you go through this advice, remember that you need to help yourself first by taking care of yourself. As one Alaska physician observed, the most cost-effective way to interact with the health care system is not to need it.
Choosing Where You Get Your Medical Care
At the Clinic, Office of the Primary Care Provider, or the Emergency Room/Emergency Department
If You Get Admitted to the Hospital
After You Are Discharged from the Hospital
If You Have Been Told that You Need a Big-Ticket Procedure
Before You Need the Medical Care
Cliff Groh prepared this document following conversations with more than a dozen Alaska medical providers and others knowledgeable about the provision of health care in Alaska. Particular thanks go to Theresa Philbrick, RN; the book An American Sickness: How Healthcare Became Big Business and How You Can Take it Back by Elisabeth Rosenthal, and the article by Mikey Box entitled “7 Smart Ways to Negotiate Your Medical Bills.” The above is not intended as legal advice, even though Groh is a lawyer as well as a writer and the Chair of Alaska Common Ground. Alaska Common Ground is holding a series of events on Alaska’s high health care costs that runs from November of 2017 through January of 2018, and details can be found at www.akcommonground.org or on Facebook.
Alaskans are used to superlatives, but when it comes to health care costs we have really outdone ourselves.
The United States has the world’s highest health care costs, and it sure looks like Alaska has the highest health care costs in the U.S. as well as the fastest-rising costs.
The Last Frontier’s sky-high costs show up in various ways. The Kaiser Family Foundation’s data from 2014 (the most recent year released) has Alaska as highest among the states in per capita health expenditures, with only the District of Columbia higher. Relying on data collected from 264 areas around the U.S., the Anchorage Economic Development Corporation reported that in 2016 the three cities with the highest health care costs in the nation were Juneau, Fairbanks, and Anchorage. And the story is the same regarding health insurance, as the premiums for Alaskans on the exchanges for 2017 are at the top among the states.
No other state has experienced higher annual percentage growth in health care costs since 1991, according to the federal government’s Centers for Medicare & Medicaid Services. In the old lingo of the popular music charts, Alaska is No. 1 with a bullet.
What are the causes of Alaska’s extremely high health care costs? What are the consequences of this “Alaska premium” in the prices of health care? Do remedies exist for the Great Land’s great costs for health care?
Observers have offered more than half a dozen explanations for Alaska’s extra-high health care costs. The list includes:
There is insufficient space allowed for this column to explore all these potential factors, but a few points are highlighted below.
Dr. Alan Gross, an Alaska orthopedic surgeon, has written that Alaska doctors often charge and collect 500 percent—or more—than the costs for obtaining the same service outside the state. These higher fees appear to be mostly charged by specialty physicians. Lori Wing-Heier, the Director of the Alaska Division of Insurance, told Alaska Dispatch News columnist Charles Wohlforth in 2016 that some specialist procedures cost 10 times as much in Anchorage as they do in Seattle.
Other observers have cited particularly risky and/or antisocial behavior by patients on the Lost Frontier that could increase health care costs. Along with Alaska’s well-known problems with domestic violence and alcohol abuse, doctors point to what they see as a tendency of Alaskans to present their medical problems later than other Americans. Alaskans, however, do not on average have higher rates of utilization of medical services than other Americans.
Alaska’s extremely high costs for health care and health insurance have generated some individual sad stories, including lost opportunities to start businesses and forced departures from the state.
It’s becoming increasingly clear that these high costs are having big impacts on Alaska’s economy and fiscal circumstances as well.
Two reports issued this year by the Anchorage Economic Development Corporation provide a window on the contortions health care introduces into economic discussions. The most recent outlook by AEDC celebrates job growth in the health care sector while noting declines in employment in oil and gas, construction, professional and business services, and state government.
Another AEDC report gives quite a different picture, however. A survey of more than 300 Anchorage businesses and organizations identified health insurance as one of the two top barriers to their organization’s growth, behind only the condition of the state economy.
Mark Foster, a long-time financial analyst and former Chief Financial Officer of the Anchorage School District, has even argued that the high costs of medical services in Alaska serve as a significant deterrent to the long-held dream of bringing natural gas on Alaska’s North Slope to market. His contention is that other expensive petroleum projects competing for investment dollars around the globe benefit from locations with much lower health care costs, a significant factor to consider for those deciding where to put in big money.
Whatever effect high health care costs might have on the prospects for monetizing Alaska North Slope natural gas, those costs are a giant driver in Alaska’s fiscal challenge. Thirty-five percent of the total state budget is now devoted to health care, according to an estimate by Dr. Gross, the Alaska orthopedic surgeon mentioned above (who also holds a master’s degree in public health). This figure appears to cover all the ways the State of Alaska spends in this area, including on employees of departments, teachers, University of Alaska employees, retirees, Medicaid, and prisoners. Health care expenditures for the State of Alaska have also increased as the overall budget has fallen for the fifth straight year.
Alaska health care costs appear to be unsustainable, as even those who some observers would perceive as the system’s winners are recognizing. Dr. Stanley Watkins, an Anchorage interventional cardiologist, told Alaska Public Media’s Annie Feidt in 2016 that “The prices are probably going to have to go down up here.”
A useful data point is that Alaska did not always stand alone on top of the health care costs mountain. An article by Natasha von Imhof (now a Republican State Senator from Anchorage) in Alaska Business Monthly in 2014 pointed out that the health care costs in Alaska and Wyoming were the same in 1990. Two decades later, Alaska’s costs had doubled, while Wyoming’s grew a quarter of that.
Dr. Robert Hall, an Anchorage orthopedic surgeon, was nodding to the same facts when he wrote in 2017 that medical fees in Alaska were “much more aligned with the rest of the country” 20 years or so ago. Dr. Hall observed that every other state has been undergoing “a gradual process of reduction,” and added that “Alaska will have to do this reduction more quickly but it cannot be done all at once if the system is to withstand the process.”
Whatever the pace of this reduction, there are a lot of ideas out there about how Alaska’s costs could be cut (or at least made to go up more slowly). With suggestions drawn from articles by Natasha von Imhof, Charles Wohlforth, and Columbia University economist Jeffrey Sachs, here’s a list roughly set out in order from smaller-scale proposals to more thoroughgoing changes in the system. (Note that an idea’s appearance on this list does not imply an endorsement of it.)
Alaska Common Ground is holding a series of events in Anchorage on Alaska’s health care costs over the next 6-12 months. This series will cover in more detail the costs and trends, the causes, the consequences, and potential remedies. Speakers will include a variety of experts, including doctors, on this critical topic.
Cliff Groh is a lawyer and writer in Anchorage. He is also the volunteer Chair of Alaska Common Ground, a non-profit organization that focuses on helping Alaskans understand and reach consensus on the major issues facing our state.
Janet McCabe, published in the Alaska Dispatch News, October, 3, 2017
On Thursday, Oct. 5, the state will start a new round of Permanent Fund dividend distributions. As each qualifying applicant receives $1,100, approximately $672 million will start rippling throughout the state, infusing all Alaska communities with new economic life, from our smallest villages to our largest cities. The per-person distribution reaches people in all parts of the state at all economic levels.
Dividend distribution is an annual phenomenon, unique to Alaska. Over the 35 years since the first dividend checks were distributed, Alaskans have come to rely on this regular infusion of cash. Some may take it for granted. But other nations have seen Alaska’s dividend as a model, useful to reduce or replace welfare programs by having confidence that individuals know what is best for themselves.
Gov. Bill Walker has called a special session of the Legislature beginning Oct. 23. Decisions made or postponed during this session could determine the sustainability of the dividend in the future. So, now is a good time to look at the benefits of the dividend. They add up to far more than its cash cost.
• The most obvious benefit is the stronger economy that results from the annual infusion of new money. The dividend is an economic stabilizer, “lifting all boats.” Without it, the current recession caused by the loss of oil-related and state jobs could be far worse.
• By mitigating poverty throughout Alaska, the dividend has helped people help themselves in an ongoing way. Many rural Alaskans rely on their dividends for heat and electricity. Dividends also help them buy the gas and gear that is essential to the work of subsistence hunting, fishing and gathering that feeds their families and communities, and sustains Native cultural traditions.
• As other nations have recognized, the dividend program is a way of reducing welfare and social service costs. In both urban and rural Alaska, loss of the dividend would make those who are already poor even poorer. More Alaskans would become homeless, adding to the difficulties of finding and keeping a job, and being self-supporting.
• Caught in homelessness, people are more prone to substance abuse and addiction and to crimes associated with addiction. Businesses, homeowners and communities are victimized. So, in addition to all its direct benefits to recipients, the dividend program helps the state avoid a significant amount of public expense for social services, public protection and incarceration.
• Perhaps the greatest benefit of the dividend is in its emphatic but unspoken annual message that the Permanent Fund should be preserved and sustained. This was a primary reason why Republican Gov. Jay Hammond and legislators of his time created the dividend program. They had seen how swiftly the $900 million from the 1969 Prudhoe Bay oil lease sale was spent on politically popular projects. They wanted future legislators to have public support for a more measured approach to spending Alaska’s newfound oil wealth. They wanted the Permanent Fund to be permanent.
The Permanent Fund now amounts to about $61 billion, of which $47 billion is protected by the Constitution; $14 billion is in the Earnings Reserve, which is unprotected. Unless the Legislature adopts a system that regulates appropriation from the Earnings Reserve, overspending could jeopardize the dividend, and ultimately the Permanent Fund itself.
Last session, legislators came close to establishing the needed structure. They adopted the well-tested percent-of-market-value (POMV) system used by most large foundations and institutions. Senate Bill 26 incorporates this system for distributions from the Earnings Reserve. Passed by both the House and Senate, SB 26 (often referred to as POMV) is awaiting conference committee and passage into law.
ction on POMV is needed now, not later. Otherwise, the Earnings Reserve could be spent without allowing time for it to replenish. Then the Legislature would cut the dividend program, despite its social and economic benefits, to balance the budget. The recession would be accelerated, need for public services would increase, and Alaska, once with so much potential, would be an impoverished state.
It’s useful to remember the favorite bumper sticker from the hard times of the late 1980s that read, “Oh Lord, please give me another $900 million. I promise not to p— it away.”
To explore this and other fiscal issues, Alaska Common Ground is inviting the public to a panel discussion of important goals and values in navigating the fiscal crisis. This first panel will be followed by a second panel of policymakers, including legislators and members of Gov. Walker’s office. They will discuss ways to move forward to achieve fiscal goals.
This free event is from 7 to 9 p.m. Thursday, Oct. 5, at 49th State Brewing Co., 717 W. Third Ave. in Anchorage. Do come and ask your questions to panelists at “Choosing Our Future: Alaska’s Fiscal Options.”
Janet McCabe and her family have lived in Alaska since 1964. Her education and experience are in community planning. She is actively involved in several nonprofit organizations, including Alaska Common Ground.