An engaged Alaskan democracy

Finally Fixing Alaska’s Long-Term Fiscal Issues

With fewer than 20 days left in the 2022 Alaska Legislative session, the Board of Alaska Common Ground encourages our members and friends to contact their legislative representatives to act now on long-term solutions to the state’s fiscal situation.

There are hopeful signs from both the Legislature and Administration that our representatives are serious about finally fixing Alaska’s long-standing fiscal problems. That is, balancing revenues and expenditures to avoid a long-term structural deficit.

Last summer the Legislature formed a bipartisan and bicameral Fiscal Policy Working Group to delve into the State’s fiscal problems and try to develop practical solutions. A consensus-based and well-reasoned final report was released in August that presented a set of recommended actions that would comprehensively address the fiscal issues and problems. However, despite three special sessions, in 2021 the Legislature took no actions to solve the problems.

In the current legislative session there has been progress in fixing the State’s fiscal problems. The Senate Finance Committee has approved Senate Bill (SB) 199 for consideration by the full Senate. SB 199 would set the percentage of the draw for state services and for PFDs from the Permanent Fund earnings. The draw would be 50/50 (state services/PFD) in FY 23, then be 75/25 until 2026. If in 2026 the State increases its revenues by $800 million to create a balanced budget, the draw would revert to 50/50; if not, it would remain 75/25. As of April 29, the Seante has not yet scheduled a vote on SB 199.

The House has passed a state operating budget for FY 23 that contains a PFD at $1,250 with an additional $1,300 energy relief check for each eligible Alaskan—when added together the payment would be essentially the same as SB 199 for FY 23. 

The House-passed budget would do some other prudent things with this year’s surplus revenue created by the recent higher-than-expected oil prices, including forward-funding K-12 education for FY 24, paying the remainder of oil and gas tax credits owed to producers, transferring over $1 billion to the constitutionally protected part (the principal) of the Permanent Fund, and rebuilding state savings accounts to about $2.2 billion (after being depleted by a decade of deficit spending).

In addition to the Legislature’s progress toward a sound fiscal plan, the Administration has expressed strong support for fixing Alaska’s long-standing fiscal problems. In a recent opinion piece in the Anchorage Daily News, Commissioner of Revenue Lucinda Mahoney stated: “We are presented with an opportunity to establish a fiscal plan. But policymakers must make a choice; we can spend our surpluses like policymakers of the past have — leaving us in an unstable fiscal situation when oil revenues dry up, or we can enact sound fiscal policies such as establishing an effective spending cap, replenishing savings, and establishing firm rules for spending the Permanent Fund distributions.”

There are significant differences of position on what a “sound fiscal plan” should contain, but there is strong interest from all the primary players in getting to such a plan.

Now, before the Legislature adjourns on or before May 18, is the time for Alaskans to let their representatives know we want a sound fiscal plan drafted and enacted, and that there have been way too many years of “kicking that can down the road.”

Some suggested “talking points” to communicate to your representatives are:

  • The State must have a sound and sustainable fiscal plan.
  • The plan must provide a structure for adequate funding of state services, capital improvements, a sustainable PFD, and other State financial obligations. It must also provide for continued growth of the Permanent Fund.
  • If the plan provides for a 50/50 draw from the Permanent Fund earnings for state services and the PFD, it must include new sources of State revenue so that there is no deficit spending.
  • Now is the time to develop and enact the plan. It is no longer an option for the Legislature to “Kick the can down the road.”

You can find legislator contact information and look up who represents you here. Scroll down to the bottom of the page if you need to look up your representatives.

Reflections on ACG’s Second Decade and Our Momentum

By Peg Tileston, Current and Founding ACG Board Member

Alaska Common Ground (ACG) launched into its second decade with enthusiasm and energy. Relying on our knowledgeable, hard-working board of directors to plan and produce forums and other issue responses, we continued to address Alaska’s fiscal morass and took on several other major projects.

ACG sent board members to the annual Center for Budget and Policy Priorities in Washington DC for several years. The conference brought together participants to examine various states’ budgets, the variety of revenue opportunities, as well as how each dealt with difficult public policy issues. From contacts made at the conferences, ACG worked with the Institute of Taxation and Economic Policy to produce two publications dealing with Alaska’s budgetary problems: “Hard Choices” and “The Impact of Three Revenue Options for Alaska”.

Encouraging dialogue continued to be a major component of ACG’s efforts during this period. We joined with Out North Theater and the Anchorage Interfaith Alliance to develop Understanding Neighbors, funded by a grant from the Ford Foundation which supported the use of art to encourage dialogue on difficult public issues. The theme was “The Role of Same Sex Relationships in Our Community”. Over 100 Anchorage participants were engaged and organized in groups with trained moderators leading sessions. Artists produced a series of videos that were shown at the start of each session to encourage thinking about the topic in a different way. Understanding Neighbors successfully deepened the way participants were able to talk about an uncomfortable issue and ACG received high praise for its role in the project and its outcome.

Our Let’s Talk Alaska and Deliberative Democracy initiatives brought citizens together in informal, respectful settings to share ideas and concerns on issues of importance to them. And with funding from the Atwood Foundation, and in conjunction with KTUU, ACG produced a series of public service announcements “We Are Alaskans” that emphasized the importance of Alaska’s diversity and the need to work together. All told, between 2001 and 2010, ACG presented over 18 forums on a variety of subjects. 

ACG Weighs in on Constitutional Convention

On the November general election ballot, Alaskan voters will be asked “Shall there be a Constitutional Convention”. At the March 16 board meeting, Alaska Common Ground’s Board of Directors unanimously passed a resolution supporting a “No” vote. Alaska’s Constitution has been held up as a model state constitution that secures our heritage of political, civil and religious liberty. A Constitutional Convention could re-write the entire Alaska Constitution. Groups advocating changes to Alaskan’s elections, judiciary, hunting and fishing rights, rights to privacy, Permanent Fund, and more are already laying out plans for fundamental and extremely controversial changes to our Constitution. These issues will pit Alaskans against each other, with out-of-state individuals and organizations pushing their national agendas that will not be in the best interest of Alaskans. The board is concerned that a Constitutional Convention during these polarized times will be contentious, costly and time consuming. Alaska Common Ground rarely takes positions on issues before the voters, but in the past has opposed a Constitutional Convention for similar reasons. We have joined “Defend Our Constitution”, a nonpartisan and broad-based coalition of Alaskans and Alaskan organizations to urge a “No” vote on this issue. 

ACG March 16, 2022, Resolution opposed to a Constitutional Convention

Reflections on ACG’s First Decade and Our Founder’s Vision

By Peg Tileston, Current and Founding ACG Board Member

Alaska Common Ground was founded in the fall of 1991. Alaska was just coming out of a severe financial depression caused primarily by bank failures. The political situation was messy which caused considerable consternation across the state. Walter Hickel had just been elected with approximately 41 percent of the vote.

It was out of this chaos the desire for an organization that focused on sound public policy was fostered. The effort was led by Esther Wunnicke – former Commissioner of Natural Resources, member of the Federal/State Land Use Planning Commission, and staunch advocate for strong citizen participation in government decision-making.

The first topic ACG engaged was whether Alaska should hold a Constitutional Convention. Alaska’s constitution requires a yes/no vote by Alaskan voters every ten years. A position paper and a forum described the numerous problems a yes vote would entail, not the least of which would be tearing apart a document considered one of the best state constitutions in the country. 

Alaska’s fiscal situation has held ACG’s attention since it started – from 1992 to 2000 alone, we held 10 forums (two of which were televised statewide). Forums on numerous other public policy issues were held too and ranged from Alaska’s high cost of health care to reconciling our urban-rural split to the role of the university. ACG produced position papers on these and other topics, most of which are still available on ACG’s website here and as we know… still relevant today.

ACG is extremely fortunate and grateful for the wisdom of Esther Wunnicke, Peg Tileston – and all our founding board/members – who set the organization on a solid path over 30 years ago. We recognize and thank this inspiring group of Alaskans that also includes Beryl Johnson, John Havelock, Wilda Hudson, John Reeder, Julie Kitka, and Pauline Utter.

Check out the original invitation to join ACG here.

Find all the current and former board members here.

Report on the Alaska Legislature: Decisions, Divisions, and Visions

By Cliff Groh – September 29, 2021 

The Alaska Legislature completed this year’s third special session September 14 by passing an $1,100 Permanent Fund Dividend for this fall and failing to adopt a fiscal plan. Gov. Mike Dunleavy reluctantly accepted the $1,100 amount while vowing to fight for a higher Dividend. He also issued a proclamation directing the Legislature to return for a fourth special session starting in Juneau on Monday, October 4 to address the short agenda of “an act or acts relating to a fiscal plan.” 

Observers are split on the likelihood of that fourth special session producing a sustainable fix to the State of Alaska’s structural fiscal deficit.

The Case for Optimism

You can find optimists regarding how fast Alaska can resolve its fiscal gap, and they include well-informed legislators such as Senate Minority Leader Tom Begich (D.-Anchorage) and Rep. Ivy Spohnholz (D.-Anchorage), Chair of the House Ways & Means Committee. They tend to cite the recent work of the Fiscal Plan Working Group that achieved agreement on the description of the problem and came up with solutions. That bipartisan and bicameral panel delivered a report last month with 10 substantive recommendations.

Sen. Begich told The Hill last week that lawmakers are concentrating on four main elements to produce a sustainable fiscal plan, and the four on his list are a shorter version of the Fiscal Plan Working Group’s 10:

  • Changing the formula for calculating the Dividend each year
  • Embedding in the Constitution the allocation of Permanent Fund earnings between Dividends and public services/projects (in practice, constitutionalizing the allocation would seem to resolve the question of the Dividend formula by setting the dollars available for the annual Dividend)
  • Imposing a tighter spending limit
  • Adding new revenues

The Case for Pessimism

Pessimists, on the other hand, have their own long list of reasons why no deal will be reached this next (fourth) special session. The obstacles include: 

  • A highly divided Legislature on ideological and philosophical lines
  • A public that includes many Alaskans with unrealistic expectations of a relatively painless solution to Alaska’s structural deficit
  • A tiny House Majority Coalition that finds it difficult to conduct business on the floor
  • Fractures in the Senate that effectively produce two caucuses within the Senate Majority, with rumors flying that the Senate (and—less plausibly—the House) will re-organize soon
  • Tribalism within the Legislature that has combined with fear of social media exposure to reduce the after-hours cross-party socializing that used to make compromises easier
  • An unusually high degree of rancor and even “hatred” within the Capitol
  • A Governor and a group of legislative allies who refuse to support legislation that would pay for the jumbo Dividends that this faction has advocated, preferring instead to overdraw the Permanent Fund as “bridge” funding for a transition to sustainability

Wild Cards:   Gov. Dunleavy’s Re-Election Campaign, Reapportionment, and a Potential Constitutional Convention

Alaska had the most complex fiscal politics in the United States before we got to this 2021-2022 election cycle, and now three other elements make it even more complicated.

First, there is the odd role of Gov. Dunleavy. He has staunch supporters among Republican lawmakers. It is striking, however, how much opposition he triggers among powerful Republican legislators as well as in Democrats. Fierce critics of the Governor’s approach to fiscal matters include GOP lawmakers like Sens. Bert Stedman of Sitka, Click Bishop of Fairbanks, and Natasha von Imhof of Anchorage. (Each are members of the powerful Senate Finance Committee, and Stedman and Bishop are the Co-Chairs.)

There is much speculation in the Capitol among the bipartisan anti-Dunleavy group about what steps would be most likely to help or harm his chances for re-election. Thus the Governor’s proposed constitutional amendment for a 50/50 allocation of Permanent Fund earnings is held up for reasons both substantive and political. That is, the opposition is powered not only by fears of billion-dollar deficits, but by concerns that putting that amendment on the ballot would aid the Dunleavy campaign.

Then there’s reapportionment. House Republican legislators lament the fact that there is a House Majority Coalition mostly composed of Democrats when the voters elected six more Republicans than Democrats to the House, and they hope that the redistricting that occurs for next year’s election will produce a Republican-only House majority in 2023. This thinking tends to make some Republicans reluctant to compromise and want instead to wait until more like-minded lawmakers arrive in Juneau. Conversely, some Democrats advise making a deal now to avoid a more difficult environment after this current 32nd Legislature ends.

Finally, there are hopes and fears about another once-in-10-years event, the vote in November of 2022 on whether to have a constitutional convention. This could be the biggest game-changer in Alaska politics, both regarding fiscal matters and a whole bunch of other subjects.  The political dynamics of a potential constitutional convention resemble those of reapportionment, with those who believe they will benefit wanting to hold up on big decisions and those who are scared of coming up on the short end later feeling incentives to move now.

The Upshot:   It’s Probably Unlikely that a Fourth Special Session Will Produce a Big Fiscal Fix, and a Higher Dividend than $1,100 This Year Depends on that Big Fiscal Fix

Matt Buxton of the Midnight Sun Memo wrote last week that:   “I think that right now the chances are high that the Legislature may just immediately gavel out [of the fourth special session] or just let the session simmer with the occasional hearing and plenty of technical floor sessions.”

That prediction may well be correct, and it might not go far enough.

Some lawmakers and observers are pushing for the Legislature to work with the Governor to cancel the fourth special session and hold off on big fiscal decisions until the regular session starts in January, when legislators have more time and more staff than in the special sessions (which are constitutionally limited to 30 days).

Paying a Dividend of more than $1,100 this year would require some combination of overdrawing the Permanent Fund/raising taxes/additional budget cuts, so most Legislature watchers believe that achieving a long-term fix would be necessary before there would be the votes to appropriate more money for a larger Dividend.

The Competing Visions Undergirding the Divisions

Counteracting these negative factors to produce a sustainable fix to Alaska’s structural fiscal deficit is going to take leadership, courage, creativity, and a spirit of compromise. Whatever the timing, the way those big decisions will come out depends on the visions driving them.

This is particularly true given just how deep the gulf is over which way Alaska will go. Contrast two big-picture looks at our state’s future.

The Alaska Municipal League has catalogued an “infrastructure deficit”  regarding improvements to highways, deferred maintenance of State-owned buildings and schools, broadband, ports and harbors, housing, and other categories that totals more than $27 billion. (You can find this list at the “Unfunded & Underfunded Priorities” section at https://akfiscalfutures.com on the Internet.)  Supporters see these items as critical investments to help make the 49th State desirable and competitive in the necessary transition away from an economy and a fiscal system based on oil. Backers of this vision tend to push for taxes to pay for spending on this list as well as other items.

An influential Republican legislator pointed towards a different path in a meeting with me this month, however. After acknowledging that after adjusting for inflation and population growth the State of Alaska is now spending at levels seen in the 1970s, the lawmaker suggested that the spending should go down to the levels of the 1960s. Advocates for this approach stress the importance of much greater additional cuts to the conventional budget paired with jumbo Dividends.

Alaskans need to decide which vision is more desirable for our state.

Cliff Groh has been a board member of Alaska Common Ground for more than 20 years. As a Board member he has facilitataed discussion of the state fiscal situation and as an individual has been a strong advocate for solving the state’s fiscal problems. He spent the just-concluded third special session in Juneau meeting with legislators and legislative staff (while agreeing not to identify them), and he also writes an e-mail newsletter called “Fiscal Cliff’s Notes.”  (You could get on the list by writing him at cliff.groh@gmail.com, and you can read it in blog form at https://www.cliffgroh.org/alaska-fiscal-cliff-notes.)  

Alaska’s Cockpit Standoff and the Need to Land the Plane

Cliff Groh, Opinion Piece in the Anchorage Daily News, July 29, 2021

The Alaska Legislature has created a Comprehensive Fiscal Plan Working Group to produce a fiscal plan before the Legislature convenes again in a special session currently set to start August 2. Unusually, this informal joint committee includes equal representation from each caucus in the House and the Senate.  Depressingly, there is a substantial chance that the Legislature will either do nothing or something very short-term this year.

Either outcome would be unacceptable. It is difficult to solve the State of Alaska’s yawning structural deficit, and it is also urgent to do so. 

It’s hard to come up with a fiscal fix largely because Alaska appears to have the nation’s most complicated fiscal politics. The fiscal policy here on the Great Land is pretty complicated by itself. The law that the Legislature adopted in 2018 to spend Permanent Fund earnings sustainably in the budget is a novel—and little-understood—concept for a state government.   That legal change three years ago created a system called Percent of Market Value (POMV).  Under the POMV system, Permanent Fund earnings now provide more than 60 percent of the State of Alaska’s revenues—making Alaska more of an endowment state than an oil state.  The details of oil taxes are complex as well.

But it’s the politics of paying for what the State of Alaska does that are really complicated.

In every other state, deciding how to pay for the budget is basically like a two-sided wrestling match between people who mostly see themselves as budget beneficiaries and people who mostly view themselves as taxpayers. 

In Alaska, by contrast, it’s all different. The Permanent Fund Dividend, the Permanent Fund, and oil taxes combine to make it much weirder on the Last Frontier. In Alaska, fiscal politics resemble a movie scene where five people are pointing guns at each other in the cockpit of an airplane—and the airplane is running out of fuel. Instead of a straightforward two-wrestler match, Alaska has a hopped-up cross of Reservoir Dogs and Snakes on a Plane.

As is usually true in politics, the people with guns in the cockpit are defined by what they fear the most. Let’s go through them one by one—and put a face on each person holding guns.    

One person pointing pistols is someone who most fears additional cuts to the conventional budget. Think of a parent activist in Great Alaska Schools concerned about the education of that parent’s children, given that the State of Alaska pays close to 75 percent of the total costs of K-12 education in Alaska and K-12 spending is more than a fifth of the State budget. 

The second person with guns up is someone who most fears the restoration of broad-based taxes in Alaska, particularly a graduated personal income tax like our state had from 1949 to 1980. That second person might  be a surgeon—I’ve met one who made $5.5 million in net income from work in our state in one year without paying a penny of broad-based taxes to the State of Alaska. 

The third person holding guns is someone most afraid of more cuts to Permanent Fund Dividends from what they would be under the Dividend formula created in the 1980s. That person could be lower-income and happy about how Dividends help pay the bills.

The fourth person with handguns out is someone most afraid of increased taxes on the oil industry. Think of an oil company executive—or maybe an oilfield worker—here.   

And the fifth person pointing guns at the others is someone most concerned about the Legislature overdrawing from the Permanent Fund earnings so that there is less money to pay for what the State of Alaska’s government does in the future.  This person probably plans to live in Alaska a long time and counts on there being good roads and public safety in 2041 as well as in 2021.   

So if it seems like Alaska’s fiscal politics are unusually paralyzed, all those gun-pointers in the cockpit help explain why. 

The reason that the cockpit standoff wasn’t a problem before the last seven years or so is that the plane used giant wads of oil money for fuel without much need for choices among the diverse collection of passengers.  For about 35 years—starting around 1980—the State of Alaska essentially paid the bills with the big annual revenues from oil taxes and oil royalties. But that system stopped working due to the combination of declines in Alaska oil production, drops in world oil prices, and a new oil tax system.  Unless oil prices shoot up—and, crucially, stay up—well above recent highs, that old world of oil money financing the State of Alaska is not coming back.   

The State of Alaska has responded to the dramatic fall in oil revenues since 2014 by spending most of its savings outside the Permanent Fund as well as by cutting spending to a level below that seen in the 1970s after adjusting for population growth and inflation. (The calculations in this piece are based on Unrestricted General Fund (UGF) dollars, the most common definition of the budget in Alaska.) 

I have set out in detail elsewhere my comprehensive proposal for fixing our state’s structural deficit. Briefly, I favor amending the Alaska Constitution to include the POMV system and guarantee the Dividend at a sustainable level; the reinstatement of broad-based taxes focusing on higher-income Alaska residents and non-residents (which means that I prefer the personal income tax over a statewide general sales tax); a moderate increase in taxes on the oil industry; and a continued emphasis on searching for efficiencies in the budget (while recognizing that the budget might need to go up in certain areas, such as the capital budget). 

Your opinions may differ, and I am always willing to discuss potential solutions with Alaskans. Getting to an agreement on a long-term fiscal fix is tough in Alaska, mostly for the reasons laid out above.  What is completely unacceptable, however, is going with no or little action over and over. Folks, let’s put down the guns, go big and get creative, and land this aircraft safely. 

__________________________________________________________

Cliff Groh has studied Alaska’s fiscal system over the past four decades, and his work has included service as the legislative assistant who worked by far the most to develop and get passed in 1982 the bill that created the Permanent Fund Dividend. He plans to go to Juneau for the next special session on the big-picture fiscal issues.

To Protect the Dividend and Revive Alaska’s Economy, Consider Taxes

Anchorage Daily News, May 2, 2021 – Opinion by ACG board member Janet McCabe

Mouhcine Guettabi, an economist with the Institute for Social and Economic Research, has warned that uncertainty about Alaska’s fiscal future has a cost of its own. The resulting caution among prudent investors discourages productive development and economic growth.

Now it appears that many Alaskans are leaving the state for greener pastures. Under normal conditions, populations grow, but during the past four years, Alaska’s population has declined.

Our legislators’ current push to fund the education budget and avoid pink slips for teachers highlights their recognition of the economic cost of uncertainty. Good for them!

Legislative action — or inaction — can have an inordinate impact on Alaska’s fiscal future, as it did on May 8, 2018, when legislators adopted Senate Bill 26, Alaska’s Percent of Market Value, or POMV, endowment system. Then they pulled together to put annual draws from the Permanent Fund Earnings Reserve Account on a sustainable basis — just in time to replace steep declines in petroleum revenue.

This year, POMV yielded $3.7 billion, or about 70% of the state’s spendable revenue. It is expected to produce a similar stream of revenue in the future — provided the spending limits of the law are followed.

People often have trouble understanding how important it is to avoid POMV overdraw. Jennifer Johnston, former state representative, put it well. She said POMV turned the Permanent Fund into “a perpetual self-licking ice cream cone.” Overspending makes the ice cream cone melt and eventually disappear. Conversely, by putting more money into the Permanent Fund Earnings Reserve, the Legislature can make the ice cream cone grow.

This year, the Legislature may be able to resolve the difficult issue of “the split” of POMV earnings, i.e., the percentages for state services and for dividends. In her recent commentary, Sen. Natasha von Imhof proposed a different approach that would pay the dividend from a source outside of POMV “using 100% of the oil royalties deposited into the Permanent Fund each year.” She commented, “This is something the state can afford over time and is truly the fair share calculation.” Her concept could solve the issue.

But, even if the entire amount of POMV revenue is available for state services, the Legislature will need other resources to pull the economy out of the current recession.

Fortunately for the short run, Alaska has received a flood of federal money this year with more to come in 2022. Tim Bradner’s recent commentary did a good job of describing the inflow from Washington, D.C. — about $5 billion last year through the CARES Act and this year, probably another $3 billion, plus more if President Joe Biden’s infrastructure bill is adopted. So now federal money is alleviating personal hardship and briefly stimulating the economy in the same way as the state dividend.

Also encouraging is support by Gov. Mike Dunleavy and legislators on both sides of the aisle for state bonding for infrastructure projects. Improvements to the ferry system, roads, airports, bridges, and the like would address deferred maintenance and a backlog of needed capital improvements throughout Alaska.

In the process, new jobs would be created and Alaska’s economy reinvigorated. Optimally, projects that have been identified and designed by the state would be “shovel-ready” when and if President Joe Biden’s Build Back Better plan passes.

But, for a lasting solution to Alaska’s fiscal crisis, and for long-term economic stability and prosperity, we must consider taxes.

Today’s Legislature is facing fiscal deficits that have been intensifying for at least nine years. All available sources for discretionary spending have been drained. Alaska’s rainy-day fund, the Constitutional Budget Reserve, or CBR, that maintains the state’s ability to adjust and respond to emergency situations, is owed about $12.9 billion.

State services have already been cut to bare bone.

As a source of additional revenue, a state sales tax has been given the most consideration. But a statewide sales tax would be particularly hard on rural Alaskans where prices are high, and cash is scarce. It would be on top of municipal sales taxes in many locations.

By standards of fairness, the clear winner is a progressive income tax, like the one that supported our state in the early days. Only those who can well afford to pay would be taxed. Taxing income earned in Alaska by outside residents is also fair. Alaska residents pay taxes to other states where they earn income, but currently, this is a one-way street.

Legislators have repeatedly considered taxation as a source of ongoing revenue. In the meantime, the fiscal crisis intensifies. A tax law enacted this year will take a year and a half to produce revenue.

By buckling down and truly collaborating, the 32nd Alaska State Legislature could take steps that will pull us out of our current recession and launch Alaska on a stable and prosperous fiscal future.

Janet McCabe has been following Alaska’s fiscal issues since she and her husband, David, came to Alaska in 1964. She is a member of Alaska Common Ground and Commonwealth North.

Letter to Legislators 3-3-21

Letter to Senators 3-3-21

March 3, 2021

The Honorable Senator
Alaska State Capitol
Juneau, AK 99801-1182

Dear Senator:

Alaska Common Ground is a non-partisan 501(c)(3) nonprofit organization with a substantial and growing statewide membership. We have held dozens of events discussing Alaska’s fiscal policy over the past three decades which have attracted thousands of attendees. We are sending you this letter to emphasize the concerns they have shared with us that are described in the attached documents.

It is crucial that our legislators work together to develop solutions that address the current fiscal crisis.

First it is critical to Alaska’s fiscal future that the Permanent Fund be protected from overspending that prevents the growth necessary to increase yields that can support our future needs.

We also cannot emphasize enough the need to provide the necessary funding for constitutionally required public services including education, public health, and public safety.

The Legislature must adopt new revenue sources, including a graduated income tax.  This is critical to closing the budget deficit.

This legislative session is the time to forge a solution to this crisis.  Each year of delay makes an already pressing problem worse and discourages investment in our state.

Respectfully,
Dick Mylius, Chair
On behalf of the Alaska Common Ground Board of Directors

Enclosures:
1) 12-page graphic guide to Alaska’s fiscal crisis
2) Two-page analysis of Alaska’s fiscal future prepared by Alaska Common Ground in August 2020.   

Alaska’s fiscal crisis requires a long-term plan now

Anchorage Daily News, Feb 13, 2021 – Cliff Groh

Alaska has kicked the can down the road for years, but we have run out of road when it comes to paying for vital public services like teachers, roads, and public safety. This fiscal crisis demands action now.

• Oil revenues have collapsed and are not projected to recover. While oil revenues accounted for 92% of the state of Alaska’s revenues seven years ago, last year, oil generated less than 25% of those revenues. (These figures are for Unrestricted General Fund, or UGF, dollars, the most common measure of Alaska’s state budget.) After adjusting for population and inflation, the state of Alaska is now getting less oil revenues than it did in the mid-1970s, before the oil boom started.

• The state of Alaska has cut the budget substantially — it is 43% lower this year than eight years ago. After adjusting for population and inflation, the state’s spending is lower now than before the big oil revenues started to arrive four decades ago. The biggest spending items are K-12 education, health care, and Permanent Fund Dividends.

• Besides reducing the budget, the state’s other main response to the dramatically lower oil revenues has been to spend savings, which are now almost exhausted outside the Permanent Fund.

• To address the collapse in oil revenues, the Legislature passed a law in 2018 called Percent of Market Value, or POMV, that allows the sustainable spending of Permanent Fund earnings to help pay for both conventional public services and dividends. Permanent Fund earnings now provide more than 70% of the state’s revenues.

• Even with all this budget-cutting, the state of Alaska faces a deficit each year of at least $1 billion — and closer to $2 billion per year if the state follows all the laws on the books, including the historical statutory formula for paying dividends. This is a structural fiscal deficit on the order of 20% or more.

Alaskans pay the lowest taxes in the U.S., even when local taxes are included and dividends are excluded. Alaska is the only state without a broad-based tax like an income tax or a statewide sales tax, and more than three-quarters of the states have both taxes. Even Gov. Mike Dunleavy — who has previously opposed taxes — now proposes “additional revenue sources” of $900 million-$1.2 billion each year starting in mid-2022.

Some propose overdrawing from Permanent Fund earnings, but that course will have lasting effects. Each $1 billion spent beyond the sustainable POMV limit increases the deficit by $50 million annually forever by lowering the savings that generate those earnings.

Many Alaskans hope for a painless solution or external savior, like much higher long-term oil prices, a doubling of Alaska oil production, or a massive Alaska-only bailout from Congress. However good those events might sound, each is a fantasy that distracts us from saving ourselves.

The hole is so big — and the solutions so painful and controversial — that political reality joins equity in requiring a multi-faceted approach that spreads that pain.

Here’s the Alaska Plan: a constitutional amendment to help keep the Permanent Fund and the dividend permanent while creating a more sustainable dividend formula; a moderate increase in oil taxes; a fair broad-based tax, such as an income tax that would capture income earned in Alaska by non-residents; and maintenance of budget discipline.

And this all needs to happen this year, because delay or procrastination just digs the hole deeper. We need to help the Alaska economy recover during the pandemic, and the federal government’s COVID-19 relief package could help there. We also need a long-term fiscal plan for our state, or else Alaska will face an even more brutal fiscal reckoning triggering a lasting recession featuring falling real estate values and a continually shrinking population. Let’s buckle down and aim for a better future with this Alaska Plan.

Cliff Groh has published three graphical guides to Alaska’s fiscal crisis. All are available for free download at www.cliffgroh.org. He is also available to make cartoon-packed presentations on our state’s money problems.

Cliff Groh – Alaska Common Ground board member.

Martin Luther King Jr.’s timeless words for Joe Biden

Commentary in Anchorage Daily News, January 20, 2021 – Janet McCabe, ACG Board Member

The national holiday commemorating Martin Luther King gives us an annual reminder that American democracy was created for all people.  This is the fundamental principle that has sustained our nation since its origins, and it will continue to do so beyond the current turbulence.

 As he said in his “I Have a Dream” speech in America’s capitol 58 years ago, “When the architects of our republic wrote the magnificent words of the Constitution and the Declaration of Independence, they were signing a promissory note to which every American was to fall heir.  This note was a promise that all men, yes, Black men as well as white men, would be guaranteed the “unalienable rights of life, liberty and the pursuit of happiness.”

Reverend King went on to urge peaceful protest: “In the process of gaining our rightful place, we must not be guilty of wrongful deeds. Let us not seek to satisfy our thirst for freedom by drinking from the cup of bitterness and hatred.  We must forever conduct our struggle on the high plane of dignity and discipline.  We must not allow our creative protest to degenerate into physical violence.  Again, and again, we must rise to the majestic heights of meeting physical force with soul force.”

These timeless words are especially relevant today!  For four years, under President Donald Trump, white supremist groups have flourished and hate crimes have increased.  The FBI reports that hate-based murders were the highest on record in 2019.  Trump’s reckless presidency has provided a cauldron for self-reinforcing groups who need to spread hate against others to maintain their own sense of identity. 

The January 6, 2021 attack on the U.S. Capitol Building, when Vice President Mike Pence was about to certify the election of President Joe Biden and Vice-President Kamala Harris, has given fresh relevance to Reverend King’s words.  Many ordinary citizens have reeled in shock at the degeneracy of the attack on the Capitol.  National leaders have begun to search for meaning in the event, and a new and refreshing sense of the importance of truth is emerging.  

Senators and representatives who knowingly denied the reality that Joe Biden and Kamala Harris won the election have been widely criticized for their lack of integrity. Some have retracted their denial and expressed repentance.  This is a way of helping the nation to heal from the horror of the attack on the citadel of American democracy.  Listening to the idealistic words of Martin Luther King will also help, as will the words of Abraham Lincoln who urged “malice toward none” and “charity for all”. 

Even during the inauguration, tensions continue across America, in state capitols and in Washington, D.C.  President Elect Biden faces huge challenges, but his outward calm and systematic approach is just what is needed by a nation of people with frayed nerves. 

As was true of Lincoln, Biden speaks about national needs, not about himself. When he assumes the presidency, he wants to focus on what he sees as the immediate priority in America: saving lives by working with the states to get Americans vaccinated and protected against COVID-19.  Also high on his list is financial assistance to people harmed by the recession, people who are having to choose between paying the rent and feeding their children. 

At the beginning of Biden’s Presidency, it is likely that the Congress is embroiled in concluding the impeachment of former president Donald Trump.  Anticipating these circumstances, President Elect Biden has proposed that, if necessary, Congress divide its time, devoting half-days to impeachment, and half-days to confirming his cabinet and working on measures that will accelerate nation-wide vaccinations, save lives, halt the pandemic, and restore the economy.  How beautifully task-oriented and level-headed, like a breath of fresh air in a hugely challenging time. 

As the new Congress and administration move forward to do the work of the nation, Martin Luther King’s timeless words will be heard: “Again and again, we must rise to the majestic heights of meeting physical force with soul force.”

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Janet McCabe and her husband, David, came to Alaska in 1964.  She is a member of Alaska Common Ground and Commonwealth North.

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