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.”

__________

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




Peril’s, Possibilities, and a Path: Alaska’s flight to somewhere

By Cliff Groh
Cartoons by Peter Dunlap-Shohl
Graphic Assistance by Quentin Bidwell and Nathan Bradford
October 2020

Long Version Flight to Somewhere

Flight to Somewhere Booklet

Note from Cliff Groh

I have researched, written about, and given speeches over decades
about Alaska’s public finances. Since circumstances have
deteriorated even with all my efforts as well as those of others, I
decided to move beyond writing op-eds and giving PowerPoint
presentations to work with a cartoonist and specialists in graphics to
prepare this booklet on Alaska’s fiscal crisis and the options to
address that crisis.

This booklet aims to help increase understanding, dispel fantasy, and
fight dishonesty and folly. It also expresses my values. At the end I
offer a plan.

In the appendices, there is a glossary of key terms plus an Alaska
fiscal timeline and notes on the sources for the numbers used in this
graphic booklet.




Alaska faces huge short-term and long-term budget problems, and the Permanent Fund is at the center of both

Author: James Brooks | Anchorage Daily News | December 20, 2021

Note: You can read the article on the ADN site here. Board member Cliff Groh is quoted as part of this article.

Shortly before his death in 2005, Jay Hammond concisely expressed his vision for the Alaska Permanent Fund.

“I wanted to transform oil wells pumping oil for a finite period into money wells pumping money for infinity,” the former Alaska governor wrote.

For the first time since the Permanent Fund was created in 1976, the state of Alaska is seriously considering a step away from that vision. Gov. Mike Dunleavy has proposed spending billions from the fund to pay for a $5,000 stimulus in 2021. Such a stimulus is badly needed, economists say: Unemployment is high, thousands of Alaskans aren’t caught up on their rent and many residents don’t have enough to eat.

That stimulus would have a long-term cost. The Permanent Fund’s investment earnings now account for over 70% of state revenue. Spending more from the fund means less money to invest and bigger deficits in the future. In turn, that would mean more tax increases and cuts to services.

The debate between short-term needs and long-term needs is expected to consume the opening months of next year’s legislative session because Dunleavy is requesting action by March.

To short-circuit that argument, some state experts are suggesting a third way: Short-term spending now, but an agreement on future tax increases to reduce deficits in the long run.

In 2018, lawmakers passed a bill that created an annual transfer from the Permanent Fund to the state treasury, and that money has kept the state afloat even as oil tax revenue has crashed.

In the fiscal year that starts July 1, oil will provide 19% of the state’s revenue, the lowest figure since 1960, according to state projections and historical figures kept by the nonpartisan Legislative Finance Division. The annual transfer from the Permanent Fund will account for 71% of the money the state spends on schools, roads, health care and other services.

Because the Permanent Fund is now so important to state revenue, lawmakers have taken extraordinary efforts to follow the 2018 law, even if it means cutting the Permanent Fund dividend in the process. (This year, state tax revenue has dropped so much that Alaska will likely have a small deficit even with no dividend.)

Many lawmakers have kept $100 billion as a target in their minds.

If the Alaska Permanent Fund reaches $100 billion, an average of $5 billion per year would flow from the fund to the treasury under the 2018 law, enough to pay for services and a small dividend.

If the fund keeps growing, the transfer would grow as well, keeping pace with inflation and services needed as the state’s population grows. The state could keep running without a sales tax, an income tax or higher taxes on oil companies.

The problem is getting to $100 billion.

On Nov. 30, the fund stood at $73 billion, and the Permanent Fund’s tentative forecasts indicate it will not reach $80 billion until 2030. Less than two weeks after the fund hit $73 billion, Dunleavy suggested his $6.2 billion spending plan.

The fund has enough money to pay for the plan — its value has risen significantly this year — but the governor’s proposal is about double the spending limit approved by lawmakers in 2018 and would drop the fund’s value.

“What the governor is proposing is that we take nearly 10% of the fund in one fell swoop, which I think will result in a significant loss to the overall value of the Permanent Fund, and that extreme whack at the fund, it will most certainly affect the future,” said state Sen. Natasha von Imhof, R-Anchorage.

The fund has earned an average of 6.44% annually over the past five years. Spending an extra $3 billion this year would cost the state over $1.9 billion in missed earnings over the next 10 years.

“How do you get to $100 billion if you take 10% of it in one fell swoop?” von Imhof said.

“As a realistic matter, it might make it impossible to get there,” said Rep. Zack Fields, D-Anchorage.

Since 1976, the fund has been capitalized by oil revenue, mostly from Prudhoe Bay, and Fields said Alaskans shouldn’t expect another Prudhoe Bay.

“I mean, you don’t want to plan on wishful thinking. I hope that happens, that would be great. But, you know, you don’t want your whole future to be contingent on that,” he said.

Others say the crisis happening now is more important than what might happen in the future.

Short-term needs

“Providing cash to people right now is probably one of the most efficient and effective ways to help reduce hardship,” said LaDonna Pavetti, vice president for family income support policy at the Washington, D.C.-based Center on Budget and Policy Priorities.

This week, the center analyzed U.S. Census Bureau data collected in the last week of November and the first week of December. It found that more than a third of Alaska adults are having problems paying for their normal household expenses. Almost 1 in 5 aren’t caught up on their rent. And more than 1 in 10 say their household doesn’t have enough to eat.

Alaska had 23,500 fewer jobs in November 2020 than it did in November 2019, according to figures published this week by Alaska Department of Labor and Workforce Development.

“If there was ever a good time to give people a chunk of money, it’s today,” said Ed King, an economist who formerly worked for the state Office of Management and Budget but now operates a private firm.

Announcing his proposed budget on Dec. 11, Dunleavy said, “Alaskans and the private sector need assistance now. Businesses that have been devastated, and Alaskans that are suffering, will benefit from immediate action by the legislature placing money into the people’s hands by March.”

The governor’s proposal calls for a $1,900 payment — costing about $1.2 billion — in the spring. A second payment, expected to be above $3,000, would come after the state’s new fiscal year starts July 1. It would cost about $2 billion, according to Permanent Fund Corp. estimates.

“I think it’s necessary, perhaps even prudent, to tap some portion of the Permanent Fund to stabilize economic activity,” said economist Mouhcine Guettabi of the Institute of Social and Economic Research at the University of Alaska Anchorage.

Pavetti suggested that a payment targeted at the poorest Alaskans might be more cost-effective. Dunleavy has proposed a payout through Alaska’s Permanent Fund dividend.

That would help him fulfill a 2018 campaign pledge to support the old formula the state used for the annual Permanent Fund dividend. The state hasn’t followed that formula since 2016, but it still remains law. The governor has proposed changing the law to a smaller payout, if Alaskans approve the change in an advisory vote.

“I believe the governor’s FY22 budget approach strikes a reasonable balance between immediate needs of our neighbors who have been struggling for much of this year and the longer-term concerns of stabilizing Alaska’s economy and protecting and growing the Permanent Fund for the future,” said Rep. Cathy Tilton, R-Wasilla. “Obviously, I would much prefer if we didn’t have to strike that balance and make those choices.”

Rep. Cathy Tilton, R-Wasilla, in the state Capitol in Juneau, March 2020. (James Brooks / ADN)
Rep. Cathy Tilton, R-Wasilla, in the state Capitol in Juneau, March 2020. (James Brooks / ADN)

The problem is that even with the governor-endorsed formula change, the state still projects deficits — more than a billion dollars each year through 2025, and diminishing to just under $700 million by 2030.

Long before then, the Permanent Fund will be out of spendable money.

Economists suggest a middle way

Earlier this year, Anchorage attorney Cliff Groh, one of the authors of Alaska’s 1982 Permanent Fund dividend law, wrote a lengthy strategy that could provide a path to balancing the state’s short-term and long-term needs.

In brief, Groh’s strategy involves an overdraw from the Permanent Fund this year but also passing a tax that would take effect in 2022. Revenue from the tax would offset the investment losses from the overdraw and make Dunleavy’s proposed new dividend formula practical.

Economists have separately endorsed similar ideas.

“In an ideal world, we would be ‘overdrawn’ in the fund but at the same time setting the course for either future taxes or some sort of revenue that’s going to balance the budget,” Guettabi said. “That doesn’t seem to be the case — we have one part of the equation but I’m not sure we have the other one quite yet.”

Groh prefers an income tax over a sales tax, and the Alaska Department of Revenue has previously said that it would take time to set up an income tax.

“What the Department of Revenue says is that it takes about 18 months, and that’s a fact,” Groh said.

The time needed to set up a tax would reduce its impact: Alaska would have time to rebound from the pandemic-caused recession before the new tax begins.

“That’s kind of what I hope comes out of this whole conversation: We don’t just solve a (short-term) problem, we also address the long-term, and we start working towards a solution,” King said, not referring specifically to the Groh plan. “So if you know it’s going to take at least a year to start generating revenue, you need to start having those revenue conversations a year before you need them, which is now.”

Dunleavy’s 10-year fiscal outlook acknowledges the possibility. Starting July 1, 2023, it lists more than $1 billion in undefined “other revenue sources.”

“Over the next two years Alaska’s economy will rebound from the pandemic-induced recession and as soon as fiscal year 2023 may be healthy enough to bear additional revenue measures,” the outlook states.

Any new taxes, changes to the Permanent Fund dividend formula or overdraws from the Permanent Fund must first be approved by the Alaska Legislature.

Neither the House nor Senate have selected leaders so far. The legislative session begins Jan. 18.

About this Author



Oh, for bipartisanship

Vic Fischer | Anchorage Daily News | November 18, 2020

In the wake of a tumultuous election season, now is a good time to seek a model of political goodwill that has been sorely missing from our state since Gov. Mike Dunleavy took office two years ago. It’s amazing how extreme partisanship has infected the most recent round of campaigning, giving rise to vicious divisiveness, mean advertising, smearing of reputations, twisting of facts and outright lies.

It wasn’t always so, at least not in Alaska.

When I came to Alaska 70 years ago, I rapidly became part of my community, Anchorage, and got to know people throughout the territory – village Natives, sourdoughs, bank presidents, bureaucrats, veterans like me, and the like.

Parties existed, elections were held, and extremism was very rare. Imagine: in the 1950s, one Territorial House of Representatives had 21 Democrats and 3 Republicans, and two years later, we had 20 Republicans and 4 Democrats in the House (or some such extremes). As you can see, party allegiances were pretty fluid.

Far more important was the ability of people to work together. The fight for statehood is a perfect example. The official Alaska Statehood Committee was chaired by Republican Robert Atwood, appointed by a governor who was a Democrat, and consisted of legislative and business leaders of both parties. We became a state because we could work together.

Take Alaska’s Constitutional Convention of 1955-56. I sat there for 90 days next to Barry White, a Republican businessman. He had been president of a citizen’s lobby for statehood that we had helped organize, and I was vice-president. We were the best of friends.

The convention was totally nonpartisan. It had a firm rule: Political parties were not allowed to even be mentioned on the convention floor. And we functioned extremely well under such a rule.

Alaska’s Legislature has functioned for many years on a bipartisan basis. It has been particularly successful when we had a governor who could work with legislators regardless of their party. Bill Egan, Wally Hickel and Jay Hammond are excellent examples of such governors.

Let us hope that Alaska may yet experience a new era of bipartisanship as we put the 2020 election behind us and prepare for a new legislative session. That would be the foundation for successfully serving all Alaskans, rather than just special interests.

Vic Fischer served in Alaska’s territorial Legislature and its state Senate. He is the last living member of the group of 55 men and women who wrote Alaska’s state constitution. He is a founding member of Alaska Common Ground.

Read the full article here.




Will America’s Democracy Die?

Anchorage Daily News, Oct 5, 2020 – Janet McCabe

Most of us have lived our lives in the freedom of American democracy. It has never occurred to us that a democracy as enduring as ours could be weakened and die. But history has shown otherwise. In their 2018 best-selling book, “How Democracies Die,” authors Steven Livitsky and Daniel Ziblatt present examples of conditions that have allowed other democratic countries to succumb to dictators.

Early in this history, the loss of democratic government was characterized by rapid governmental takeover, the most notorious being Adolf Hitler’s seizure of Germany. More recently, gradual erosion of democratic practices and safeguards are making nations around the world vulnerable to would-be dictators.

When democracy disappears slowly, people become tolerant of practices that would have shocked them in earlier times — lying to the public, for example. Attacks on institutions that guard democracy frequent precede takeover by a dictator. The court system is weakened, the free press threatened, and the rule of law and constitutional separation of powers are disregarded.

But the most significant factor weakening democracy is buildup of rigid hatred between political parties and allegiances. To quote their book, “When democracy has worked, it has relied upon two norms that we often take for granted — mutual tolerance and institutional forbearance. Treating rivals as legitimate contenders for power and underutilizing one’s institutional prerogatives in the spirit of fair play are not written into the American Constitution. Yet without them, our constitutional checks and balances will not operate as we expect them to.”

How might these observations play out in America’s Nov. 3 election?

President Donald Trump’s most adamant supporters have been in states where traditional manufacturing jobs have been lost. Now the pandemic has compounded existing hardships in these states. Business closures necessary to prevent the spread of COVID-19 have widened the gap between the “haves” and “have-nots”.




Alaska’s Fiscal Future: Goal, Problem, and Options

AK Common Ground – Fiscal Options 8-2020 Print Version

THE GOAL 

We want Alaska to be a place where all people have an opportunity to thrive, our children will choose to live, existing businesses will flourish, new enterprises are started, poverty is reduced, and the environment is protected. To achieve this, we need quality services provided by the State of Alaska, including decent education, transportation, public safety, justice, and more.

Senator von Imhof and others describe AK’s fiscal future, Dec 2019

THE PROBLEM

In the spring of 2021, amidst the severe economic downturn caused by the global COVID-19 pandemic, the Alaska Legislature will face the biggest budget crisis in the state’s history.

Reserves DepletedAlthough the State of Alaska’s spending has fallen by 43 percent in the past eight years, years of deficit spending have drained reserves used to cover budget shortfalls. The State of Alaska depleted its remaining emergency reserve—the Constitutional Budget Reserve (CBR)—to such a low level that the Alaska Legislative Finance Division has predicted it is unlikely that the CBR will have sufficient cash to cover appropriations beyond Fiscal Year 2021, the current fiscal year.

Unsustainable Deficits—Even with the traditional budget kept flat and without paying a Permanent Fund Dividend (PFD), next spring’s Legislature faces a budget deficit of about $270 million for the fiscal year starting July 1, 2021. This figure is likely to increase due to lower revenues and higher expenditures caused by the pandemic. If PFDs were paid based on the original formula adopted in the 1980s, the State would have a budget deficit of over $2 billion each year forward.  With or without a PFD, balancing the State’s budget will require either a new source of revenue or budget cuts far surpassing those that were initially proposed last year by the Governor.

Presentation from Pat Pitney, Director of Legislative Finance Division, and ACG Board member Cliff Groh, May 4, 2020

POSSIBLE SOLUTIONS

The size of the State of Alaska’s budget deficit and the lack of reserves means that some combination of the following will be needed.

  1. Continued spending from the Permanent Fund Earnings Reserve Account (Earnings Reserve). The Earnings Reserve is the portion of the Permanent Fund that receives earnings from the Fund. For the last three fiscal years the Earnings Reserve has been used to pay for the State of Alaska’s outlays—including the PFD—and is providing more than 70 percent of the revenues for the budget this year. The PFD has been the State’s largest program except for K-12 education. State budget experts agree that continued spending from the Earnings Reserve within the limits of current state law is sustainable. However, overdrawing from the Earnings Reserve beyond the limit set out in current law would significantly reduce the State’s ability to use the Earnings Reserve to help balance the budget and pay Dividends in the future.
Discussion of spending the earnings reserve, Feb 2020
  1. Raising oil taxes. Oil was the primary source of state government revenue from the mid-1970s until the past few years, but the peak of Alaska’s oil production has passed while the price of oil has dropped well below previous highs. The oil tax initiative by itself, if approved, would not raise enough money to cover the current level of government services, but it would help. Regardless of the initiative, the Legislature could also address changes to oil taxes.
Discussion of oil taxes, Feb 2020
  1. Instituting broad-based taxes such as an income or sales tax. Alaska is the only state in the country that has no form of broad-based tax. An income or sales tax adopted in 2021 would not generate revenue until 2022 at the earliest.
Discussion of broad based taxes, Feb 2020

a. A state income tax financed much of the State’s budget before the arrival of revenues from the North Slope. For most of that time, the state’s income tax was based on a percentage of the federal income tax. If the same system were reinstated, those who pay no federal tax would pay no state tax, and those who do pay federal taxes would pay state taxes on a sliding scale. Those who earn money in Alaska but live elsewhere would also pay taxes on Alaska-earned income. In 2017 the House of Representatives passed an income tax proposal that was estimated to yield $700 million per year when fully implemented, but the proposal failed to pass the Senate.

b. A statewide sales tax could be structured to raise as much as an income tax. To many this seems preferable to an income tax because individuals control their spending. But sales taxes hit those with the least income the hardest. In incorporated areas that currently have a sales tax, a statewide tax would impose a second layer of taxation of sales.

  1.  Drastically cutting spending on services provided by the State of Alaska. As stated in the problem summary above, even a zero-PFD budget that keeps spending on traditional services flat leaves a deficit of about $270 million for the next fiscal year alone. With savings in the reserves gone and revenues expected to grow slowly, the deficits are expected to get larger over time. Closing that deficit by relying on budget reductions would have significant negative impacts on schools, the University of Alaska, public safety, highways, ferries, the courts, health care, social services, and more. Alaska would become a less attractive place to live and do business, and people would leave, severely hurting the state economy.
Discussion of budget cuts, Feb 2020
  1. Diversify and expand the state’s economy. This is a long-term proposition. Economic growth and diversification require an educated and trained workforce, and for that a strong University of Alaska is particularly important. The lack of a broad-based source of tax revenue cripples Alaska’s ability to provide the additional schools, transportation, public safety, and other services from the State that are required by population increases that accompany new development. New resource development (including mining) does not generate anywhere near the amount of revenue as oil, which has a very different set of economic factors.
Economic effects discussion, Jan 2019
  1. Obtaining more federal grant funding. Federal grants related to COVID-19 relief would likely be one-time funding and thus a short-term fix for Alaska’s fiscal crisis. Depending on the amount and allowed uses of federal COVID-19 relief funding, this could provide a partial fix short term. Federal grants are for specific purposes and probably would not cover most of Alaska’s operating costs. Most federal grants require a matching share from the state.
  2. Borrowing from the federal government, banks, or other lenders. Borrowing is traditionally used for capital improvements such as transportation facilities, school buildings, and other structural development or repair. Alaska has a backlog of capital projects and often such spending stimulates a lagging economy. Borrowing for operating expenses, however, is merely making future generations pay for services we receive today and adds to the State’s long-term debt. Without measures that improve the State’s credit rating, any borrowing would be costly.
  3. Using money from the Permanent Fund principal. The Permanent Fund was meant to turn Alaska’s depletable short-term oil wealth into a legacy for future generations. Spending from the Permanent Fund principal defeats that purpose. The principal of the Permanent Fund cannot be spent without an amendment to the Alaska Constitution, which would require a majority of Alaskans voting “Yes.”

[i] In this paragraph and the rest of this paper “the budget” refers to the Unrestricted General Fund (UGF). Revenue projections come from the Alaska Department of Revenue and spending projections come from the Alaska Legislative Finance Division. Unless otherwise stated, the spending projections assume the laws on the books (including paying Dividends under the statutory formula developed in the 1980s) as well as spending limited to inflation

[ii] The Permanent Fund includes the constitutionally protected principal or corpus (that cannot be spent without a vote of Alaskans) and the Earnings Reserve. The Earnings Reserve receives revenue from the whole Permanent Fund, including the Earnings Reserve. The amount that can be spent each year is established by law as a percent of market value (POMV) of the whole Permanent Fund. Annual revenue from the POMV is projected to grow. This growth hinges on the Legislature staying within the spending limits of the amounts allowed under the law establishing the POMV system. In FY 2020, the POMV draw from the Earnings Reserve was $2.9 billion. In FY 2021, $3.09 billion is available.




Alaska’s Fiscal and Economic Situation: Even More Dire

Pat Pitney and board member Cliff Groh gave a presentation on: Alaska’s Fiscal and Economic Circumstances: Even More Dire. Pat Pitney is the Director of the Alaska Legislative Finance Division, the State of Alaska’s non-partisan fiscal scorekeepers. Pitney previously served as the Director of the Office of Management and Budget during Governor Bill Walker’s tenure, and worked as a Vice Chancellor for Administrative Services at the University of Alaska Fairbanks before that. At age 18, she won a gold medal in the Olympics in the air rifle.

 



Moving from protests to productive action

In Alaska, the outpouring of public protest about George Floyd’s death by asphyxiation was heartfelt and far-reaching, as it was throughout the rest of our nation, and here, there was one big positive; it was peaceful. There was no destruction of property.

On May 30, traffic going down Northern Lights Boulevard was slowed by young people racing ahead of cars and stepping out into the street waving their protest placards. The dynamism was contagious. Drivers beeped and waved back expressing approval and support. No doubt the moment was enhanced by the break from the social isolation imposed by the pandemic. But the shared support for Black Lives Matter was palpable.

The next weekend in Palmer, 1,400 young people gathered to express their outrage. They had been joined by others in the Mat-Su region as well as a contingent from Anchorage.

To take a statewide view, the peaceful protests extended throughout Alaska to communities, large and small, most populated by people of several different races. There has never been a social movement in Alaska quite like the protests of these last few weeks!

This amount of protest and its youthful, diverse composition is vastly different from what happened during the days of Martin Luther King when protesters were predominantly African American adults. This time in Alaska and elsewhere protesters were of many races. And they were young! In Anchorage, the initial organizer who filed for the permit was a 17-year-old high school boy. In Palmer, the filer was an 18-year-old girl.

As former President Barack Obama has urged, now is the time to turn protest into productive actions to prevent more wrongful death.

Ours is a country founded on noble goals. To respect and respond to the protesters, we should remember our ideals and act accordingly. In 1776, a time of kings and emperors, the signers of the July 4 Declaration of Independence risked hanging for treason when they pledged “that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights.” Ninety years later, it took the Civil War and the death of as many as 850,000 Americans, including Abraham Lincoln, to rededicate our nation to these truths.

Taking the knee shows love for our country and the noble goals of our founding fathers. Doing so says America can do better! A wide swath of the country believes this. A recent national poll shows that 84% of Americans believe the peaceful protests are justified. No doubt this includes many members of the police. Among the most powerful images of the protests are police officers and protesters taking the knee and giving each other a fist bump.

Living up to our national ideals takes ongoing work. In Anchorage, Partners Reentry Center, run by Partners for Progress, Inc., has achieved positive results in coordination with the Anchorage Police Department and the Alaska Department of Corrections.

Alaska Natives are the racial group that is most disproportionately incarcerated in Alaska. Often, after release from prison, they are stranded in the unfamiliar urban setting of Anchorage. In response, Partners Reentry Center sponsored a self-help group of Alaska Natives who, among other productive projects, have worked with the Anchorage police chief to help introduce new police cadets to Anchorage. Since 2017, this effort has blossomed to include regular panel discussions with the police and representatives of the many different cultures in Anchorage — Hispanic, Polynesian, Filipino, African American, Alaska Native and more.

But probably, the single most effective way to give the nationwide protest a productive response is by voting on Nov. 3. The current president has never looked beyond himself to realize, in the words of President Abraham Lincoln, that government is “of the people, by the people and for the people.”

It is important to elect people who can create and maintain good government. This is crucial at all governmental levels. All people care about the future of their children. That is a good starting point for finding common ground to solve the crisis of social justice that was so starkly revealed by the recent protests.

To move from protest to progress, exercise your precious right to vote!

Janet McCabe chairs Partners for Progress, Inc. and is a member of Alaska Common Ground. She and her husband, David, came to Alaska in 1964.