Over recent years the state operating budget has increased 102% - from $2.2 billion in FY 2004 to $4.4 billion in 2014. In Commonwealth North's study on the Long Term Economic Sustainability for the State of Alaska (January 2013) they noted that the current level of spending is unsustainable and it's imperative that the state implement a long-term fiscal plan, which will require spending restraints. Fiscal discussions have primarily focused on the revenue side of the state's ledger and on capital project spending. Minimal public attention or discussion has been given to the recurring cost drivers of other state spending.
As a way to find solutions to the budget problems, Commonwealth North enlisted the help of its Fiscal Policy Study Group. The study group is co-chaired by CWN board members Eric Wohlforth and Cheryl Frasca and the group was asked to produce a study that aims to:
- Increase the understanding of cost drivers of the operating budget over the last ten years and the forecasted impact over the next ten years.
- Understand the impact and nature of formula-driven programs and the latitude for change.
- Identify the effectiveness of state programs through a review of its performance measure framework in terms of results delivered and resources required.
More than 6 months of discussion and research allowed the group to produce a report that gives targeted suggestions to evaluate and reduce spending in the state’s operating budget. It is important to evaluate spending before addressing revenue because Alaskans will want to know that the state is being fiscally responsible before being asked/required to contribute to the state’s revenue. The recommendations from the report are below.
- Immediately get Medicaid reforms underway to ensure the state can continue to provide services to those most in need. All formula-driven programs must be reviewed in terms of policy goals, results being achieved and cost effectiveness.
- Administration, unions re-open negotiations to identify short and long-term savings in personnel and benefits costs.
- Ensure all current revenue is available to fund highest priorities by placing all state revenue in the general fund unless external legal restrictions.
- Undertake in-depth review of programs that examines effectiveness and appropriateness and engage citizens in these reviews. Report results to citizens and use data to inform budget decision-making.
- Governor establish citizen-led commission to undertake such a review.
- Establish a process similar to BRAC to implement package of recommendations that will be necessary to re-size state programs.
- Governor and Legislature co-sponsor series of dialogues in which citizens better understand the challenge and through which they provide input on the choices they believe should be made.
Budget practices and process recommendations- Governor
Governor’s budget development
- Citizen panels provide input into Governor’s proposed budget
- Governor moves up budget submission to November 15 to give Legislature more time
Budget practices and process recommendations- Legislature
- Revenue limit
- Establish limit on savings used in any one year- provides additional pressure for spending reductions and prolongs availability of savings
- Deposit all savings into statutory budget reserve- removes ¾ vote requirement to access Constitutional Budget Reserve
- Create Joint Ways & Means committee
- Establish revenue limit by defining, through resolution, amount of savings and other revenues available to fund next budget
- Review revenue forecasting for reliability
- Increase time for budget work
- Return to Constitution’s 120-day session
- Increase interim work on budget
- Special session(s) devoted to budget work if necessary
- Implement contingency plan for mid-year savings when significant drop in revenue
Each of these recommendations involves political obstacles and requires deliberative, thoughtful actions to ensure economic stability. Commonwealth North presented this study to public at an luncheon on February 25 and delivered the report to the Governor and the Legislature on the same day. Read the full report and presentation given by Eric Wohlforth and Cheryl Frasca.
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