A Perspective on a Weekend in Fairbanks
By: Karl Hanneman
Reflecting upon a long weekend spent at the University of Alaska discussing whether our state government can be sustained by Alaska’s economy, I offer my observations.
I believe the gathering was worthwhile and resulted in meaningful dialogue. Governor Walker, Lt. Governor Mallot, and the entire cabinet should be commended for their efforts to pull Alaskans together. The broad diversity of the political and economic persuasions of the invitees reflect an intent to be inclusive, not divisive.
Following an informative evening presentation by Gunner Knapp, Institute of Social and Economic Research (ISER), on the expense and revenue facts, the first half of day one focused on voting with red and green stickers to assess what government services are important to the participants. Seven subject matter expert groups and seven randomly selected groups sequentially reviewed all program areas of State government that depend upon unrestricted general funds, currently forecast at about $5.1 billion per year. Both groups said most everything is important, although tellingly, the subject matter groups were tougher on the department programs and budgets that they understood than the random groups were on those same programs. Time did not allow for an in-depth review of state programs or methods of service delivery.
The second half of day one then reviewed various revenue options available to pay for $5.1 billion of government services with projected revenues of only $2.0 billion (at $70/bbl). With much to ponder, everyone then retired for the night.
The second day began with seven breakout groups independently reviewing revenue options in an attempt to close the gap using a simple but effective spreadsheet model prepared by the Department of Revenue. However, upon overnight reflection of the magnitude of the budget deficit, most groups were unwilling to delve into revenue options without further constraint on the cost of government. With insufficient time to revisit program budgets and in order to break the logjam, the administration gave direction to groups to assume a further 10% cut in the FY17 budget to approximately $4.6 billion.
With more red and green stickers to vote on various revenue options available to help close the deficit, a remarkable consistency emerged:
- Most groups were not willing to ask Alaskans to step up and pay for state government without further spending constraints.
- All groups recommended broad based revenue options, as most participants recognize that fair application of revenue options across a broad spectrum will be necessary to get buy in from anyone being asked to contribute.
- Generally, the most viable revenue tools were viewed as: use of the permanent fund earnings/PFD cap, personal income taxes, and corporate income taxes, including oil industry taxes.
- Most groups were concerned that further work is necessary to understand the potential impact on Alaskans and Alaska’s economy of these various taxes and revenue options.
Missing from the open forum, but heard being discussed frequently between some participants, was the issue of the growth in the wages, salaries, and health and pension benefits of the state government employees. Overall, the State needs better tools to help manage employee costs. If this cost element could be better constrained, the potential cost savings would accrue to all Alaskans and all good programs. Unfortunately, the structure of the weekend did not provide an opportunity to raise awareness on the issue that employees costs have grown faster than inflation.
Overall, I was fortunate to have been invited to a productive process to engage in a difficult dialogue. I appreciate that our elected representatives in the Legislature have already begun wrestling with these tough issues. A humbling couple of days voting with red dots and green dots of little consequence gives me nothing but respect for the effort put forth by the Governor and the Legislature when the votes count.
Karl Hanneman is the Chief Operating Officer of International Tower Hill Mines, Ltd. He is also a member of the Board of Directors for Northrim BanCorp, as well as a director of Alaska Resource Education, Alaska Mining Hall of Fame, Resource Development Council, Fairbanks Chamber of Commerce and Usibelli Coal Mine, Inc.
Comments