Alaskanomics

Keep Alaska Competitive Editorial

As seen in various Alaska publications.

 

 

 

 

 

 

We thought the fight was over when voters rejected Ballot Measure 1, which sought to repeal SB 21, the More Alaska Production Act. But here we are, less than two years later, facing another battle over oil taxes.

Gov. Bill Walker has introduced legislation that dramatically changes the tax system by raising the minimum production tax by 25 percent for some — and imposing a new tax for others — and repealing anchor tax credits.

This latest tax hike comes at a time when oil prices are hovering at prices not seen since the crash in the 1980s. It comes at a time when it costs more to produce a barrel of North Slope oil than it’s worth, which has led to negative cash flows.

We are asking you to continue our fight for Alaska’s future. We need you to contact your legislators and tell them that our resource industries are the last place we should look for funding as they are all swimming in an ocean of red ink.

We have updated the KEEP website, added new background information and posted a new fact sheet that explains the situation. You will also find additional information on our Facebook page and the E-blasts we will be sending on a regular basis.

Our state is facing a massive fiscal crisis unseen in more than 30 years. We applaud the Governor and legislators who are willing to put Alaska’s long-term economic future ahead of short-term politics. There is nothing more important for our state than to solve our budget deficit and build a sustainable economic future for our state, but we can’t do it on the backs of an ailing industry that already pays most of Alaska’s bills.

Fortunately, we have the financial resources to not only survive — but prosper. What we need now is the courage to responsibly continue to drive down the cost of state government and utilize the permanent fund as intended, to fund state services. We may eventually need to pay taxes ourselves; however, the last place we should look for new revenue is to unfairly tax the very industries that drive our economic future. If we push them away, our economic future will be hopeless.

This is a time for Alaskans to support responsible fiscal policy.

Sincerely,
Marc Langland & Jim Jansen
Co-Chairs, KEEP Alaska Competitive

January 2016 Unemployment at 6.6 percent

The State of Alaska, Department of Labor and Workforce Development released its monthly unemployment numbers on Friday. Alaska’s seasonally adjusted unemployment remained at 6.6 percent to kick off the New Year. The rate continues to be above the national average as the national economy grows.

Most boroughs and census areas had an increase over the last month and over half increased by more than a percentage point. This is very common for January numbers in Alaska. The largest increase came from Prince of Wales-Hyder Census Area, where the rate increased by 3.9 percent. The highest unemployment continues to be in the Kusilvak Census Area at 23.9 percent. The Aleutians East Borough and Aleutians West Census Area had the lowest rates at 3.2 and 2.8 percent, respectively. The low rates are due to the January start to the ground fish fishing season.

The Department of Labor has posted its revised employment and unemployment data for 2015 and it is now available at http://laborstats.alaska.gov/

On State Fiscal Policy, History Knocking at the Door

By Tim Bradner

In the din of intense debate, like what’s happening right now in Juneau, it’s hard to hear history knocking at the door. But in fact I hear knocking. Here we are–at a pivotal point in our state’s history.

We’re facing a tough set of facts: Oil prices at $30 per barrel; state revenues less than a third of what’s needed to balance the budget and a drawdown of available cash that will leave the treasury empty in four years, except for the Permanent Fund.

Of course, it’s not really a financial crisis. It’s a political will crisis.

We actually have plenty of money on hand, mainly several billion dollars of yearly revenue we’ve never touched, meaning the investment earnings mainly of the Permanent Fund.

This is not the Fund itself, which can’t be spent, but rather the earnings, which have always been available but never spent except for the annual Permanent Fund Dividends.

To illustrate, while the state’s petroleum revenues have gone into the tank, investments revenues, most from the Permanent Fund, are up smartly. Investment income increased from $2.58 billion in state Fiscal Year 2015, the budget year ended last June 30, to an estimated $3.77 billion for FY 2016, the current fiscal year, according to the Department of Revenue’s December 2015 state revenue forecast. For FY 2017, which begins in July, estimated investment earnings are $4.88 billion, according to the revenue department forecast.

So while oil income is down, investment income is up. Viewed that way, our situation is not as stark.

Gov. Bill Walker is widely given credit for being the first politician to call out the fiscal imbalance and propose solutions, including using some of the Permanent Fund’s earnings and also, by the way, asking Alaskans to pay some taxes. The governor’s specific proposals may not pass, at least all at once, but I believe a similar package will eventually be developed by legislators showing leadership.

This is history at the door: We’ll be taking the first step at diversifying our revenue base away from a 90 percent dependence on a volatile commodity–oil. This will help stabilize and diversify our state’s economy, in the long run, because we’ve allowed ourselves to become too dependent on the spending of state oil dollars.

In the meantime it will be a cold shower, however. Alaska jobs are starting to decline after years of slow, steady growth, and this will accelerate the news of more drill rigs being laid down on the North Slope. State budget cuts of several hundred million dollars won’t help.

However, state spending cuts appear to be the political price to be paid for the historic shift in our revenue base. The governor has proposed $100 million in spending reductions after last year’s $400 million cut to the operating budget, but it appears legislators want to go deeper, maybe equal to last year’s cuts.

Gunnar Knapp, at the University of Alaska’s Institute of Social and Economic Research, has estimated that each $100 million in across-the-board spending reduction in Juneau costs the economy about 1,300 jobs. If $400 million in cuts are made for next year’s state budget, the effect will be 6,500 jobs lost, according to ISER’s modeling. Some of that will be in retirements and attrition but the bottom line, loss of jobs in the economy, is still the same.

As a point of information, if we were to simply whack the budget to match available revenues, cutting spending by $3.5 billion (the possible size of our deficit) the effect would be, using the ISER estimates, to lose 45,500 jobs in the state’s economy, well over 10 percent of our workforce.

I can’t think of what that would be like, but it wouldn’t be pleasant. Losing 5,000 to 6,000 jobs will be tough enough on top of the oil patch jobs losses (which are likely to be far fewer lost jobs, actually). However, if it’s the price we must pay for our state’s leaders to muster up the courage needed to transform the finances, it’s worth it.

However, Rep. Mark Neuman, the co-chair of the House Finance Committee, points out that we’ve made substantial budget cuts in recent years that have gone largely unrecognized. In FY 2013 state general fund spending totaled $7.8 billion, a good share of that being the capital budget. In FY 2016, the current budget year, it is $5.4 billion including capital. FY 2017, the financial year beginning next July, will be substantially less.

As painful as this is, there’s a silver lining. We’ve talked for years about making structural fiscal changes but these never happened because we didn’t really have to do it. There was plenty of oil money, or if oil prices did drop they shot up again.

Let’s hope that cycle doesn’t repeat, and that prices stay down at least long enough for these decisions to get made. Legislators obviously are worried about the elections later this year and the effects on their careers, but here’s a chance for politicians to be part of history, a historical state policy change equal, in my mind, to the enactment of the Permanent Fund itself.

Those opportunities, to be part of history, don’t often come along.

Tim Bradner is co-editor of Alaska Inc. Magazine and co-publisher of Bradners’ Alaska Legislative Digest

The Legislature Must Act on Fiscal Change this Session

By Joe Beedle

Most everyone agrees that now is the time for action by the Legislature to help bridge the fiscal crisis that our state government faces. What started as a politically difficult conversation is quickly becoming an outright battle to ensure fiscal certainty for basic public services while retaining an investment climate for core business in Alaska.

There are voices coming from many sides of the debate; “don’t institute or increase my taxes”, “don’t touch my dividend”, “don’t take away services” and “cut spending to fix the gap”. In the past, the Legislature followed these conflicting voices, expecting that they may not be re-elected if they did not follow the unconstrained wishes of their constituents. Such lack of discipline has resulted in no corrective strategy implementation.  While it may be important for our elected officials to patiently listen to the self-serving wishes of their constituents, it is now critical to realize that the job of leaders is to do what is systemically best for the State and re-set to a more disciplined and logical fiscal plan now to achieve a brighter future for Alaskans for the long term.

The voices arguing against use of the Permanent Fund earnings and increased revenue sources do not understand that if these items are not part of the equation to balance the budget that in a few short years, there will be no savings or future investment to help us out of the hole. There will be no money to pay dividends or provide for essential government services such as roads, education, and public safety.

Unpopular decisions must be made by the Legislature to ensure that state government can operate without continuing a $4B+ deficit annually until we are broke. We urge the Legislature to move forward to enact a sustainable budget and believe that this includes all of the following options:

• Use of the Permanent Fund earnings
• Thoughtful decreases to the cost of State government and implementation of efficiency measures
• Additional revenue sources that include taxes on individual Alaskans

Emotions run high when discussions involve the Dividend and/or taxes, but Alaskans need to have a stake in the state’s budget and the days of oil paying for the majority of state expenses are over. Alaskans carry the smallest tax burden of any state in the nation and receive dividends, while Alaska has the highest per capita cost of state government. We are currently the only state without a state sales tax and state income tax. All other states have one or both.

Our reserves are running low, as is our patience with the State Government. The time to enact or begin enacting a sustainable budget is now and we have the tools to make it happen, but only if all of the tools are utilized to fix the fiscal crisis, including use of Permanent Fund earnings to provide for substantial and immediate relief.