Budget Cuts First Step to Filling Deficit
(JUNEAU) – When I consider Alaska’s budget situation, I remember my dad explaining what he called the First Rule of Holes: “When you find yourself in a hole, the first thing to do is stop digging.”
In the face of a budget shortfall now estimated at $4.1 billion, due to low oil prices, the Alaska Legislature has followed my dad’s rule. We’ve stopped digging a deeper fiscal hole, and reduced state spending as the essential first step in fixing our deficit.
For the past two years I’ve served as vice-chair of the House Finance Committee, responsible for writing the state’s budget. In that time, I’ve helped write and pass budgets that cut $686.9 million in state spending for day-to-day government operations.
When you add in statewide expenses like bond payments and pensions, the total state budget for next year stands at $4.1 billion in state spending. That’s a 24.7 percent cut over two years and significantly below the target set by some leading Alaska economists.
While this is an important achievement, it’s also the view from 30,000 feet. Up close, the budget looks more complicated and confusing. This has raised some concern, even suspicion, in some folks’ minds. I’d like to offer answers to some recent budget questions.
Where the heck did an extra $288 million come from?
Answer: Accountants for both the governor and Legislature had thought the Statutory Budget Reserve account was all spent in 2015. But because that year’s deficit was smaller than anticipated, this account not only wasn’t empty, it was still earning interest. When the governor’s annual report on fund balances came out in February – two months late – it revealed the $288 million.
Why not just leave that $288 million in the bank?
Answer: Because it could cost more to get to it later. Alaska law requires most left-over money to be “swept” into the Constitutional Budget Reserve account (CBR) at the end of each fiscal year, but not money in funds for K-12 education, scholarships, and teacher retirement. Putting the $288 million into these funds lowers the unrestricted general fund (UGF) deficit, and avoids extra costs associated with winning minority votes to get it back from the CBR later.
What is UGF spending, and who cares if it’s high or low?
Answer: Unrestricted General Funds, or UGF, is money earned primarily from state oil taxes and royalties, which can be spent without restriction for any public purpose. The “fiscal gap” is the difference between UGF income and spending for state agencies, pensions, and bond debt. The smaller the UGF fiscal gap, the less money needed from the CBR, Permanent Fund earnings, or taxes.
Did the Legislature play “shell games” with the budget?
Answer: No. A bipartisan deal last year let the Legislature draw $500 million more from the CBR than needed to cover last year’s budget bills. Of that $500 million, $157 million was spent on the AK-LNG gas pipeline project. The rest was added to the $288 million and set aside this year for future expenses. These included $99 million for unanticipated costs (including $30 million for a substance abuse treatment initiative), $80 million for teacher pensions, and $435 million in the Public Education Fund to lower K-12 education costs over the next three years.
While complicated, these transactions are actual examples of smart budgeting. This year’s budget goal is to reduce the UGF deficit and limit spending from the CBR, spending which can happen only with the cooperation of the minority, an often-costly proposition.
While we’ll keep looking for more budget cuts and efficiencies, the Legislature must next start evaluating whether it makes sense to use the interest-generating power of the Permanent Fund — not spending the principle — to pay for essential services like schools, roads and public safety. The House has begun considering these proposals.
The question of taxes is a problem for many of us. I feel we are taking things in the right order: first cuts, then considering using the Permanent Fund as an endowment to fund essential public services. Only later, and if absolutely necessary, should we start asking whether Alaskans support paying taxes of any kind.
I’m doing my best to make responsible decisions to protect your interests, and find the best way to fill the deficit at the least impact to individual Alaskans and the state’s economy. I hope to have your understanding and support in working out solutions to this challenging problem.
Representative Dan Saddler is a Republican who has represented Chugiak-Eagle River in the Alaska State House since 2011.