Legislative Analyst Offers Gloomy Budget Outlook

Each week during the legislative session, various interest groups and lawmakers will host catered lunches as a way of drawing staffers to learn about their pet issues. Often, the selling point is the pizza or the sandwiches. But this Thursday, the food was beside the point. A standing-room-only crowd gathered to watch a special budget presentation that had been discussed in murmurs for weeks. APRN’s Alexandra Gutierrez reports that the outlook was somewhere between gloomy and apocalyptic.

Download Audio

The Legislative Finance director’s model illustrated what he had long been saying:

“You simply cannot cut your way to a sustainable budget.”

Manipulating an Excel spreadsheet with dozens of inputs, David Teal showed what would happen if the state cut formula programs, added a variety of taxes, and shrunk its agencies. None of the actions taken on their own made any difference. At projected oil prices, the state still does not close its multi-billion-dollar deficit.

Teal played with one scenario where the Legislature cuts its budget by 12 percent each year until the state’s $1.4 billion education program was shrunk to $400 million. When the model continued to show a deficit, the audience muttered a few “wows.” House Finance Co-Chair Steve Thompson had to stop Teal at another scenario. Whole agency operations were shut down — and still, the state faced a shortfall.

THOMPSON: You mean no state troopers? No [Department of Transportation]?
TEAL: No Corrections. No prisons.
THOMPSON: No prison guards? All of those?
TEAL: But of course that isn’t workable.

The only scenario that seemed to make a difference was one where the state cut spending, oil prices rose some, a modest income tax was implemented, and the state drew some money from the Permanent Fund earnings reserve while paying out a potentially smaller dividend. That account is separate from the Permanent Fund’s principal, and legislators can draw on it at any point with a simple majority vote. However, the fund is a third rail, and rarely discussed because of its political consequences.

That was illustrated halfway through the presentation when Sen. Bill Wielechowski, an Anchorage Democrat, logged onto Twitter from his phone and accused the Republican House Majority of making moves to “raid the Permanent Fund.” He elaborated on the comment after the presentation.

“When you talk about raiding the Permanent Fund what you’re talking about is taking money out of the earnings reserve and using it for government expenses or using it for something else other than paying out dividends,” said Wielechowski.

Thompson, who sponsored the lunch-and-learn event, responded with some exasperation to the suggestion.

“We’re not raiding the Permanent Fund, and nobody’s going to do that. I mean, I don’t even see how that’s even a possibility,” said Thompson. “We’ve got to have a discussion about how can we fund the core services that are expected under our Constitution by the citizens of Alaska.”

The Fairbanks Republican said the purpose of the presentation, which came from a non-partisan analyst, was to give the public a better understanding of the state’s fiscal outlook. The model had already been shown to many lawmakers and some staff, but — with only a few weeks of session to go — had not been public until now.

Rep. Les Gara, another Anchorage Democrat who was in attendance, said he did find value in seeing the hard numbers, even if he would have liked to see more attention to the effect different policies on oil taxes and credits have on the state budget.

“I think it’s worthwhile to have over, and over, and over again for the public to see all over the state so they can plug in numbers,” said Gara. “Look, if they’re oil tax people, they can say, ‘What would oil tax changes do?’ If they believe in other sources of revenue, they can plug in those numbers. But I think it’s important to lead to an honest public discussion.”

The Walker administration also had at least one member present. Tax Division Director Ken Alper said he thought the presentation captured the urgency of the state’s budget situation. He added that the executive branch is working on its own model as it figures out the next step in tackling the revenue shortfall. But he stressed that for now, the focus is simply on cutting the budget.