The state legislature finally agreed on a budget for next year, but it relies on spending $3.5 billion from the state’s savings. And most models show all of the state’s reserves will be used up by 2021, if not sooner. The solution? You decide. The governor is crowd-sourcing possible answers through an interactive budget model that turns the problem into a game. Random Anchorage-ites took a stab at solving the crisis.
Diane Noreen is sitting in the Loussac Library lobby refining her resume. It includes everything from gold miner to North Slope worker to water sales rep. She puts it aside when I ask her to look at a convoluted spreadsheet that represents Alaska’s financial future.
“You can set how much you think oil is going to be in the future,” I start to explain. “You can decide to do things like…”
“Are you asking me to that?” she asks skeptically but quickly gets into it, clicking boxes that add in investment revenues and taxes — things that prevent the state from going broke in six years.
Sales tax? Sure. Cigarette tax? Up it. She does have limits though.
“Income tax?” I ask, going down the list of check boxes on the left-hand of the model.
“No. Absolutely not,” Noreen answers fervently. “We’ve been fine without all these years. So I don’t think. No.”
Noreen is trying to get the blazing red box at the top of the screen to turn green. With her host of changes, like new taxes and leveraging the Permanent Fund, she nudges it up to yellow.
“Ok, now where are we?” she says, looking at the dizzying spreadsheet.
“Now, if you want to cut any departments,” I say, scrolling up to the top of the list.
“Oh yeah! Where do we start? I think we can start with the administration.” She sets forth with her edits.
Across town, independent consultant Craig Zematis has the exact same idea then hesitates.
“My brother works for the state, so I hope that doesn’t impact his job.”
Zematis backs away from agency cuts because it could affect families and jobs. Upping taxes might cause people or businesses to leave the state, too, but none of those possible impacts were factored into the model. Zematis focuses on revenue building but doesn’t get very far.
“We’re having a hard time getting ourselves out of the red, even on paper, aren’t we?” he quips.
That’s because things that seem drastic don’t make that big of a difference. A 5 percent personal income tax only brings in about $210 million per year. A five percent sales tax adds another $860 million per year, on average. The combination of options seem endless — and incremental.
“Well, the fiscal situation is pretty dire,” explains Larry Persily, former Deputy Commissioner of Revenue. He’s been analyzing and writing about Alaska’s fiscal situation for 40 years.
Persily says the state has relied on oil revenues to bail it out of crises for decades and it just won’t work any more.
“No more IOUs to collect. No more windfall tax revenues coming in. What’s there is there. It’s running out. It’s the day of reckoning. We’ve got to figure out how we’re going to pay for services for the decades ahead, even for the years ahead, because those savings could be gone in a few years.”
Persily says it will take big, controversial changes, like broad-based taxes, using Permanent Fund earnings, and some budget cuts, to keep the state functioning.
The model, though too complex, illustrates the point well, and everyone I spoke to was willing to make at least some of the changes. But is it even politically possible? Persily says it has to be.
“At some point you’re going to need elected officials to do what they think is right, even if the public is telling them, ‘If you vote for that, I’m going to vote you out in the next election.’ It may come to that for some people. I’m sorry.”
Back at the library, after half an hour, Noreen finishes the model. She’s increased revenues by more than $40 billion over the next 15 years.
“Hey, I’m bringing in money. I should run for office!” she says, laughing with pleasure.
But it still isn’t even close to enough for the state to continue to function at current levels.
The model is available online. The Department of Revenue plans to simplify it somewhat and link it to a survey. They’ll use the results to shape the fiscal plan the administration will present to the legislature in the fall.