House and Senate disagree on much, but agree on using computer model

This graph was derived from a Legislative Finance Division computer model used to analyze different long-term state budget plans. It appeared in a House Finance Committee document in April.

Many things divide the Alaska Senate and the House about the future of the state’s budget. One thing that can unite them is the numbers they use to determine how big of a hole in the budget they have to fill.

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Gov. Bill Walker has pointed out both sides agree on at least one thing: a computer model. This model spits out numbers for how different proposals from lawmakers affect the budget in the long run. Walker described the model as important for negotiations in the Capitol.

“We’ve tried to end up with one model, rather than dueling models around the building,” Walker said. “Let’s look at the assumptions that are made.”

The nonpartisan Legislative Finance Division developed the model. Division analysts emphasized that the projections aren’t precise. But at least they give lawmakers an objective source of information.

This computer model allows legislators to plug in different assumptions to see how their ideas will affect the budget. For example, if you plug in a projection for higher oil prices that state officials say have a 40 percent chance of happening, then the state’s budget is much healthier in the future.

The models indicates that if the Legislature makes no changes, one of the state’s two main savings accounts, the Constitutional Budget Reserve, would be out of money next year. The other piggy bank, the Permanent Fund’s earnings reserve, would be empty in a decade.

Soldotna Republican Sen. Peter Micciche said it’s important for both sides to begin at the same place.

“We’re all using the same model – that’s the most important thing, I think, for people to understand,” Micciche said. “We’re using the same model, only the assumptions are different.”

Both the Senate and the House’s plans look better now than they did a couple of months ago. That’s because the Department of Revenue’s spring forecast predicted more royalties and taxes from oil.

Assuming nearly 7 percent growth each year in Permanent Fund earnings, under the Senate proposal, the state’s $2.5 billion deficit would shrink to $140 million by 2026. Micciche noted that is small enough that the state’s savings would grow. That’s because the size of the annual deficit would be less than the amount generated in earnings by the Constitutional Budget Reserve

Micciche said the division’s assumptions that go into the model are conservative enough. The Senate plan would draw more money from Permanent Fund earnings each year than the House to pay for state government. Permanent Fund dividends would start at $1,000. And Micciche assumed roughly $200 million in spending cuts. That’s a smaller amount than the $750 million cut that is the Senate majority’s official position.

Micciche wants the debate to focus on the merits of the two chambers’ proposals.

“It’s just a philosophical difference on if it’s OK to tax Alaskans for a greater level of savings or spending,” Micciche said. “The Senate does not believe that’s an appropriate way forward during a recession. And the House apparently feels differently.”

House majority members like Homer Republican Rep. Paul Seaton said there’s an important difference to the assumptions the two sides make when they use the model. The House leaves more room for problems like lower than expected oil prices or investment returns.

“Relying on something that’s volatile and you have no control over is not the best way to plan for a stable state government that will help stabilize the economy and getting out of the recession we’re in,” Seaton said.

The House plan includes an income tax. And dividends would be a quarter higher than under the Senate plan, at $1,250. It also assumes more money will be spent on capital projects – and it doesn’t include cuts to the budget.

With the same Permanent Fund earnings growth, the House plan would lead to an annual surplus of more than $400 million by 2026.

Seaton said the House plan also allows the state to restore the savings in the Constitutional Budget Reserve that the government has spent over the past four years. But he emphasized the importance of avoiding budget cuts.

“If you don’t want to see road maintenance done, if you want to see trooper posts close, if you want to see teachers laid off from schools, those are the proposals of the Senate majority budget cuts,” Seaton said.

So the two sides remain far apart. But the computer model makes clearer where the differences are. Lawmakers have five weeks to reach an agreement that would avoid a state government shutdown.