Alaska House of Reps Passes a Kidney Stone

... er, Operating Budget

Medium Grind -- Opinion

Early this morning the Alaska State House of Representatives passed its first version of the FY17 operating budget. Now the Senate will take a swing. It was the usual three-act play with all the requisite scenes and the predictable ending. Still, we junkies stayed transfixed until the end, or at least almost the end. I cashed in my chips at around 3:30 a.m.

Majority caucus leadership had promised to bring the budget in below Governor Bill Walker’s proposed budget. They delivered. The House and Senate had already reduced the governor’s budget significantly by pulling out all of his proposed changes to the state’s revenue picture. Those changes are being considered in separate pieces of legislation. Some will likely pass and some will fail. The budget will change a bit as a result, but what will really change is how much closer Alaska is to a balanced budget. If Walker gets his entire wish list, we’ll be pretty close, with just a little more work to do over the next few years. If he gets little we’ll come up way short, requiring significant draws on the state’s savings. But that’s a different play, with some different actors and potentially an ending that would make The Bard squeamish.

For now it’s enough to look at what the House did. I know Sen. Pete Kelly (R-Fairbanks) gets agida when bloggers draw conclusions from things legislators say and do – it’s early and things change – but we’ve got to keep ourselves busy. The budget will change, but we can draw some conclusions about how the currents are forming up. Well, it’s more of an undertow than a current, but ...

As is required by unwritten rule, the majority caucus (bi-partisan, but largely led by Republicans) took a blunt ax to Walker’s budget. It’s what passes for surgical cutting in some circles, and since they used three chain saws and a fistful of dynamite last year, the argument is at least tenable in a relative sort of way ... well, maybe nineable. The double secret rules also require the Democratic minority, well, they’re sort of bi-partisan too because Rep. Dan Ortiz (I-Ketchikan) compared the major parties and decided neither sounded much like a party to him. So, the Alaska Free and Independent-slash-Democratic Coalition For a Better Alaska and Brighter Future, according to the double-secret rules offered multiple amendments in an attempt to sew a few limbs back on the body to the tune of about $113 million. Each amendment failed pretty much along caucus lines, with Rep Lora Reinbold (R-caucus of one) joining the AFI/DCFBABF on a few of the amendments and Rep. Jonathan Kreiss-Tomkins (D-Sitka) jumping ship on one amendment.

That outcome is inevitable because the majority caucuses are binding – meaning members are bound to vote for the budget – not doing so last year is what garnered Reinbold caucus-of-one status. The binding nature of the majority generates some rhetorical heat from time to time, but it’s hard to imagine how the Legislature could ever pass a budget without it. The downside is that on budget matters a few legislators are much more powerful than the rest. The upside is we get a budget. Neither comedy nor government is pretty.

It seems to me the problem with this year’s budget is that extraordinary times require extraordinary leadership, and you just can’t find that in the double-secret rule book. It’s not as if we haven’t been here before. Ever since the first barrel of crude came belching out the southern end of the Trans-Alaska Pipeline Alaskans have sat at one end of an economic teeter-totter, often gently gliding up and down with oil revenues providing a deceptive counterbalance. But now and again big oil steps off, and Alaskans come crashing down on their backsides with surprised looks on our faces. That’s what happens when you hitch your wagon to a horse with three trick knees.

What was wrong last night, and early this morning, wasn’t that Republicans tried to reduce the operating budget and Democrats tried to pump it back up, that’s what they’re supposed to do. The problem this year is that when Alaska has slammed down on its backside for the umpteenth time the ensuing revenue shortfall forces legislators to act out those familiar scenes while the theater burns down around them. Majority members, both Republican and Democrat stand and say, “We know all these programs we’re cutting are important and that people are going to suffer, but we just can’t afford to be everything to all people anymore. That doesn’t mean we’re immoral.” Minority members stand and say, “This is a moral document and it reflects our values, and it’s wrong to try to balance the budget on the backs of the most vulnerable.” They’re both right in their way, but, hey, they all asked for it.

Legislators like to use the analogy of family finances when they talk about the budget. Most Democrats say when you lose half your income you don’t stop feeding your kids; Most Republicans say when you lose half your income you tighten your belt and wait for better times. But whichever side you’re on, Alaska hasn’t budgeted like a family for decades. Alaska budgets like a pathological gambler. When he’s on a hot streak he eats surf and turf every day, buys a nice new suit, and he rings the bell at the bar – everybody’s best friend. But when the cards go cold he scrounges for his meals, hocks his diamond tiepin and comes bugging his friends for a stake. The working stiff’s kids eat well enough every day; the gambler’s kids eat like royal whelps half the time and go hungry the rest. It’s no way to run a circus.

We’ve got to get off this teeter-totter. We’re not broke. In fact, most other states wish they had our troubles. Some Alaskan legislators on both sides haven’t figured out that paying the bills with an unpredictable revenue source guarantees an unstable government, and an unstable government, no matter what economic model you like, is a recipe for a shaky economy. Others have figured it out, but they don’t like talking about it. The majority will tell you they’re making tough, painful choices with the budget, but they leave out the words, “This is gonna hurt you more than me.” The minority will tell you, “We love you and we simply can’t cut these critical services,” but they forget to say, “but we have no plan for raising the needed revenues.”

The majority model fails because you can’t base a stable budget on fluctuating revenues, and oil will always be a source of fluctuating revenues. The minority is wrong because you can’t pay for things with money you’re not willing to spend. The real hard work is in figuring out what kind of government Alaskans really need – not what kind of government some people tell you they want. Confirmation bias is a powerful force in the Legislature, and it too often provides rationalization for bad policy. The real tough choice is the choice to stand in front of Alaskans and say, “Hey. Big oil can’t pay the bills anymore, so we’re going to have to do it the old fashioned way. We’re going to have to pay for our own government, and, like it or not, we need a government.” The good news is Alaska has a ton more money than other states, so we can pay for most of that government by simply paying each Alaskan a bit less to live here. That’s a tough choice because people don’t want to hear it ... but they have to hear it.

So, they did it backwards, and if they stick to this model it will put Alaska’s general economy at risk. During these tough times the opportunity is there to determine what kind of government is really needed, and then to determine the wisest and least-painful way to pay for it.

It’s going to require some use of Permanent Fund earnings, and it’s going to require some kind of broad-bases taxes. Rep. Paul Seaton (R-Homer) has introduced a bill that would tie the Permanent Fund Dividend to an income tax. It’s one of the cleanest ways to switch the dividend to a needs-based program while not short changing higher-income Alaskans. Nearly half of Alaskans don’t pay federal income taxes. Most states base their income tax on a percentage of federal taxes, so five percent of zero is ... zero. Alaskans who don’t pay federal income tax would keep their entire dividend. If you do pay federal taxes your dividend would be applied toward them. If you owe $500 in state taxes and your dividend is $1,000, you keep $500 of it and the rest pays your income tax. There are novel and creative ways to maintain a stable and effective government, and a stable and effective government fosters a strong economy. The tools are available. Who has the courage and skills to pick them up and build a better Alaska?