Budget 2005

As the Fourth Avenue Theatre house lights came up at the end of the governor’s recent budget unveiling, Alaska’s chief executive officer finished by proclaiming that the state’s fiscal gap is due to an attitude gap. But not since I saw the movie Ghostbusters at the majestic former movie house, had I witnessed such an impressive production of smoke and mirrors.

According to the numbers, state government is getting more expensive. Next year the cost of providing state services will increase $145 million, on top of an already yawning $400 million dollar budget gap. At the same time the state is collecting less revenue because of lower oil production and a market driven price per barrel that refuses to cover the total cost of providing state services.

However, the administration is making a bad fiscal situation worse by using accounting methods that made Enron a household name.

First, an increase for the university was curiously tucked into the capitol budget instead of the operating budget, allowing the administration to claim lower general fund spending. Next, the administration is planning on using a pawnshop approach to finance state debt. The governor proposes borrowing tomorrow’s revenue from the Alaska Student Loan Corporation and AHFC to pay for today’s government expenses.  

This creative financing idea causes alarms because the governor has yet to repair the structural problem of large re-occurring budget deficits. If the governor insists on mortgaging future revenues, he ought not do it until Alaska is on stable financial ground. Also, the budget assumes millions in new taxes this year, much of which can’t realistically be collected until next year. And there was no mention of the outstanding $110 million in Medicare charges the federal government has so far refused to cover.

Still more challenging is the budget limit set by the governor. Last year over $160 million was gained by three quick swipes of the governor’s veto pen. This year, that target is largely dependent on the legislatures appetite for new taxes.   

But all hope is not lost. One week from tomorrow, I believe the governor will stand before Alaskans and announce that he endorses the percent of market value while using a portion of the stabilized revenue stream to pay for state government.

If he does, I believe Alaskans should do two things. First, they should make Governor Frank Murkowski an example for all future political candidates.

During a yearlong gubernatorial campaign, he emphatically promised to solve the budget gap without new taxes or using permanent fund earnings. He broke both promises.
So either the governor was genuinely uniformed about the serious condition of Alaska’s finances or he just decided to say whatever it took to get elected. Either way, I think we’ve found the cause of Alaskans attitude gap.

The second and the most important thing we should do, is support his efforts. The most frustrating aspect of solving the fiscal gap has been getting the governor and the legislature to show leadership on addressing the problem. Now is the time for action.

Alaska is and always will be a resource development state. So we must aggressively attack the boom and bust economic cycles that chronically plague resource based economies. By adopting structural changes to the way we fund government, we can eliminate the peaks and valleys associated with being at the mercy of fluctuating commodity prices. In addition, we’d have the necessary resources to bring stability to local communities while allowing state government to afford needed investments in education, public safety and economic development.

The timing for this constitutional amendment is critical. If the legislature wants to ensure that Alaskans have the opportunity to vote on this issue, it must be supported this session by two thirds of both legislative bodies to put it on November’s ballot.

Utilizing a limited amount of investment earnings will inject new Wall Street capital into the economy and represents an important first step in solving Alaska’s fiscal gap. And what about solving the attitude gap? I suggest the first step is holding legislators accountable on November 2, 2004.