What others say: Alaska needs budget leadership

  • Tuesday, December 16, 2014 1:23pm
  • Opinion

Alaska’s political leaders once again will be reaching for the antacids as the state confronts a colossal loss of revenue because of the tumbling price of oil.

The Alaska Department of Revenue, in its annual fall forecast released last week, expects the price of oil to average $76 per barrel for the present fiscal year, which ends June 30. That’s down about 40 percent from the department’s spring projection. The department expects a further decline in the following fiscal year.

What this means is the state government is facing a $3.5 billion deficit for the current fiscal year, an increase of about $2 billion more than the deficit projection made in April.

So what to do, both for the present and for the future?

The suggestions will be many, and some of them may come tinged with panic. Alaska doesn’t need to panic, however, because of the reserve accounts that will help deal with the current shortfall. But those accounts have an ever-waning lifespan, meaning our state needs to take prompt and forward-thinking action now to avoid or minimize deficits in the coming years.

One such idea came to the fore 10 years ago, proposed by then-Gov. Frank Murkowski and endorsed eagerly by the Alaska Permanent Fund Corp. board of directors.

The idea was known as the Percent of Market Value plan — the “POMV” in discussions. It would allow the Legislature to withdraw annually from the Alaska Permanent Fund an amount equivalent to a maximum of 5 percent of the fund’s total market value from the first five of the six preceding fiscal years.

The permanent fund would serve as an endowment, a time-tested and fiscally responsible device.

The POMV differs from existing practice in that all investment earnings would go into the fund’s principal, which is protected by the Alaska Constitution. Earnings presently go into a separate account from which the Legislature provides the annual dividend. Lawmakers also, though they are not required to, place some earnings into the principal.

Once withdrawn from the fund’s principal, half of the amount would go to the dividend and the other half to government operations, though this aspect of the plan would be left to the Legislature to decide each year.

A change to the POMV concept would require voter approval of a constitutional amendment. Amending the Constitution had the backing of the 55 members of the Conference of Alaskans, the group convened by Gov. Murkowski in 2004 to answer four questions relating to the budget crisis.

The POMV was pitched as a way for the state to avoid its continual budget deficits by providing a stable and source of funds for government, if needed.

It also was pitched as a way to reduce the year-to-year volatility in the dividend amount by basing the calculation on total fund value rather than on realized earnings.

The issue of continual budget deficits is one Alaska again finds itself confronting. The projection released by the Department of Revenue last week is bleak: Nowhere in the next 10 years does annual general fund revenue come close to the level of this year, a year in which we already face a mammoth deficit.

In short, it will only get worse.

The permanent fund had a value of about $27 billion in 2004, when the Legislature was seriously considering the POMV. The plan would give legislators access to about $1.35 billion using that fund valuation, to be split between dividends and government operations.

The permanent fund’s value has nearly doubled since then, to just less than $51 billion as of Thursday. Assuming that as a year-end value, the Percent of Market Value plan, were it in place today, would make $2.55 billion available to legislators for dividends and government.

The Percent of Market Value plan wouldn’t, by itself, prevent the projected budget gap of $3.5 billion that awaits new Gov. Bill Walker and the next Legislature. But it would most likely have made the budget gap smaller.

The Alaska House of Representatives approved the Percent of Market Value plan in 2004, but the Senate rejected it.

It failed in part because of hysteria. Not enough of our leaders stood up to those in the public who characterized the plan as a “raid” on the permanent fund. It is no such thing.

The Percent of Market Value plan is but one idea, but it is one that should be considered again, along with others.

What Alaska needs today are leaders who will be candid with Alaskans about the budget situation, who will offer equitable and sensible solutions — as the Percent of Market Value plan was 10 years ago — and who will have the courage to argue forcefully for their adoption.

— Fairbanks Daily News-Miner, Dec. 14

More in Opinion

Larry Persily. (Juneau Empire file photo)
Point of View: Some state lawmakers need to embrace reality, not PFD political theater

State revenues minus public services do not leave enough in the checkbook to pay an oversized dividend

Rep. Ben Carpenter, R-Nikiski, speaks about teacher bonuses during consideration a bill increasing state funds for public education in the Alaska House of Representatives on Thursday, Feb. 22, 2024, in Juneau, Alaska. (Ashlyn O’Hara/Peninsula Clarion)
Rep. Ben Carpenter: Holding up a mirror to state government

Capitol Corner: Legislators report back from Juneau

Sen. Jesse Bjorkman, R-Nikiski, speaks in opposition to an executive order that would abolish the Board of Certified Direct-Entry Midwives during a joint legislative session on Tuesday, March 12, 2024, in Juneau, Alaska. (Ashlyn O’Hara/Peninsula Clarion)
Sen. Jesse Bjorkman: Ensuring food security for Alaska

Capitol Corner: Legislators report back from Juneau

Rep. Justin Ruffridge, R-Soldotna, speaks in support of a bill increasing state funds for public education in the Alaska House of Representatives on Thursday, Feb. 22, 2024, in Juneau, Alaska. (Ashlyn O’Hara/Peninsula Clarion)
Rep. Justin Ruffridge: Executive orders and spring forecast

Capitol Corner: Legislators report back from Juneau

Sarah Vance (Photo provided)
Opinion: Strengthening Alaska Grand Juries

Upholding constitutional intent for transparency and accountability

Rep. Ben Carpenter, R-Nikiski, speaks Thursday, April 27, 2023, at a news conference in Juneau. (James Brooks/Alaska Beacon)
Rep. Ben Carpenter: Why reform for the grand jury matters

Capitol Corner: Legislators report back from Juneau

Sen. Jesse Bjorkman, R-Nikiski, listens to testimony during a Senate Community and Regional Affairs Committee hearing on Thursday, Feb. 22, 2024, in Juneau, Alaska. (Ashlyn O’Hara/Peninsula Clarion)
Sen. Jesse Bjorkman: Leveling the health care playing field

Capitol Corner: Legislators report back from Juneau

Rep. Justin Ruffridge, R-Soldotna, speaks Monday, May 8, 2023, on the floor of the Alaska House. (Photo by James Brooks/Alaska Beacon)
Rep. Justin Ruffridge: Another big week for education

Capitol Corner: Legislators report back from Juneau

Rep. Ben Carpenter, R-Nikiski, speaks about teacher bonuses during consideration a bill increasing state funds for public education in the Alaska House of Representatives on Thursday, Feb. 22, 2024, in Juneau, Alaska. (Ashlyn O’Hara/Peninsula Clarion)
Rep. Ben Carpenter: Supporting better outcomes in education

Capitol Corner: Legislators report back from Juneau

Most Read