Out There

Our Alaska-Sized Budget Deficit

Posted in Uncategorized by Pete on April 4, 2016

Alaska is the land of over-the-top superlatives.  Mind numbing record low temperatures.  Not just the biggest state, but the state so big we could cut it in half and Texas would be the 3rd biggest state!  The state with more coastline than the other 49 states combined!  The highest peak in the 50 states!  The Aleutians with their preposterous winds.  The jaw-dropping salmon runs, volcanic activity, earthquakes, northern lights, you get the idea.  In the same vein, we now have the amazing Alaska budget deficit!

The short version is that the pipeline is carrying less and less crude oil as the legacy fields on the north slope are getting depleted, and couple that with oil at $30 per barrel, and you get a massive deficit.  Just a few years ago oil was over $100 per barrel and the state was flush with cash and spending as much as $8 billion per year.  As the price dropped, cuts have been made to the point that the current state budget is around $5.5 billion (with revenue of around $1.8 billion), and next year’s budget may be as low as $4.1 billion if the conservative state legislature has it’s way.  But the state is projected to bring in only $1.2 billion in revenue.  Not good.

Many have pointed out the obvious:  There is no way the legislature can cut their way out of this mess.  Not that they aren’t trying.  Alaska is a notoriously conservative, anti-tax state.  No state sales tax, and no state income tax since it was abolished in 1980.  Residents have become so accustomed to getting something for nothing that most are refusing to accept reality now.

You can read much more about this here and here and here and here and here and many others if somehow that doesn’t slake your thirst.  From that last link (The Atlantic), “But Alaskans are fiercely protective of their checks, and of their state’s savings. This might be the most tight-fisted state in the union.”  And “But for the time being, Alaskans seem to want to hang on to the good old days for as long as they can, scrimping and saving despite having billions in the bank.”  Yup.

I took part in an exercise that challenges Alaskans to balance the budget themselves using an online simulator, at plan4alaska.com.  You can view my balanced budget here.  If you want to take a stab at it, go to plan4alaska.com and click on “take the challenge” at the top.  I don’t want to come off as self-righteous, but I have never been able to get my head around why my fellow Alaskans so resent the idea of paying their share for the cost of government.  The plan I went with is pretty similar to the governor’s plan, calling for a state income tax of 10% of the federal tax (I believe the governor is seeking something like 7%).  For Tammy and I using our 2014 taxes as a real world example, the 10% would come out to about $650, or less than 1% of our total income.  (If you need a primer on the difference between marginal tax rate and effective/average tax rate read this or this)  The $650 in my 2014 example equates to less than $2 per day, for schools for our kids, airport maintenance here in Kasigluk, the court system, etc.  So maybe this makes me a crazy liberal, but I consider that a bargain at under $2 per day.  This is a little disingenuous though as my plan also calls for a 3 or 4% sales tax which would almost certainly take more of our money than the income tax would.

Regarding that link in red above (this article) I just have to comment.  The headline states:  “Alaska Senate leaders: We’re not getting into ‘the tax business'”

Really? Senate leaders, let me tell you what business you ARE in.  You are in the business of running a state government.  As a part of this business, money comes in and out.  You are in charge of making sure the revenue keeps up so the state has the money to pay for the expenses.  And state revenue is collected, for the most part, in the form of TAXES.  You can quibble over semantics if you wish, but the fact is that our existing state income is already in the form of taxation levied on corporations, and taxes on resources such as barrels of oil, as well as on the fishing and mining industries.  So you ARE, actually, in “the tax business.”  You always have been. You know it, we all know it, so drop the games and do what is right for the state.

The reason there is some urgency here is that the “sovereign wealth concept” really only works if you have a large enough principle to earn interest with.  If we choose to kick this down the road and burn $4B in savings every year, we are eating the golden goose.  We should be smart enough, humble enough, and forward thinking enough to pay a little now so everyone profits big-time down the road.

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