A Word from the President, February 2016

Photo by Yuit LLC.
Photo by Yuit LLC.

I’m always grateful when I have a chance to attend a meeting of the Tikahtnu Forum. I especially appreciate seeing so many individuals and organizations, from all over the Cook Inlet region, coming together to work toward improving the lives of Alaska Native people.

Now I’d like to tell you about the focus of a recent Forum meeting I attended that reached beyond the interests of the individuals and organizations represented in that room and other Alaska Native people, and concerned the shared interests of every Alaskan. As the day drew to a close, we all got a wake-up call when Gunnar Knapp, Director and Professor of Economics with the Institute of Social and Economic Research at the University of Alaska Anchorage, outlined Alaska’s economic future and the fiscal crisis before us.

It’s dire. Essentially, Alaska has a huge deficit— expenses exceed revenues by nearly three times. For years our state has been extremely dependent upon oil revenues to fund our government. Between 2005 and 2014, 90 percent of Alaska’s general fund revenues came from oil revenues. Alaska’s oil revenues have fallen significantly due to lower oil prices and lower production. This, coupled with a steady rise in our population, has rendered our means of paying for state government obsolete.

To make up the difference, we’ve dipped into our state’s savings, the Constitutional Budget Reserve, with increasing frequency. In fact, we’ve “dipped” so much that in fiscal year 2016 we will be paying for more than half our state deficit with savings. If we continue down this path, Alaska’s savings will be completely gone in less than three years. At that time, we will have no choice but to use the Permanent Fund Earnings Reserve to fund Alaska’s state budget. Under this scenario Alaskans will receive dividend checks for the next three years, then they will cease.

Mr. Knapp echoed a chorus of voices from state government, business and nonprofit interests when he pointed out that we can’t fix this problem using just one solution. For example, simply cutting spending wouldn’t make up the deficit, which varies between $3.6 billion and $4 billion, depending on the current price of oil. At these amounts, the deficit exceeds the combined amount of the two largest areas of our state’s expenses—education and health and social services. Further, we all know that cutting nearly $4 billion of our $5.1 billion budget would be devastating to our state, and catastrophic to rural Alaska.

Increasing revenues by imposing a sales tax, income tax, other targeted taxes or through new revenue such as a lottery won’t solve the problem either. Any of these options raise questions about who would bear the burden, how they will affect the economy and take time to implement.

The other important option before us is to utilize a portion of the Permanent Fund Earnings Reserve that remains after paying out dividends and inflation proofing as the cornerstone of a long term fiscal plan for our state. That is an option that will make a real difference.

Some of you may read that statement and resist the idea because you think utilizing a portion of the Permanent Fund earnings to reduce Alaska’s deficit means eliminating the permanent fund dividend. But that is not the case.

The corpus of the Permanent Fund is worth about $52 billion. Because of the way the Fund works, we can only spend the realized earnings we have saved in the earnings reserve portion of the Fund, which is about $7 billion. By using the earnings reserve to help close the gap between what we spend and what we save, we can still maintain a healthy dividend for Alaskans for generations to come.

So it’s not a choice about whether our state increases revenues, saves less, cuts spending or cuts dividends. The reality is that we’ll have to do a combination of all these things to solve the problem.

Because I am a voter who is concerned about the challenges our state faces, I am serving as a cochair of Alaska’s Future-a diverse group of Alaskan individuals and organizations joined together to promote a solution to the budget deficit that threatens Alaska’s future. Alaska’s Future aims to cultivate broad-based public support necessary to convince lawmakers – during the 2016 legislative session – of the urgency and importance of using Permanent Fund Earnings to significantly reduce the deficit, support essential public services and maintain a sustainable dividend check and a healthy Permanent Fund. Recent polls indicate that the majority of Alaskans want legislators to take action on this plan during the current session.

Presently there are several pieces of legislation supporting various fiscal plans working their way through the legislature. Alaska’s Future does not support any one plan. Our goal is to convince lawmakers to act this session and include using a portion of the Permanent Fund earnings as the cornerstone of a long term plan that also includes a mix of sensible cuts and new revenues.

Alaska’s lawmakers need to hear from their constituents. Regardless of how you feel, I urge you to make your voice heard. Our fiscal challenge is all too real, and it touches each and every one of our lives. This problem demands that all Alaskans become informed about the economic reality we face and to let their representatives know it’s time to take action. It isn’t something we can put off until later.

How can you make a difference? Register to vote. Call or write your legislators. Participate in public hearings on the budget. Be a part of the discussion. Sound your voice. Vote. The future of our state depends on it.