Juneau notes from Fiscal Cliff: 'About as uncertain and unstable as I’ve ever seen it'
Few Alaskans have studied the political, legal and policy choices created by the state’s fiscal challenge with the diligence and insight of Cliff Groh, a writer and researcher with decades of experience in government , law and policy analysis. Here he interprets the scene in Juneau at the start of the latest special session, offering an informed perspective that deserves wide attention. He is doing this at his own expense as a public service.
By CLIFF GROH
JUNEAU—The atmosphere here in the Alaska State Capitol is about as uncertain and unstable as I’ve ever seen it, and I lived through a legislative coup in which the keys to the House chamber were broken off in the locks to prevent the former majority from retaking power.
A lot depends on the next 21 hours. It looks like if the governor puts an appropriation bill on the call for the special session by the close of business tomorrow (Wednesday), the Legislature might produce a big deal to address the State of Alaska’s structural deficit under current law. If the governor fails to do so, the Legislature could adjourn the special session soon—perhaps Monday, Aug. 23.
We have a procedural puzzle layered on top of the nation’s most complicated fiscal politics. The short-term problem is that hardline demands have produced a $0 Permanent Fund dividend this year and other budgetary outcomes for the current fiscal year that many legislators would like to reverse. Without an appropriation bill put on the special session’s agenda by the governor, there can’t be the action on the current year budget that some legislators want.
The longer-term issue is that the State of Alaska faces deficits under current law of more than $1 billion each year after this one as far as the eye can see. Strangely enough, the Alaska Legislative Finance Division stated today that there is a surplus this current year of $537 million in the Unrestricted General Fund, the most common definition of the budget. The $0 dividend so far enacted for the current year is mostly responsible for this anomalous fact.
It seems highly unlikely that the dividend will stay at $0 this year. The governor is withholding the appropriation bill that could make it perhaps $1,000-$1,500 because he is trying to get the Legislature to put on the ballot his constitutional amendments to set a 50/50 allocation between public services and the dividend and to tighten the spending limit.
The Legislature is unlikely, however, to adopt the resolutions to put constitutional amendments on the ballot without the ability to address the spending for dividends and other items for the current year.
Other observations after two days of this special session:
1. You can’t solve the fiscal argument by assuming one of the sides away. Some legislators have argued that eliminating or keeping the dividend low would wipe out the deficit. This strikes me as like those Israeli settlers who believe that the solution to the conflict between Israelis and Palestinians is to assume that the Palestinians will just disappear or move to Jordan.
As a friend pointed out today, the ”Just keep the dividend low or zero and we’ll be fine” view resembles the attitude of the governor, who just assumes that the State of Alaska can avoid the seeking of additional revenues by unspecified budget cuts and/or overdrawing from the Permanent Fund. Regardless of your calculus of the pros and cons, political considerations dictate a balanced approach to solving the problems.
2. There is some momentum for adopting a constitutional amendment with a 50/50 allocation and a broad-based tax (most likely a statewide sales tax), but going for 50/50 without a broad-based tax is dangerous indeed. The Comprehensive Fiscal Plan Working Group produced a report calling for a comprehensive package that includes recommendations for:
Constitutionalizing the Percent of Market Value rules to prevent overdrawing of the Permanent Fund
Resolving the dividend question by either constitutionally guaranteeing a dividend at some level or putting a dividend formula in the Constitution
Having the Legislature “work towards” a 50/50 split in the Constitution while also proposing unspecified new revenues—including revenues from a broad-based revenue measure—in the range of $500-$775 million annually plus unspecified budget reductions of $25-$200 million
The report does not explain the relationship between the 50/50 split and the need for those amounts of additional revenues and additional budget cuts.
Alexei Painter, Director of the Alaska Legislative Finance Division, provided necessary context today by telling me that the 50/50 split would create a deficit of about $900 million in Fiscal Year 2024 (the first year that the constitutional amendment would be effective) and about $700 million in Fiscal Year 2025. Another observer said that a revenue measure might be drafted to take effect only upon the adoption by Alaska voters of a constitutional amendment to create the 50/50 split or some other allocation.
3. Not all big moves are fixes. I need to clarify my previous missive laying out three paths for the Legislature. The State of Alaska could overdraw the Permanent Fund by big amounts (perhaps for years), and that choice would very much hurt—not fix—our government’s fiscal position.
4. Rep. Calvin Schrage is an Independent/Non-Partisan, not a Democrat as I mistakenly labeled him previously. The Anchorage legislator has joined a House Majority Caucus that includes Democrats, Republicans, and Independents/Non-Partisans.
5. The Capitol building is relatively short on people, with a lot of private meetings. Some legislators are not here. There were no floor sessions today and only one committee meeting, where I was the only person sitting in the three benches reserved for guests/visitors/spectators. With no appropriation bills under consideration, lobbyists are in short supply. This has given me a lot of opportunity to speak with legislators.
I’ll report more tomorrow.
For more of Groh’s writing and analysis, go to his website. By the way, the legislative coup he referred to in the first paragraph took place in 1981.