By Rep. Paul Seaton, R-Homer
and Rep. Neal Foster, D-Nome
House Finance Committee co-chairs
For The Cordova Times
What kind of Alaska do you want to live in?
This question gets to the heart of the matter. What is it we really want Alaska to look like? What kind of Alaska do we want 20 and 40 years from now?
We would wager that more people than not want to have a strong education system with reasonable class sizes, reliable public safety in our communities, well maintained roads, health care, affordable energy, well managed fish and wildlife, clean water and air, a fair justice system, a strong university, and of course a PFD check every year. We would go a step further and say that most Alaskans are willing to contribute if it means having these things now and for future generations.
In order to consider the magnitude of the obstacles that stand between us and the Alaska that we want to live in, let’s consider the fiscal deficit that has been discussed these last several years. Alaska has a $3 billion budget deficit caused by the precipitous drop in oil price and the long-term downward trend in oil production.
Our oil fields are not what they use to be and the global economics of oil have changed significantly during the past 40 years. Our state’s unrestricted general fund revenue, which is predominately derived from oil (90 percent), has dropped from $9.9 billion in FY12 to $1.4 billion in FY17 and a projected $1.6 billion in FY18. North Slope oil production is projected to decrease to 455,000 barrels per day in FY18 – the lowest level in the pipeline’s history and far from the more than 2 million barrels per day it used to carry. If no solutions are passed this session, the Constitutional Budget Reserve account (CBR) will be nearly depleted by the end of FY18, and our Legislative Finance Division predicts that all our state savings accounts will be depleted in five years. There would not be enough money in savings and Permanent Fund investment earnings accounts to cover future budget deficits, and there would be no money to pay PFDs.
There is no silver bullet for solving our fiscal problem. To maintain the Alaska that we want to live in, we need a durable solution that includes a combination of measures: 1) A Percent of Market Value (POMV) draw from the Earnings Reserve Account (within the Alaska Permanent Fund); 2) A reasonable broad based tax; 3) A moderate and protected PFD payout; and 4) A restructuring of the oil and gas tax credits. Implemented together, these four pillars will lay the foundation for a prosperous future for all Alaskans.
Two bills were introduced this past week by the House Majority members that address these four essential pieces. HB 115, sponsored by the House Finance Committee, asks lawmakers and Alaskans to embrace a fair and balanced approach to creating fiscal certainty for our state. Fiscal certainty is a necessity for economic growth, and greater economic growth will contribute to further fiscal certainty. HB 111, sponsored by the House Resources Committee, would restructure the oil and gas tax credit program. Together, these bills place Alaska on a sustainable path.
I think about Governor Jay Hammond and what actions he would consider at such a time. Governor Hammond was a man of vision. He had the ability to look well into the future to see the day that the Earnings Reserve Account (ERA) would replace oil’s role in supporting our state, while maintaining both the permanent fund principal and dividend.
Each year we delay implementation of such a plan is another year of borrowing from the CBR that we need to pay back. The state has now seen four straight years of Alaskans leaving the state – over 17,000 to date. According to the Institute of Social and Economic Research (ISER), between 2014 and 2016, we lost 1,500 private sector and 1,700 public sector jobs. There is a powerful direct correlation (in our state) between the price and production of oil and employment. It is time to break this cycle of dependency and put Alaska on a stable path that is no longer so reliant on oil.
In the early years of our state, Alaskans pulled together to pay for the services that were important to our families and our future: education, roads, and hospitals. We willingly paid a state income tax, a school tax, and other fees. Then oil came along and we enjoyed the profits that came with it. But anyone who has lived here long enough knows there is a cycle to everything. Some years the fish limits are high, some years they are low. If we respect the cycles and work with them we can sustain our way of life.
It’s not going to be easy. We will have to adjust to a smaller government, and we will have to accept the fact we must start contributing to the services that we want for our children and our quality of life. Yes it will be a difficult shift, but when have Alaskans backed down from a challenge? This is why many of us chose to live here and why we choose to stay. The Alaska House Majority Coalition members are willing to face this challenge. We encourage you to reach out to us, to learn as much as you can about possible solutions, and to offer your ideas. Together we will craft a plan that is fair and balanced for all Alaskans, provides for a strong economic future, and helps realize the Alaska we want to live in.