1-30-17 The most important, least appreciated Alaska legislation of 2017?

 Is An Amendment To Alaska’s Constitutional Spending Limit This Year’s Least Appreciated Legislation?

by

Dave Harbour

To our non-Alaska readers: this column may be of important, indirect interest to you.  It is the continuing saga of  the most resource rich of the United States suffering from a fiscal crisis of its own making.  This legislative session may be its one last chance to achieve fiscal sustainability.  Establishing a constitutional spending limitation is one way of controlling future spending but is not the only immediate answer.  Other U.S. states are grappling with their own fiscal issues as are some of our neighboring Canadian provinces.  Of those, Alberta is the most noteable, being highly dependent on oil revenue, though not as dependent as Alaska.  To our Alaskan readers: We know there is a way to fiscal sustainability.  Multiple ways, in fact.  All of them take discipline and sacrifice.  We know you are up to it.   We will soon know if you were.  -dh

Imagine a state churning out so much dough it could – and did – buy just about anything any politician or special interest wanted.  That was Alaska in the 1979-81 period.

And the early 1980s era marked the peak of Prudhoe Bay production.  All the stars were aligned.  Oil prices were robust, in the range of $36 per barrel (i.e. nearly $100/barrel adjusted to current inflation), and the Trans Alaska Pipeline System (TAPS), not yet a decade old, was transporting over 2 million barrels of oil per day, about 20-25% of total U.S. domestic production.

Those were heady times for proud elected officials.  After all, they presided over a state twice as big as Texas and occupied a fifth of U.S. geography that included ¾ of the U.S. coastline. 

This was America’s only Arctic state and the permanent population was under a half million folks.  Their revenue from oil taxes and royalties approached $5 billion before oil prices began to plummet in the later 80s – a commodity volatility affecting mostly severance taxes and royalties (Note: and following a 1981 consensus to repeal a discriminatory, new oil income tax, replacing it with an increased severance tax — while simultaneously eliminating the state’s personal income tax.)

We’re not wanting to be especially hard on elected officials or fellow citizens for we are all subject to human weakness.  Unfortunately, human weakness if unrestrained leads to the ant-grasshopper phenomenon wherein one faces the decision to consume all resources during times of plenty, or sacrifice one’s greed in order to reserve resources for times of shortage.  (Don’t elected officials usually tend to err on the side of fulfilling constituent demands until the last cent is spent {i.e. especially when there are no term limits and when salary + benefits + reelection overcome common sense}?)

In the spirit of learning from history without having to repeat the mistakes, one recalls Alaska’s actions in the decade following the 1969, $900 million Prudhoe Bay lease sale.  The Legislature hardly acknowledged its dependence on the volatile oil commodity as it proceeded to increase oil taxes about a dozen times in as many years, along with spending. 

Legislators’ mantra was to achieve from resources, “maximum benefit for the people”, but we have long observed that this Constitutional mandate has been used to support the greed of a grasshopper rather than the prudence of an ant.   Instead of creating policy that benefits the people of this and future generations, lawmakers are inclined to provide every possible benefit to their own generation of constituents without regard to the non-voting children of their constituents (i.e. intergenerational inequity).

Governor Jay Hammond. File photo by Dave Harbour, Northern Gas Pipelines

One exception was Governor Jay Hammond’s 1976 creation of the Alaska Permanent Fund.  It would collect a portion of oil revenue and protect that savings account by Constitutional fiat.  For some, the purpose was to “save for a rainy day” (i.e. the “ants”).  For others (i.e. the “grasshoppers”), the enticement of an annual “dividend” paid to current residents, attracted sufficient votes for passage.

In 1979 and 1980 businessman Bill Sheffield (i.e. a future governor) and your publisher served, successively, as Chairmen of a non-profit organization consisting of citizens concerned with the sustainability of Alaska’s taxing and spending policies.

In 1979-80, the group, Common Sense for Alaska, organized a truly inclusive, non-partisan effort to bring all geographic, employment, cultural and political sectors together.  That effort culminated in the intense 1980 event they called The Challenge of Plenty (Please review important link here). 

Governor Bill Sheffield. Northern Gas Pipelines file photo by Dave Harbour

Readers will truly appreciate the enormity of the volunteer event which included current and past leaders of government, industry, environment, Native, Labor, non-profit and education sectors from the far north to Southeast Alaska.  It was certainly the “Alaska Pioneering Spirit” at work to solve a mutual problem.

In the following year, Common Sense organized a similar, powerful statewide consensus which it called, The Challenge of Shortage, anticipating that the recent, Arab oil embargo would evolve into more supply and lower prices as state spending continued to increase.  (Note: a concurrent, dramatic drop in natural gas prices prohibited development of an economically feasible, Alaska North Slope natural gas transportation project, as well.)

Out of that magnificent, Common Sense for Alaska “Challenge” project came a recommended draft, “Constitutional amendment to limit government spending”.  The intent was to limit spending to a sustainable level benefitting both current and future generations of Alaska’s “people”.  The technique was to establish a viable spending base, allowing it to reasonably increase along with population and inflation.  During the plush years, savings would accrue that could be used when oil price volatility took the commodity on a nose dive…and/or when Alaska production began to decline.

Sadly, we have observed that the way the legislature finally worded the spending limit, did not actually result in any spending containment as the years went by.

Spending, especially mandatory, entitlement spending, has continued to mushroom along with more programs.

Today, Alaska has a history of having undertaken little fiscal discipline or sacrifice — outside of the low-oil price, mid-late ’80s era.  And now it faces a fiscal crisis.  Its non-constitutionally protected savings are nearly gone.  Last we looked, the state had about a $6 billion unfunded liability in its state/municipal/education pension funds.  As this current session of the Legislature meets, Alaska could face a several billion dollar deficit depending on action the Governor and lawmakers take to increase tax revenue and/or reduce FY 2018 spending.

With this history and this present circumstance, Senator Dunleavy presents a ‘fix’ to the Constitutional spending limit that would cap spending, enabling legislators to tell demanding constituents in the future, “We’d like to fund that for you but we just don’t have the money.  We can’t exceed the spending limit.”

While he has revived a noble effort initiated over 35 years ago, the question is whether there is the political will and the time to both create a future spending limit via his resolution and agree on a current tax and spend solution to an imposing wall of potential deficits.

If all the diverse groups Common Sense for Alaska once organized can come together again, perhaps a truly effective spending cap can be adopted to the benefit of Alaska’s current and future people.

This is why Dunleavy’s, proposed resolution reflects Alaska’s heralded “pioneering spirit” and may be one of the most important but least appreciated efforts of the current legislative session to develop long-term fiscal sustainability.  

We plan to support it because we continue to be convinced that a constitutional spending limit is the only way to contain the political pressures to “spend every cent”. 

It is true that Alaska today has one foot on the edge of a fiscal cliff and the other on a banana peel. 

We end this little commentary on history wondering if Alaska in 2017 will contain its proclivity to tax and spend the most resource rich state in the nation into bankruptcy. 

We know that, “Hope is not a strategy”.  Nevertheless, we fervently hope all citizens will commit to creating a happy ending to their fiscal challenge and bequeath to their children a history of prudence, sacrifice and fiscal responsibility.