Alaska Senate Majority Addresses State’s Fiscal Crisis
April 22, 2015
The state’s fiscal crisis was exacerbated when oil prices plummeted from more than $100-per-barrel to $50-per-barrel over the past six months. As most Alaskans know, 90-percent of the state’s government, including critical services such as education and public safety, are funded by revenues from oil and gas.
Members distributed charts created by the non-partisan Legislative Finance division showing the state’s savings account will be dried up within 36 months. So far this year, the Senate has been able to reduce around $850 million from the Operating and Capital budgets. However, even with those reductions, the state will face a $4 billion deficit and will be forced to draw an unprecedented $4 billion from savings.
In order to reach the $850 million in reductions, the Senate looked at every government agency and made cuts in every area, with some departments taking up to a 33-percent cut. Members remained committed to their priorities, and ensured that while education is one of the state’s largest cost drivers, it took the least amount of cuts at only four-percent. In fact, the reductions bring the level of education funding back to levels seen in FY2014.
During the press availability, Senator Pete Kelly, Co-Chair of Senate Finance (R-Fairbanks) said, “We have reached the fiscal cliff. In fact, we’ve gone over the fiscal cliff. That day we never wanted to see is finally here. The financial tsunami is getting ready to hit us. The cavalry of funding is not coming over the hill to rescue us. We simply don’t have the money and we are doing the best we can so that our kids will have schools in the future and so that we will have public safety in the future. My analogy is that of a flat-rate mechanic. He doesn’t have a retirement fund. He doesn’t get automatic pay increases. We have to make sure that before we ask that person to pay his or her own money, we have trimmed back government. He shouldn’t have to shoulder the expansion lifestyle of government. We have to prove to the majority of Alaskans, who do not get their paychecks from the government, that we will cut government in a significant way before we ask them to give up their PFDs or any portions of their paychecks.”
Senator Anna MacKinnon, Co-Chair of Finance (R-Eagle River) said, “We need to get a dialogue going with our communities so people can understand our situation. Right now, people are shouting and demanding that we add more money. However, the cold, hard reality is we can’t print money and there is only a limited amount of money in our savings accounts.We need educators, principals, municipalities, villages and others to understand there isn’t more money at this time. We just don’t have it. We will not be held hostage to spend money that we don’t have. Period."
Senator MacKinnon said, "If we choose to put more money in education now, it’s going to be next year’s classroom that will be impacted even more. We are looking at 36 months to ground zero that our budget needs to be balanced or we are going to have to make direct cuts. We are trying to act in a responsible way and trying to engage our communities so that we can have a dialogue to help. How can we innovate and deliver these services differently? Because when we look out in three years, we don’t have those funds and our savings accounts are gone."
"Right now, we have an opportunity to be creative together," said MacKinnon. "We still have some reserves, and we want to invest those and deploy them wisely. We’re willing to compromise and hear considerations."
MacKinnon said, "But, I’ll just put it out there, there is no election cycle right now. We each answer every two or four years to our constituency. If you can’t take a four-percent cut this year, then where do we go next year? In all practicality, if we can’t control the budget this year, what hope is there for next year? If that’s the case, we truly are burning the wood that makes our life boats. How do we stay afloat if we are taking everything we have and we can’t adjust it? The governor said 16-percent was the first step and 25 was the second step for his departments. We’ve proposed 11. Education is even a lower number than 11. The people who you elected are trying to be responsible, but we need your help. We need you to understand that we value education. We value health care. But we can’t print money and there’s only so much left in the bank. Being responsible means making hard decisions now. Half of the reduction we are making this year, the $861 million that we were able to eliminate, came out of the Capital Budget. We won’t be able to do that next year without layoffs like you’ve never seen. The Senate Finance Committee wants to make sure Alaskan families have jobs. Forgoing a raise for a cost-of-living adjustment is at least the right consideration to talk about. Moving education down by four-percent seems to be a reasonable step in asking education to help us innovate. We need you to have these discussions and try not to make it political. Whether you are Majority or Minority, Democrat or Republican, we all want the same things including a vibrant economy, jobs for our families, and an outstanding education for our children, but we have limited resources to do so.”
Senator Lyman Hoffman (D-Bethel) said, “It’s stunning that we are here in extra innings quabbling over $47 million when the reality is even after four years, if we cut $750 million each of those years, we are still going to have a $750 million budget deficit. That is the magnitude of this problem. The difference between the House and the Senate on this budget is a pittance in comparison to the problem this state is facing. That is the message that we are trying to make here today to the people of Alaska and to the House of Representatives. Let’s get on with the job. If we don’t take the bull by the horns, because of our Constitutional requirement to balance the budget, in three years, we are going to be sitting at this table and we are going to be facing a $2.2 billion shortfall that we can’t cover with savings because there is no more left in our savings accounts. We will have to cut everything completely. That’s why we need start marching down the road and acting responsibly now. I think that is what the Senate’s budget presents to the people of the State of Alaska.”
Senator Mike Dunleavy (R-The Valleys) said, “To spend any more than we have to during these difficult times is irresponsible. There were times when we had the money, but as we sit here today, to spend any more would be irresponsible. We were running a model this morning that shows with our population of 720,000, if you were to try to make up a $4 billion deficit, it would be $5,000 for every man, woman and child. That’s unrealistic. We left here last April at this time, oil was over a $100-a-barrel. Some people called us silly, saying it would be $150-a-barrel when we came back. But the bottom fell out of it. There are people having discussions about what this state is going to look like revenue-wise in the future, but our job this year is to reduce.”
Commenting on the state’s fiscal crisis, Senator Peter Micciche (R-Soldotna) said, “We keep hearing about the fact that folks believe we don’t care about education, health care, or ferries. That’s not true, but we’ve taken the lumps. It’s painful, but we know what has to be done. It’s not about priorities. We have high priorities for all of these critical services. It’s about survivability. We’re doing the best we can for future Alaskans instead of draining the bucket dry this year. We should start every sentence with, ‘We are likely $4 billion underfunded this year and next year.’ We don’t know if that will change. When we say everything has to be on the table, that does include other potential sources of revenue, but it also means we have to look at every dollar we are spending. With education, the problem is that $.26 of every dollar we spend goes to education. When it’s that much, you have to look at it as well. In the future, when you talk about revenue, the entire State of Alaska earns $17.4 billion in wages. When you are looking at a $4 billion gap, that’s a 23-percent tax rate. Unfortunately, for those with the ability to pay, it essentially equates to doubling to what they are currently paying on their federal income taxes. Without a combination of significant cuts coupled with consideration of other sources revenues in the future, it has to start with those cuts or it’s simply unmanageable. You simply can’t get there on revenue alone. A governor just won an election on stating we had to make a 16-percent cut. We’re at about 11-percent right now. We do have to be careful, but if you think we don’t lie awake at night worried about the effects on education and health care, you are wrong.”
Hearings were also held Wednesday afternoon regarding Alaska’s Fiscal Crisis and consisted of presentations from the non-partisan Legislative Finance Division.
Edited by Mary Kauffman, SitNews
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