Avoid 1980s-Like Economic Disaster
May 05, 2004
Murkowski reminded Senators of the painful lessons of the economic recession that hit Alaska in the mid-1980s, when oil prices dropped to $9 per barrel and a high rate of state government spending had to be reduced by $1 billion over four years.
"Twenty years ago, in 1984, things looked great," Murkowski said. "The economy was booming, general fund revenue was projected to be $3.4 billion, and we had more money than we knew what to do with. By 1987, general fund revenues had fallen by $1.4 billion, numerous banks folded, construction companies went out of business, and real estate values plunged. 20,000 jobs were lost. People left the state. Others who had been planning to retire couldn't, because the equity they had built up in their homes had evaporated. Municipalities lost billions in tax revenue."
Murkowski suggested that, while he and the Legislature do not have the ability to go back in time and rewrite history, they do have the power to avert a potentially similar economic disaster.
Murkowski used charts to illustrate the size of a $5.6 billion "gully" in state funding between now and when significant new resource revenues are expected to begin flowing around 2011. That gully could be filled with a revenue stream generated by managing the Permanent Fund like an endowment, with a 5 percent limit on how much could be used from the Fund.
Murkowski used another chart to show that the fiscal gap for FY06 is projected to be at $536 million, before $436 million in new spending being contemplated by the Legislature is added on. The new spending includes increasing costs for Medicaid (due to the federal government lowering its match rate to 50 percent), and for nearly $90 million in new school funding to cover increased costs impacting every school district in the state.
"These are increased costs for fiscal year 2006 that are in the budget OMB will submit to you in December," Murkowski said. "It means we are short $972 million, and if we have to take it all from the CBR, we are down to a balance of $872 million. That is below the minimum balance of $1 billion we need to maintain in the CBR."
The Governor wrapped up his speech with an appeal to the Senate to let the people of Alaska vote on the issue.
"The question before the Senate is not whether or not to make changes to how Permanent Fund earnings are used," he said. "The question is more basic. It is whether or not you will allow Alaskans to decide, because the public can only get its say if you agree to put the questions before them on this November's ballot. This issue belongs in front of the people."
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