It\u2019s entirely possible that the Alaska Legislature will not fix Alaska\u2019s entire deficit \u2014 and that might still be OK.<\/p>\n
The 30th Alaska Legislature convenes Tuesday, and by all accounts, the budget will be first and foremost in the minds of all 60 sitting legislators.<\/p>\n
It should be. After all, the state is facing a $3 billion annual deficit. When lawmakers consider the fiscal year 2018 budget this session, they\u2019ll be pondering a sixth consecutive year of deficit spending.<\/p>\n
If they don\u2019t act, the state\u2019s Constitutional Budget Reserve will hold enough money to last only until July 1, 2019.<\/p>\n
There\u2019s another savings account, but it\u2019s the same one that pays Permanent Fund dividends, and if the Legislature doesn\u2019t act in this year\u2019s Legislative session or next year\u2019s, dividends will start to go down as a result. If they still don\u2019t act, even that savings account will run out in 2025 or so.<\/p>\n
Fortunately, based on our conversations with lawmakers and the state\u2019s fiscal experts, we think the Legislature will act this year.<\/p>\n
The most likely action \u2014 one seemingly supported by every legislator \u2014 is using a portion of the earnings of the Permanent Fund to pay for government services.<\/p>\n
The Permanent Fund has a market value of about $44 billion. That money can\u2019t be spent without a constitutional amendment \u2014 voters would have to speak up before it could be spent.<\/p>\n
That $44 billion is invested in real estate, bonds, stocks, and other interest-earning programs.<\/p>\n
Each year, those investments generate billions of dollars.<\/p>\n
That earned money goes into the Permanent Fund\u2019s earnings reserve account.<\/p>\n
The earnings reserve pays dividends, but it also can be used to pay for the state budget without a constitutional amendment. <\/p>\n
It takes only a simple majority vote of the Legislature to spend from the earnings reserve, but lawmakers have pretty much never done it because it looks bad. Their political opponents would be able to hammer them for \u201cspending the Permanent Fund.\u201d<\/p>\n
That\u2019s why the Legislature prefers to spend from the Constitutional Budget Reserve, which requires more votes to access \u2014 but doesn\u2019t have the political repercussions.<\/p>\n
In any event, this year seems to be the one that the Legislature will finally spend from the earnings reserve.<\/p>\n
Last week, the Empire published a story about Sen. Mike Dunleavy (R-Wasilla)\u2019s plan to balance the state budget.<\/p>\n
Last year, Dunleavy voted against Senate Bill 128, a bill that would have diverted a portion of the earnings reserve to pay for government each year. It passed the Senate but failed in the House, and the deficit stayed high.<\/p>\n
This year, even Dunleavy\u2019s plan calls for spending a portion of the earnings reserve to pay bills.<\/p>\n
In the Legislature, Dunleavy\u2019s proposals tend to represent one ideological extreme. The other extreme usually comes from one or more Democratic members of the Alaska House.<\/p>\n
The end result is almost always somewhere in between: Those two extremes set the bounds of the compromise.<\/p>\n
In this case, people on both edges agree that the earnings reserve must be used \u2014 and used this year.<\/p>\n
It will no doubt take some time to determine exactly how<\/em> the earnings reserve will be used, but we\u2019re willing to bet that it will<\/em> be used.<\/p>\n By most estimates, the earnings reserve can sustainably provide both dividends and cover about 60 percent of the present annual deficit.<\/p>\n If that happens, the Legislature will be left to focus on the remaining 40 percent of the deficit.<\/p>\n Dunleavy feels cuts are the answer. Democrats in the House favor taxes, such as an income tax.<\/p>\n The two sides are far enough apart that reaching a compromise will be difficult, and it\u2019s entirely possible that they won\u2019t reach one at all.<\/p>\n That\u2019s bad, but as long as lawmakers reach an agreement on the Permanent Fund, it\u2019s survivable.<\/p>\n If lawmakers reduce the deficit to only $1.1 billion or so, the state can stretch its savings for a few more years, increasing the chance that oil prices will rebound, repairing the deficit.<\/p>\n This session, keep an eye on the progress of the earnings reserve plan, but also be thinking about additional taxes \u2014 that\u2019s likely to be the biggest tie-up.<\/p>\n","protected":false},"excerpt":{"rendered":" It\u2019s entirely possible that the Alaska Legislature will not fix Alaska\u2019s entire deficit \u2014 and that might still be OK. The 30th Alaska Legislature convenes Tuesday, and by all accounts, the budget will be first and foremost in the minds of all 60 sitting legislators. It should be. After all, the state is facing a […]<\/p>\n","protected":false},"author":107,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_stopmodifiedupdate":false,"_modified_date":"","wds_primary_category":8,"footnotes":""},"categories":[8],"tags":[],"yst_prominent_words":[],"class_list":["post-18642","post","type-post","status-publish","format-standard","hentry","category-opinion"],"_links":{"self":[{"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/posts\/18642","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/users\/107"}],"replies":[{"embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/comments?post=18642"}],"version-history":[{"count":0,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/posts\/18642\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/media?parent=18642"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/categories?post=18642"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/tags?post=18642"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/yst_prominent_words?post=18642"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}