Friday, June 22, 2012

Understanding State Spending ...

Dr. Steve Cobb, the UAA Athletic Director, was on The Dan Fagin Show yesterday morning to discuss The Great Alaska Shootout airfare ticket promotion.  The program has been the subject of previous commentaries on this page.  The interview, which did not go well for UAA (its never a good idea to get in an argument with the interviewer), is available here (the segment begins shortly after 1:34:00).  The interview also provides an insight into what has gone wrong overall with state spending.

Throughout the discussion, Dr. Cobb argued that those raising issues about the program "just don't understand" -- sometimes he said, "refuse to understand" -- that the Shootout "turns a profit" for the community, which in his view justifies the state subsidy.  By "turn a profit," he appears to mean that, in overall combination, Anchorage hotels, car rentals, restaurants and other business make more in revenue than the Shootout costs to produce.  Certainly, if the University was turning a profit on the Shootout of its own, there wouldn't be a need for a state subsidy.

The fact that portions of the business community "turn a profit" from an event, however, does not justify state funding.  Lots of businesses -- and lots of events -- could turn profits if the state shouldered some of the costs.

That might be acceptable if Alaska had unlimited funds to fund unlimited things in an unlimited number of communities.  But it doesn't.  Ironically, as UAA's own Institute of Social and Economic Research ("ISER") has made clear, state spending now vastly exceeds long-term, sustainable levels.  If cuts are not made now to return state spending to sustainable levels, future Alaskans will suffer either significantly reduced levels of service, or substantially increased taxes at all levels in an effort to stave off the reductions.

If the Shootout indeed "turns an overall profit", then those businesses that are making the profit should have both the incentive and money to invest in its continuation, through sponsorships and other support.  Because those businesses that benefit from it haven't invested enough to sustain the program -- and not enough residents see the Shootout as sufficiently beneficial to sustain it through ticket sales -- the supporters have turned to the state.

In a microcosm, that explains how Alaska has worked itself into the current fiscal morass.  Good people each thinking this program or that is beneficial to the community -- but which the community doesn't sufficiently support -- turn to the state for funding.  With mostly good intentions, they argue that there is a greater good to this or that segment of the community which will result if their program exists.

The next step is where the failure occurs.  Because it is their constituents that are making the ask and other people's money that is involved, at first the legislators being asked to sponsor the funding are inclined to agree.  In most other states, there is usually a constraint on that system because the money which would be used to fund the request comes mostly from current taxpayers, in the form of income, sales or property taxes.  In the aggregate, the legislators thus curb their approval of the requests for fear of taxpayer -- voter -- blowback.

In Alaska, the sense has been that its only the "oil companies' money" that is involved, and that Alaskans are entitled to it anyway because "its our oil."  As a result, increasingly over the last several years there has been very little resistance when a funding request has been made.  That is how the state has ended up in the most recent budget with the "Great Alaska Airline Ticket Spree," paying for paving parking lots at private sports facilities, and paying for astroturf on middle school playgrounds.

As the ISER study points out, however, its not the "oil companies' money" that is being raided to support these funding requests.  Instead, at current state spending levels, its money that future Alaskans require to maintain state goods and services at the same level once the oil runs out.  As is the federal government in another way, current Alaskans are simply enjoying a lavish lifestyle by financing it on the backs of future Alaskans.  For those interested, a deeper dive into these issues is at "A Statute and a Pledge:  A Potential Approach for Addressing Alaska's Coming Fiscal Crisis. "


It is unfortunate for UAA that the $400,000 they are using to finance the The Great Alaska Shootout airfare ticket promotion has become the poster child for this concern.  It simply happen to hit the airwaves at the same time as the issues that ISER raises became more widely understood.  Dr. Cobb and UAA are not bad people seeking to do bad things.  Instead, they are simply one of a large number of Alaskans that have sought the same sort of handout from the state.

But the blowback over current spending levels had to start somewhere, and it has started here.