Monday, November 12, 2012

$1.9 billion, $453.5 million and now more to go ...

Given the size of the Operating Budget, the room in a sustainable budget for capital spending from the General Fund this current fiscal year is roughly $100 million.  As the University of Alaska Anchorage Institute of Social and Economic Research ("ISER") put it in a recent report, spending above that level will increase the "fiscal burden" being shifted from this generation of Alaskans to those coming next.

Ignoring the effect on future Alaskans, the Legislature nevertheless passed and the Governor signed a $1.9 billion capital spending bill this year, plus a bill authorizing a vote on bonds to cover an additional $453.5 million in spending.  Supported by the Associated General Contractors of Alaska, American Council of Engineering Companies-Alaska and other special interests which benefit from the money, the bonds passed.  

Using the ISER analysis, the combined effect on future Alaskans creates a hole of approximately $2.3 billion in the "nest egg" that future Alaskans need for this generation to create if future generations are to enjoy the same level of government goods and services as this generation.  At current return levels and combined with the additional hole created last year, that likely translates into a reduction of approximately $500 million per year (out of roughly $5.6 billion) in revenue needed by future Alaskans if they are to maintain parity with the current generation.

Put another way, the actions of this past Legislature alone -- ratified by the Governor -- effectively have enacted a tax increase equal to roughly 10% of state spending if future Alaskans are to maintain parity with this generation.

Now, this morning's Anchorage Daily News reports that this year's capital spending spree not only is not over, but indeed, has probably exacerbated the claimed "need" for additional capital spending in future legislatures.

In an article taken from the Alaska Journal of Commerce entitled "Transportion bonds pass, but most projects will need more funding," the ADN reports:
While Bonding Proposition A provides a boost for all the jobs, many of them are still only partially funded. ... [Various] projects are further from meeting monetary goals, even with bond help. Current plans to expand the Port of Nome are expected to cost nearly $182 million. The port work will receive $10 million, which will be used primarily for conducting preliminary studies on the project .... 
The $30 million provided for Port Mackenzie's work brings secured funding to $146, or 54 percent of the project's total cost .... Even though more money is needed to complete his and other undertakings in Alaska, Von Dongen said Proposition A was a good start.
As the ISER report indicates, at current rates of spending Alaska is headed for a fiscal cliff of massive proportions within the next decade.  This morning's ADN article makes clear that past legislatures and the Governor not only have done nothing to stop the race toward the cliff, they have accelerated it.

The opportunity -- the only opportunity -- to stop the plunge is now, while the state continues to receive oil revenues in excess of what it needs to meet a sustainable budget.  Putting those excess revenues into savings will create the "nest egg" that the ISER report explains future generations require.

Instead of creating the necessary savings, however, past legislatures and the Governor have only made the problem worse.  Its time to change directions.
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