Saturday, August 17, 2013

Working on my next Alaska Business Monthly piece ...

I am sitting here this morning, working on my October piece for Alaska Business Monthly (the deadlines are in the second month ahead).  When I started it earlier this month the working title of the piece was “Why Alaska needs to reduce state spending (and what happens if it doesn’t).”  As I sit here this morning, however, it is starting to evolve into "Why Alaska needs to reduce state spending (and how to do it)."

Some, including several sitting state legislators and their staffs, recently have told me and others that state spending can't be cut.  Their solution is to hope and pray for a revenue solution, for example, that SB 21 will result in an explosion of new activity resulting in reversing the current decline curve, or for those that support the other side, that ACES will be reinstated and result in stabilizing state revenues.  A few even suggest that LNG sales will come through at netback price levels which will result in significant increased revenues to the state.

As I point out in the first part of the article, all of those are wrong.  Not even the Administration's own numbers during the recent oil tax debate support the fantasy that there is going to be such a strong supply response to SB 21 that revenues are going to rise again sufficiently to offset current spending levels.  As readers of these pages realize, at the beginning of the last recent legislative session the University of Alaska - Anchorage's Institute for Social and Economic Research (which Vic Fisher once headed) looked at where ACES was taking the state (at current spending levels) and concluded "reasonable assumptions about potential new revenue sources suggest we do not have enough cash in reserves to avoid a severe fiscal crunch soon after 2023, and with that fiscal crisis will come an economic crash."

And those thinking that an LNG line is the cavalry coming over the hill to save state spending levels simply don't understand global LNG markets (something I have spent a great deal of my career working on).

But rather than just throw the piece down on the table in October and essentially say, "Alaska, our house is on fire," I have begun spending more and more time thinking about detailed solutions.

One of those I am finding increasingly intriguing is an idea that the Congress adopted when the Republicans returned to control of the House in 2010.  As you will recall, prior to that time Congress passed bill upon bill, approving a seemingly endless parade of  "earmarks," appropriations to specific projects supported by individual members.

Interestingly, Alaska does the same thing.  If you need your memory jogged, think about former Rep. Bill Thomas' efforts to use state funds to subsidize airplane tickets to the Great Alaska Shootout, Sen. Lesil McGuire's efforts to appropriate state money for paving the parking lot of the privately owned Anchorage "Dome," and most recently, Anchorage Mayor Dan Sullivan's (working through Rep. Lindsey Holmes) efforts to appropropriate state money to build municipally owned tennis courts.

After a new Congress was elected in 2010, the Wall Street Journal had this to say about the practice:
As the nearby chart shows [click on the link above if you want to review], the number of earmarks multiplied from nearly 1,500 in 1994 to a little under 14,000 in 2005—before voters ousted what had become the Grand Old Pork Party. It isn't easy to spend so much money so egregiously that even Nancy Pelosi could campaign as a relative fiscal conservative, but the Tom DeLay Republicans managed the feat in 2006. 
... It's true that earmarks make up only 2% to 3% of all federal spending, but that spending is what greases the political skids for passing trillion-dollar-plus budget bills. Members get what they want in return for voting "aye" on what the Administration and Congressional leaders want.
Frankly, I could write the same story (complete with a similar statistic) about today's Alaska legislature.

The Congress subsequently banned earmarks at the beginning of the new Congress in 2011.  While it hasn't solved the federal spending problem alone, it has slowed it down as members increasingly have come to focus on the big picture.  Personally, I am beginning to think it could have the same effect here.  And I have a couple of other ideas in mind as well.

I am looking forward to how this piece turns out.