Monday, November 18, 2013

If I were Governor ...

Yesterday I published a piece on the main blog discussing Alaska's gathering fiscal storm -- "Where the money runs out: The price of oil, Medicaid expansion and Alaska social policy …."  Then late yesterday I received an email in response which basically said "ok, genius [the actual word that went here was less charitable], what would do different if you were Governor."  The basic theme of the email was that the current Governor is doing all that can be done to deal with the current situation and Alaska is simply going to have to ride it out.

As my friends know (the email wasn't from a friend) one of the things that motivate me is a challenge -- and the odds of a response increase if the challenge is put in the form of a semi-derogatory email.  Interestingly enough, I have thought about this -- so here are the first three steps I would take "if I were Governor":
  1. Capital Spending.  Immediately -- as in today, right now -- I would dramatically slow down the issuance of new state construction contracts.  A major part of the increase in state budgets over the last three years has come through the capital budget.  In the five years preceding the last three, capital spending averaged roughly $800 million/year.  In the last three years the capital budgets have been $1.6 (FY 2012), $2.6 (FY 2013) and $1.8 (FY 2014) billion, respectively.  Not surprisingly, those rank as the first, second and third highest in Alaska's history (the next highest is a half billion dollars lower).  While I can't get my hands on the precise number, I understand that these funding levels are so high that the contracts for a number of the projects have not yet been issued.  If I were Governor I would put a moratorium on those now, and then set a schedule for pacing them out over the next three to five years, to act as a means of softening the transition to the necessary reductions in future capital budget levels.

  2. FY 2015 Budget.  I would submit a budget for the coming fiscal year which limits total unrestricted general fund spending (the key number in any state budget) to $5.8 billion.  While some claim that is an "unacceptable" drop from current levels, its not.  It allows for an operating budget of $5.3 billion -- the same as for the current fiscal year -- and a capital budget of $500 million.  While some will claim that capital budget level is "too low," it will still result in a rolling five year average capital budget (i.e., the average over the last five years) of $1.42 billion, which is the second highest in Alaska's history (second only to the current five year average of $1.48 billion).  Such a budget not only is a significant step toward sustainable levels, but it would provide breathing room this coming year while the Commissioners work with the legislature to identify what its going to take to get the operating budget under control in future years.  And to emphasize the point, at the same time I announce that I am submitting a $5.8 billion budget, I would make clear also that I would use the Governor's power of line item veto to bring the final number back to the same level should the legislature attempt to increase it during the session.

  3. Fiscal Plan.  Finally, I would work with the legislature this coming session to craft and enact a state budget act which would require future Governors to submit sustainable budgets.  Current Alaska law requires that Governors submit (and legislatures enact) "balanced budgets," but as the last few years have demonstrated that concept is insufficient to protect Alaska's interests.  Under current law budgets are "unbalanced" only if they exceed current cash flow plus available financial reserves.  As the analysis earlier this year by the University of Alaska-Anchorage's Institute of Social and Economic Research (ISER) makes clear that approach permits current Governors and legislatures to spend away the "nest egg" which is needed to support future Alaska generations.  My approach would not prohibit spending above sustainable levels where both the legislature and Governor agreed -- the legislature could enact a higher than sustainable budget and the Governor could concur by not exercising a line item veto to bring it back down.  But requiring the Governor initially to submit a sustainable budget at least would provide Alaskans -- and the legislature -- with the information they need to judge whether taking money from future Alaskans -- and how much -- is appropriate.
No, I don't have a similar list for how to achieve world peace or, even, how to solve the nation's health crisis.  But Alaska fiscal and oil policy?  I got this.