Thursday, June 5, 2014

The Anchorage Daily Planet gets it very, very, very wrong ...

Generally speaking I like the Anchorage Daily Planet.  Powered largely by Tom Brennan and Paul Jenkins, the Planet usually is a good source of information and opinion.

But a recent unsigned editorial got things very, very, very wrong.  The editorial -- entitled "Right Direction" -- praises the Governor and this year's legislature for the outcome of this year's budget.
Gov. Sean Parnell signed a $12.8 billion budget that happily reduced unrestricted general fund spending from the $7 billion of last year to $5.9 billion this year – and he did it without deploying his veto pen once. It is a start. 
With declining revenues and dwindling oil production a growing economic problem, at least for the short-term, the shrinking budget is a good sign. For his part, the governor gave credit to the legislative leadership for its frugality.
The problem with the editorial?  It is premised on the wrong facts.

The budget approved this year is not $5.9 billion; in fact it is $6.17 billion.  As I have explained elsewhere, the Governor claims its a lower figure only by leaving out a category of cost.

But that is only the tip of the iceberg.  While it is true that spending has been reduced over the last few years, revenues have fallen faster than spending.  As a result, deficits -- the difference between current revenues and current spending -- have grown dramatically.  In the last two sessions (2013 and 2014) the Legislature has approved and the Governor has signed back-to-back budgets containing the two largest deficits in Alaska's history.

And even that doesn't tell the full story.  In addition to running record deficits the last two years, this year the legislature also approved the transfer of $3 billion from the Constitutional Budget Reserve (CBR) to the PERS/TRS account, dramatically reducing the level of state savings.  Combined with the deficits, the result is that in two short years this Governor and Legislature have drained 35% out of the state's two primary savings accounts, leaving less than $11 billion of the $17 billion in the accounts that existed at the beginning of the 28th Legislature.

The editorial seems to take comfort from a previous study by the University of Alaska’s Institute for Social and Economic Research, which estimated that "the state could afford to spend about $5.5 billion a year in unrestricted general fund money over the long haul."

But that study was premised on the level of the state's "nest egg" as it existed before the start of the current Legislature -- in other words, before $6 billion was drained out of the state's two primary savings accounts.  After the first session of the Legislature -- and the first record deficit year -- ISER revised the number from $5.5 down to $5 billion.

Next year's sustainable spending number, which will be based on an even lower "nest egg" as a result of this year's budget and the PERS/TRS related transfer from the CBR, will likely be in the range of $4.75 billion.  Using that as a base, even using the Planet's own logic no congratulations are due to a Governor and Legislature that just approved $6.2 billion in spending.  The resulting gap between "sustainable" and actual spending levels is as high as it was when the budget was at $7 billion.

There is good reason why the Alaska Business Report Card downgraded both the Governor and legislative leadership at the end of this Legislature.
Governor Parnell has been far less successful in trimming the size of state government and reducing its unsustainable unrestricted general fund spending. ... the State’s fiscal cliff looms large. Alaska needs more leadership from the Governor on this very important strategic issue. We hope he will step up to that need with some significant vetoes in the FY2015 operating and capital budgets, together with a clear message explaining the need for them.
 The Governor didn't do it.  The existing business community -- and in my experience, investors looking at the coming fiscal gap being created by the state's ill advised fiscal policy -- are clearly and deeply concerned.  Hopefully, once the Planet editorial board better educates itself, it will be as well.  If not, by encouraging this Administration's continued spendthrift policies, the Planet is just as dangerous to the state's future as the "leftist" view on SB 21 it disdains.

Note:  To their credit, this column was republished here by the Anchorage Daily Planet on June 6, 2014.