Monday, September 29, 2014

This is what I know ...

For more information on "It's Our Future" click here.

I am working on a longer piece on the importance of fiscal policy in this election, and as usual when I start have prepared a list of the things to use as a reference. Here is the list:
  • Bill Walker, Alaska Libertarian Party candidate Care Clift and Alaska Constitution Party candidate J.R. Meyers all have said they support putting in place a "sustainable" budget. That term has a clearly defined meaning, backed up by a series of papers prepared by UAA's Institute of Social and Economic Research (ISER). 
  • Recently, Governor Parnell is reported to have said he supports a "balanced sustainable budget." "Balanced" and "sustainable" budgets are two different things.  Under a "balanced" budget government rides down revenues until there are none left or it creates other sources (e.g., through an income tax). Under a "sustainable budget" government deposits excess revenues received in good years (i.e., those years with revenues over the sustainable level) in what ISER refers to as a "nest egg" to produce earnings to supplement and sustain the same level of overall spending in later years (adjusted for inflation and population growth) when other revenue sources aren't sufficient. In the process government avoids the need to create additional revenue sources (i.e., an income tax) in later years as revenues from previously primary sources decline. 
  • Moreover, in recent discussions Governor Parnell apparently has claimed to some to have submitted balanced budgets to the Legislature each of the last five years. Even his own Office of Management and Budget, however, admits that last year's budget was over $1 billion in the red when submitted, so not only is what he means by the term "balanced sustainable" unclear, it's not clear what Parnell means even when he uses the term "balanced."
  • The current budget, which already is projected to finish $1.6 billion in the red, is based on an assumption of oil prices averaging $105/barrel over the current fiscal year (July 1, 2014 - June 30, 2015).  So far in the fiscal year, oil prices have been at or above that level only 30 days.  Oil prices currently are in the range of $95/barrel and both the futures market and a number of analysts are predicting continued softness in the months, if not years ahead.  
  • At current production and tax levels, each $1 change in the price of a barrel of oil changes general state revenues by roughly $90 million.  If oil prices end up averaging $95 for the fiscal year instead of $105, the state budget will end up $2.5 billion in deficit, an all time record and after the previous reductions caused by the deficits and other legislative actions of the last two years, will eat through roughly 20% of the state's remaining unrestricted savings.
  • In response to the above, Governor Parnell and his supporters generally rely on his "record" of having reduced the state's budget by $1 billion each of the last two years.  That is not entirely accurate.  Approximately $350 million of that reduction is attributable to ignoring one year's worth of payments generally made out of the operating budget to support PERS/TRS.  When those are added back in, as they should be to produce an apples to apples comparison, the reduction is only in the range of $1.6 billion.
  • Moreover, the reductions are from the record budget levels that Parnell himself approved earlier in his term, and haven't even kept pace with the rate of reduction in state revenues over the same period .  Despite the claimed spending reductions, the current budget is still the fourth highest in state history and is estimated to produce a $1.6 billion deficit (the second largest in state history) which as noted above, may balloon to $2.5 billion if lower than projected oil prices persist.  Whatever reductions have occurred, they haven't been remotely enough to put the state back on the sound fiscal footing it was before the Governor started approving record budget increases.  
  • Most important, the relevant question to the Governor (and any candidate) this election is not where the state has been, but where it is headed.
  • The state's current track is threatening to undue quickly the gains in investor confidence achieved through SB 21.  On its current track the state will run through its remaining savings somewhere between five years from now (at the $2.5 billion/year deficit level) and seven years (at the $1.6 billion/year deficit level).  Investors reasonably anticipate that, when faced with the need to increase revenues (as savings run out), the state will increase taxes on industry first before moving on to other revenue sources.  Without a clear and reliable plan for dealing with the situation, investors already are leery of making significant new investments that rely on revenue streams to achieve anticipated returns lasting longer than four to five years at the outside.
  • Beyond that, the state's current track also is leading directly toward what ISER predicts will be "institution of broad-based [income, sales or both] tax and use of a portion of the earnings from the Permanent Fund."  Essentially, on the current track future Alaskans will be left holding the obligation to pay for the bloated spending decisions made by this one.
  • In my opinion, fiscal policy is the key issue at the state level in this election cycle.  ISER has said that, on its current track, the state is heading toward a "fiscal crisis" and "economic crash."  The consequences are severe and that track has to be changed now -- by the Governor elected this coming election -- in order to avoid those consequences.  
  • The Final Point.  As of this writing, there are 35 days between now and Election Day.  Three candidates -- Walker, Clift and Myers -- need to tell Alaskans how they will achieve a sustainable budget,  within what time frame and how it will avoid the outcomes of the current track.  One candidate -- Parnell -- has to explain in the first place what his plan is for changing the current track that Alaska is on (i.e., what he means by the words he is using), then how he will achieve that plan, within what time frame and how it will avoid the outcomes of the current track.
  • The clock is ticking:

Saturday, September 27, 2014

Maybe Governor Parnell doesn't understand ...

... what the real fiscal issue is in this election.  It's partly about his past record -- the four largest budgets and two largest budget deficits in Alaska's history.

But that really is only the prologue to the real question -- what is each candidate's plan going forward for dealing with a situation that the University of Alaska-Anchorage Institute of Social and Economic Research (ISER), the state's best economic think tank, calls an approaching "fiscal crisis" and "economic crash" which, if not headed off, will result in the "institution of broad based [income, sales or both] taxes, and use of a portion of the earnings of the Permanent Fund,” just to maintain minimum levels of government services.

The reason the thought the current Governor doesn't understand the real issue crosses my mind is because of a brief Twitter "skirmish" that broke out this afternoon after I published a blog piece discussing a recent statement by Bill Walker that he will "[put] in place a sustainable budget" if elected.  As I discuss in detail in the piece, a sustainable budget is something the state should have -- and some promised to -- put in place two years ago before the legislature enacted and the Governor signed back-to-back the two largest budget deficits in state history.  If they had, the state wouldn't be facing as severe a problem as it is now.

But they didn't and Walker (as well as two of the other candidates for Governor, Alaska Libertarian Party candidate Care Clift and Alaska Constitution Party candidate J.R. Myers) recognize that, as it was two years ago, a sustainable budget remains the best option now -- especially when compared with an income tax and reduced PFD as alternatives.

After publishing the piece, someone with the Twitter handle @AKpolitico -- I don't know the person's real name and he or she doesn't disclose it on their Twitter page, but who from past tweets clearly supports and may be part of the Parnell campaign -- decided to play cute and attempt to score political points off my commentary.  The problem, however, is that they didn't come to the effort with any notion of what Parnell's going forward plan is for dealing with what ISER terms the coming "fiscal crisis" and "economic crash."  All they wanted to do was try to pick on Walker's.  I've played enough poker to know that you don't start the game until all sides have anted up.

As I have thought about it since and gone back to read some of @AKpolitico's prior posts I have come to the conclusion that maybe @AKpolitico is part of the Parnell campaign and maybe they couldn't engage because Parnell doesn't understand what the real fiscal issue is.  Now that is downright scary.

In any event, here is a replay of the "skirmish."  I will leave it to each of you to draw your own conclusions.  Mine are those above.

Thursday, September 25, 2014

Another, more personal way to look at state spending numbers ...

Yesterday after publishing an earlier piece listing "Four basic Alaska budget facts and a reminder ...," a friend and I engaged in an exchange about how to make the numbers meaningful to Alaskans not as immersed in the numbers as some.  Usually I resist spending much time on those endeavors, largely because I know what I am good at -- and that isn't one of them.  Because I still had the Excel workbook up where I have all of the data, however, I recalculated the numbers as our discussion went along and, at the end, have to admit that the result produced some interesting numbers.

As it went on, the goal was to restate state spending under the various Alaska Governors since 2000 (i.e., the last 15 years), adjusted for inflation (so that the spending levels are not distorted by time) and -- this is the part that my friend convinced me to use to put it on a more understandable level -- stated on a per capita basis, in other words the amount of state spending broken down by each Alaska man, woman and child resident in the state at the time the spending occurred.

The resulting spreadsheet follows, but the quick take away was this:
  • During the Knowles Administration, Alaska state government spent $4,928 per Alaskan; 
  • Murkowski: $5,777; 
  • Palin: $8,579; and thus far during
  • Parnell: $8,864.  
The final element was to add in on the same basis what the current level of sustainable spending is -- in other words the amount which, if spent today and the remainder of state revenues put aside for the future, could be sustained for decades into the future without the need for increased taxes or diversion of earnings from the Permanent Fund.  The result (based on current population):  $6,585.

I have to admit these are very interesting -- and useful -- numbers.

Wednesday, September 24, 2014

Some interesting dynamics at work in the #AKgov race ...

While Amanda Coyne and others in the past have rightfully cautioned against putting too much weight on Alaska polls conducted by Public Policy Polling, there are a couple of interesting results in PPP's latest, released yesterday, that have me intrigued.  The results are the responses to Questions 8 and 9, which are as follows:

The thing that intrigues me is the shift that occurs when the two third-party candidates for Governor are eliminated from the survey and those that otherwise are intending to vote for them essentially are asked to reallocate their vote between the incumbent and Bill Walker.  Tellingly, Walker's lead over the incumbent goes from 1% to 4%, apparently because of the movement of a significant portion of the third-party voters going to Walker.

Of course, neither of the third-party candidates are expected to drop out of the race before the election.  But the numbers nevertheless are intriguing to me because I remember well the 1992 Presidential election, when Ross Perot played a similar, albeit larger, role as a third party candidate.  Polls conducted early in the race put Perot at somewhat significant numbers.  Those dwindled, however, as the election date came closer and voters became concerned that, in a plurality take all contest, casting a vote for Perot instead of one of the top two candidates left the voter out of the decisionmaking process.  The result was a significant movement in the final weeks away from Perot and toward one of the other two, leading candidates.

But those voters took their issues with them and broke surprisingly strong toward the end for Bill Clinton as he increasingly warmed to the budget issues that had propelled the rise of Perot (and George Bush did not).  

Of course, those favoring the Alaska third-party candidates in the current poll are concerned about a number of issues, and some of their supporters are so firmly committed to the cause that it is unlikely they will be swayed to vote for one of the two frontrunners even toward the end.

But from all appearances at this point this election is going to remain close to the end and both of the frontrunners will be looking for every vote they can.  As they contemplate strategies on how to attract some voters away from the two third party candidates it will be important to remember that, like Perot before them, both third party candidates have put budget issues -- and specifically, achieving a sustainable budget -- at the center of their agenda.  See, e.g., "A Statement on Alaska's Future," by J. R. Myers, the Alaska Constitution Party candidate, and "Top Three Concerns for Alaska," by Care Clift, the Alaska Libertarian Party candidate.

Looking back on the 1992 election over time, I have come to realize that there are a number of ways for third party candidates to become successful.  One, like Angus King in Maine, is to be elected.  But a second, lesser preferred, but nevertheless good outcome is to have your issue become the defining one of the election.

A few years after the 1992 election, noted Presidential historian Michael Beschloss had this to say about Ross Perot's run:
“[Perot] was the first candidate really in a big way to float the idea that the deficit was a bad thing .... By the time Bill Clinton was elected that fall, if he had not done something about the deficit he would have been in big trouble and that was largely Ross Perot’s doing.”
In short, even though he wasn't elected, by running Perot put "the federal budget deficit, an issue previously ignored in elections," on the map, and made it "a major part of almost every presidential campaign since."

Care Clift and J.R. Myers are doing the same thing with budget issues in Alaska.  As the PPP poll indicates, the race is shaping up to be tight, with undecideds and third party voters positioned to play a major role.  In an effort to attract those voters both major candidates are going to have to deal with the issues that have propelled support for the third party candidates, and more than anything else those relate to the state budget.  As in 1992 at a national level, by the time this is over the winning candidate may well be the one that has articulated the best plan going forward for securing Alaska's fiscal future.

And that will be the result of Care Clift and J.R. Myers doing what they are doing now -- pressing the issue and continuing to give voters an alternative if the two frontrunners don't step forward with their own solution.  Even if they don't ultimately win the election, as Perot's in 1992 their campaign will have succeeded by creating an environment in which the winner will be in "big trouble" if he doesn't do something about state fiscal issues.

Tuesday, September 23, 2014

Four basic Alaska budget facts and one reminder ...

See "#AKbudget| Unfortunately, deficits matter … (addendum dated 4.25.2014)" for how this chart was constructed.
I was working on a longer piece today for publication elsewhere and kept coming back to four basic facts about Alaska budgets and one reminder.  I thought I would share them here:
  1. Current Governor Sean Parnell has been responsible for five budgets during his years as Governor.  Four of the five are the four largest in state history and the fifth is the sixth largest in state history (number 5 was signed by Governor Sarah Palin).
  2. Since 2000 the annual budget has finished in the red six times.  The last three of those (three of Parnell's five) have been signed by current Governor Sean Parnell and the last two of those, back-to-back have reflected the two largest budget deficits in state history.
  3. Contrary to what some have claimed (that these deficits arose under the Bipartisan Coalition), the last two budget deficits -- the highest in state history -- were passed by the legislature elected in 2012, which produced supermajorities (75%) for the Republicans/Majority Caucus in both legislative bodies.
  4. The current budget -- which already is projected to be $1.6 billion in the red -- is based on an assumed ANS oil price of $105/barrel (footnote 2).  The actual price of ANS oil has been below that level since July 31 (barely 30 days into the current fiscal year), has remained in decline since and most recently closed at $94.22/barrel.  Increasingly, most analysts are predicting that the price will either stay in the neighborhood of that reduced level or continue to drift downward over the next several months.  At the spending levels enacted by the legislature and signed by the Governor earlier this year, the actual current year deficit will exceed $2.5 billion if the current price level persists throughout the remainder of the fiscal year, exceeding the previous record state deficit by 30% and in one year alone draining nearly 25% of the state's remaining unrestricted general savings.
  5. In 2010, current Governor Sean Parnell campaigned on the theme that the candidates should be judged by their "Actions, Not Words."  Parnell's actions -- and those also of the legislature elected in 2012 -- speak for themselves.