Thursday, September 22, 2016

To control spending, #AKleg needs to become more fiscally conservative, not "Bipartisan" ...

Click to enlarge table.
This past weekend we discussed the effect of the 2006-2012 Senate "Bipartisan Majority" on state spending levels. Our conclusion was that, "[t]he result -- from a fiscal perspective -- was an unmitigated disaster." The last time Alaska had a moderate "Bipartisan Majority" was a fiscal disaster,

Subsequent to that post, two candidates defending the last "Bipartisan Majority" and hoping, themselves, to be part of a new one this coming session followed up with comments.  Their thesis?  That the R Majorities that have prevailed since the end of the "Bipartisan Majority" are more to blame for the state's current fiscal woes than the "Bipartisan Majority" because the R's failed to bring spending under control at a time of falling revenues and have otherwise failed to develop a fiscal plan.

Their claim is that a new "Bipartisan Majority" will do both.

To repeat something we said in the earlier piece, "[t]o be fair ... the Republican led majorities that have prevailed in both bodies since the end of the last Bipartisan Majority are nothing great to write home about."

But that does not mean a new "Bipartisan Majority" would do any better -- and, in fact, the evidence suggests they would do worse.

 To think about the issue we extended the analysis we did in the weekend's post several more years to include the period during which the R Majorities have governed.  

The analysis shows that while the R Majorities have not reduced spending to long term sustainable levels as they promised following the 2012 elections, they have, in fact, reduced spending -- both overall and on the Operating Budget -- below the levels appropriated by the "Bipartisan Majority." Indeed at least on the surface, in the four years they have been back in control the R Majorities have returned overall spending, adjusted for subsequent inflation and population growth, back to a level comparable to where it was before the "Bipartisan Majority" took control following the elections of 2006.

Of course, there is a lot going on under that surface -- most of the reduction has been achieved through cuts made in the capital budget not the more problematic operating budget, some of the reduction reflects accounting tricks in which the R Majorities have engaged in order to make spending seem lower than it is, and, in FY 2017, the initial budget (i.e., before supplementals) passed by the R Majority significantly underpaid the amount owed on reimbursable oil credits, essentially funding the budget reductions on the backs of others.

But even taking all of those into account, the R Majorities have spent less.

One of those to whom we talked making the argument for a new "Bipartisian Majority" sought to excuse the behavior of the last one on the basis that revenues were higher then, and attack the behavior of the current R Majorities on the basis that revenues are lower now.

But that isn't a valid excuse.  For a number of reasons, oil prices are cyclical; they go up, then they go down, then they go up again.  Proper budgeting in a commodity price driven economy looks through the ups and downs and sets spending at long-term sustainable levels, essentially a level that cuts through the ups and downs and tries to chart a steady course.

Sustainable budgets aren't driven by the revenues of the moment; they are driven more by a long-term outlook that takes into account both the moment and the future.  They save the "excess" over the long-term, sustainable revenue level during periods when oil prices are up.  Sustainable budgets then use that saved excess to help maintain that same, long-term, sustainable level of spending when oil prices are down.

From that perspective spending more -- higher than long-term sustainable levels -- when revenues are high isn't a defense, and spending less than long-term sustainable levels when current revenues are low isn't appropriate.  The goal is to maintain even spending throughout both cycles, adjusted for inflation and population growth.

Even using current spending figures (which are still high) as a proxy for sustainable levels, if the last "Bipartisan Majority" during its final two years had held spending to the same overall level achieved during the last two years by the R Majorities for example, they would have put another $4.5 billion away in savings, another 50% on top of the $9 billion they did manage to save over the six years they governed.  If they simply had held spending during the last two years to the average spending level they themselves achieved in the first four years, they still would have saved another $4 billion.

In short, if the previous "Bipartisan Majority" had exercised the same fiscal restraint that those who want to form a new one now use to judge the current R Majorities, the state would now have $4+ billion more in savings.

The fact is "Bipartisan Majorities" spend more by their very nature.  In order to paper over the philosophical differences they understandably have over spending priorities, each side necessarily agrees to spend also on the spending priorities of the other.  As the spending levels produced by the last "Bipartisan Majority" demonstrate, the result is that in doing so they end up spending more overall than partisan majorities which are more agreed on spending priorities.

The problem Alaska faces in today's environment is that, even under largely single party majorities, state government has continued to spend beyond long-term sustainable levels, eating into the reserves it needs to support sustainable spending levels for future generations.

As we said in the previous post, the solution isn't to return to a "Bipartisan Majority."  That will only make the spending problem worse and likely lead to even greater demand for enacting "new revenues" which benefit one sector of the economy -- those served by or tied to government spending -- at the expense of the overall economy.

In short, while the previous R Majorities have not lived up to their promises and, in failing to do so, made Alaska's fiscal situation worse, returning to a "Bipartisan Majority" will only make the situation even worse still.

Instead as we said in the previous piece, in our opinion the solution is to elect where ever possible actual fiscal conservatives to replace the "go along," pseudo-fiscal conservatives that seem to have dominated at least the legislative leadership, if not also the membership, of both bodies since the ouster of the Bipartisan Majority.  Some of that needed change occurred in some of the recent primaries, but there is more possible to achieve in the general election.  

But as important as it is, simple election is not enough.  To return spending to sustainable levels, those same actual fiscal conservatives need to rise to leadership positions -- particularly, the Finance Committee Chairmanships -- themselves.  As we have learned over the past several years, directing the agendas of those committees does much to control the outcome.

If Alaska is to regain control of its budget, putting actual fiscal conservatives in control of the process is critical.