Saturday, July 29, 2017

The Alaska Legislature tosses out the Rule of Law ...

Thursday we wrote a column discussing an issue we considered important to that day's vote on the capital budget.  Our question was whether the legislature would vote in the capital budget to finish fully funding two annual statutory obligations which remained underfunded after completion of the FY 2018 operating budget.  Today's vote will demonstrate whether Alaska legislators believe in the rule of law,

Turns out, they didn't.  While the legislature did vote to finish funding cashable oil tax credits, the legislature for the first time since the creation of the Permanent Fund Dividend (PFD) in the early 1980's failed to fully fund the PFD
 at the level required by the governing statute.

(The votes on the final capital budget are at the top. The Senate vote is on the left; the House vote on the right. Green indicates a vote in favor of the final capital budget, which failed to fully fund the PFD. Red indicates a vote against by the member, in a number of instances based on the ground that the budget did not fund the PFD.)

As we noted in our previous piece,
AS 37.13.145(b) provides that 
"[a]t the end of each fiscal year, the corporation shall transfer from the earnings reserve account to the dividend fund established under AS 43.23.045, 50 percent of the income available for distribution under AS 37.13.140."
The Permanent Fund Corporation currently estimates the amount required to be transferred under that provision during FY 2018 is $1.54 billion. The legislature included $760 million in the FY 2018 Operating Budget.  

The legislature failed to make up any of the remaining $780 million shortfall in finalizing the capital budget.  The impact is to shortpay each PFD by roughly $1,250 (or $5,000 for an archetypical family of 4).

That is a statutory obligation owed to its own citizens that state government refused to honor.

As we have discussed repeatedly on these pages, cutting the PFD has a large, indeed according to a March 2016 report from the UAA Institute of Social and Economic Research, the "largest" adverse impact 
of all of the various "new" revenue options most have considered on the overall Alaska economy and families.  Especially given that Alaska already is in a deepening recession, that alone is sufficient reason to be deeply concerned about the decisions made by legislators Thursday.

But Thursday's vote is deeply troubling also for another reason. It's because in refusing to fully fund the state's statutory fiscal obligation to its own citizens, the legislature also tossed aside the rule of law as it applies to state fiscal policy.

As we said in our earlier piece, 

"The rule of law is the legal principle that law should govern a nation, as opposed to being governed by decisions of individual government officials. ... Rule of law implies that every citizen is subject to the law, including lawmakers themselves. In this sense, it stands in contrast to an autocracy, dictatorship, or oligarchy where the rulers are held above the law."
A large portion of Alaska fiscal policy is based on statutory formulas.  The formulas -- which cover such things as the K-12 BSA, pupil transportation and Medicaid spending -- accounted for roughly 45% of FY 2017 UGF spending.  Once the numbers are tallied, they likely will account for slightly more than that in the FY 2018 budget.

While in the midst of the recent fiscal debate some have suggested amending the formulas, few have recommended ignoring them.  The reason is because they are contained in statute and, to date, legislators (and other observers, including us) largely have defended them as provided by law and, thus, untouchable.

But that defense went out the window in Thursday's vote.

Like the others, the PFD is based on statutory formula. But unlike the others, in its votes on both the FY 2018 Operating and Capital Budgets the legislature failed to honor the formula.

To be blunt, it failed to follow the Rule of Law.

In doing so, the legislature has entered a new era.  As 
the above definition makes clear, the rule of law "implies that every citizen is subject to the law, including lawmakers themselves."

Now that the legislature has ignored clear statutory direction, Alaska appears to be entering into an era where, at least with respect to fiscal policy, the rulers consider themselves "above the law."

There is a problem with governments that go down that road.  They are unreliable.  This time the legislature has dodged its statutory fiscal obligation to its own citizens.  Once a government starts down that road, however, others dependent on other statutory payment obligations legitimately realize that it is only a matter of time before it happens to programs in which they have an interest and start to hedge accordingly.

Statutes -- particularly fiscal statutes -- are there for a purpose. They are intended to convey reliability and certainty, and in doing so, sustainability.

Those with the green buttons beside their name just put investors and others on notice that the Alaska statutes provide none of that going forward.  Even where a statute says "shall," the legislature has demonstrated that it feels free to ignore it.