Tuesday, December 26, 2017

Analyzing the Governor's Proposed FY 2019 Budget: Part 1 (an overview)

Right click to enlarge. Also available from the OMB website (p. 16).

Over the past week we have taken the time to work through the Governor’s proposed FY 2019 budget. Following up on that, over the next couple of weeks we intend to write a series of columns taking a deeper dive into various aspects we think are important.

Today, however, we start with a simple overview, using as the baseline a spreadsheet from among the various materials published on the OMB website in support of the budget. The spreadsheet we are using (above) -- and will continue to use throughout -- is the Administration's 10-year fiscal forecast. The reason we are using that is because Alaska’s current fiscal situation isn’t a one-year phenomenon. Instead, as with the federal budget, there are various structural issues that, if not addressed in the near term, will cause the problems we currently are experiencing to continue to occur year after year. 

Using OMB's 10-year forecast as a baseline enables us to put those in perspective.

But using OMB’s 10-year forecast comes with its own issues. For the first time OMB’s materials include what they refer to as a “transparent budget” which attempts to eliminate the accounting tricks used in the past to understate UGF spending. We commend them for the effort, but unfortunately they have not used that approach in crafting the 10-year forecast. As a result, we will need to make some adjustments to the 10-year forecast as we walk through it in this and subsequent columns in order to remove the effects of the various accounting tricks.

The spending level we will focus on throughout this effort is referred to on the spreadsheet as the “Budget (before Dividend).” We have hi-lited that in yellow on the above sheet. We are using that both because it best aligns with the so-called UGF numbers used in the past, and avoids the various distorting effects created by including all or a portion of the statutory PFD in the state spending numbers.

Focusing on that, the Governor’s 10-year forecast proposes to set FY 2019 spending at $4.58B, which rises to $5.10B by FY 2023 (5-year) and $5.60B by FY 2028 (10 year).

But as mentioned above, those numbers need to be adjusted for accounting tricks.

The footnote to the spreadsheet indicates that after adjusting for those, FY 2019 spending rises to about $4.7B. But that number still largely excludes oil tax credits (which the Governor assumes are covered by a yet-to-be-approved bond issuance, and as a result, are essentially removed from his proposed FY 2019 spending levels). Including those adds an additional $180 million to FY 2019, bringing adjusted FY 2019 spending to around $4.9B.

There also is a question about how to treat the additional spending included in the Governor’s proposed “Alaska Economic Recovery Act.”

The Governor proposes to fund that with a so-called “temporary” payroll tax, which would make the expenditures DGF (designated general fund) spending. But we have heard some talk about agreeing to all or part of the spending (as “needed” capital spending), but without the tax. If so, that would raise adjusted FY 2019 UGF spending by another $280 million, to roughly $5.2B, or approximately $600 million (13%) more than the initial level shown on the spreadsheet.

While not all of those adjustments carry through to future years, some do, which likely means projected adjusted FY 2023 (5 year) spending exceeds $5.25B and projected adjusted FY 2028 (10 year) spending exceeds $5.75B.

That compares with adjusted FY 2018 spending (i.e., excluding accounting tricks) of roughly $4.9B. That means the Governor's proposed adjusted FY 2019 spending is roughly $100 million to $300 million (2 - 6%) above adjusted FY 2018 levels, and adjusted FY 2023 (5 year) and FY 2028 (10 year) spending is roughly 7% and 17%, respectively, above FY 2019 levels.

That’s enough to digest for now. We will follow up next by focusing on where we are -- and where we are headed -- under various of the current formula programs.

Questions along the way are encouraged. Feel free to post them either in the comments section of this page, or on any of the Facebook or Twitter pages where we will be posting links to this and future columns.