tag:blogger.com,1999:blog-40497462778430905782024-03-12T14:38:52.621-08:00Notes from the Alaska Fiscal Cliff: Brad Keithley's Commentary on Oil, Gas & Fiscal Policy... Page Two of <b><a href="http://bgkeithley.com">"Thoughts on Alaska Oil & Gas" </a></b>Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.comBlogger331125tag:blogger.com,1999:blog-4049746277843090578.post-56847430657216242452019-08-16T04:33:00.000-08:002019-08-16T04:47:19.853-08:00A Conversation on the PFD<div class="clearfix fbPhotoSnowliftAuthorInfo _xlu" style="margin-top: 0px; padding: 16px; position: relative; zoom: 1;">
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<i><span style="font-size: large;">Occasionally, we fall into a discussion on social media that seems to do a good job capturing the essence of the public policy debate swirling around us. The one below, with Kenai personality Duane Bannock, began with the question, <b>“What do all (or even the majority) Alaskans agree on?”</b></span></i></div>
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<i><span style="font-size: large;">Our response was <b>"What do Alaskans seem to agree on? Make someone else pay for the costs of govt." </b></span></i></div>
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That ended up triggering an extended exchange on the PFD which we think captures the essence of the arguments on both sides. We repeat it here for those interested.</span></i><br />
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<a class="_hli" data-hovercard-prefer-more-content-show="1" data-hovercard="/ajax/hovercard/user.php?id=100001547234134&extragetparams=%7B%22__tn__%22%3A%22%2Cd%2AF%2AF-R%22%2C%22eid%22%3A%22ARB_eiyh34U5-52321hvGjlQmSpaVJTC6HKQrdHtPvgrZHSeCPh17hVSHW7MdcPghWCI1yR4GCy_i6nZ%22%2C%22tn-str%22%3A%22%2AF%22%7D" href="https://www.facebook.com/duane.bannock?__tn__=%2Cd%2AF%2AF-R&eid=ARB_eiyh34U5-52321hvGjlQmSpaVJTC6HKQrdHtPvgrZHSeCPh17hVSHW7MdcPghWCI1yR4GCy_i6nZ&tn-str=%2AF" style="background-color: white; color: #385898; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;" title="Duane Bannock">Duane Bannock</a></div>
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The recent reversals of veto’s from <a data-hovercard-prefer-more-content-show="1" data-hovercard="/ajax/hovercard/page.php?id=176283123315037&extragetparams=%7B%22__tn__%22%3A%22%2CdK%2AF-R%22%2C%22eid%22%3A%22ARAAvMpBF4TnBz-XxRUgJs1yFrsT8YeZ-w1gN3N7GxtjKQR832zfGGK88YngOi-G6yqrAFJgrsCeBILB%22%2C%22directed_target_id%22%3Anull%2C%22groups_location%22%3Anull%7D" href="https://www.facebook.com/GovDunleavy/?__xts__%5B0%5D=68.ARAy-cX87eOcx7siPj41YFrVMnRwVVuRg9UwXfwB3-0lI2xriRd4KVMKnr2SLOX7FLzZIbBI123zwe2AGcFkqTdNGT44H5tpFC0noQlsC7Vor11TMslHO1yT7jsZOEmEiKDht0Pvg-pQyv_ThNHK-ay16Jgjm_r7dwcHgsUBplqANeWP94hOU_IeDvKvnF1i3HzyIHhdGpF0P5Q4&__tn__=%2CdK%2AF-R&eid=ARAAvMpBF4TnBz-XxRUgJs1yFrsT8YeZ-w1gN3N7GxtjKQR832zfGGK88YngOi-G6yqrAFJgrsCeBILB" style="color: #385898; cursor: pointer; font-family: inherit; text-decoration-line: none;">Governor Mike Dunleavy</a> is dominating the news in Alaska.<br />
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I think he’s allowed himself to be pushed into a ‘no-win’ scenario: veto everything again and increase his unpopularity or accept the defacto ‘overrides’ and be criticized for ‘caving in’<span class="text_exposed_show" style="display: inline; font-family: inherit;"><br />
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Does the recall effort play into this? Possibly. Did he have a change of heart? Possibly. I’m not close to him and I can’t really understand his published justifications.<br />
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If he was right to issue the original vetos, how can he be right now? Was it mistake to issue the original vetos? If yes, what does that say about his governing ability?<br />
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What I think is indisputable: We are a state without a unified direction. I asked this question last week and I’ll ask it again: <i><b>“What do all (or even the majority) Alaskans agree on?”</b></i></span></span></div>
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<a class="_6qw4" data-hovercard="/ajax/hovercard/user.php?id=1244735424&extragetparams={"directed_target_id": " "}" href="https://www.facebook.com/bgkeithley" style="color: #385898; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;">Brad Keithley</a> <span dir="ltr" style="font-family: inherit;"><span class="_3l3x" style="font-family: inherit;">What do Alaskans seem to agree on? Make someone else pay for the costs of govt.</span></span></div>
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<a class="_6qw4" data-hovercard="/ajax/hovercard/user.php?id=100001547234134&extragetparams={"directed_target_id": " "}" href="https://www.facebook.com/duane.bannock" style="color: #385898; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;">Duane Bannock</a> <span dir="ltr" style="font-family: inherit;"><span class="_3l3x" style="font-family: inherit;"><a class="" data-hovercard="/ajax/hovercard/user.php?id=1244735424" href="https://www.facebook.com/bgkeithley?hc_location=ufi" style="color: #385898; cursor: pointer; font-family: inherit; text-decoration-line: none;">Brad Keithley</a><span style="font-family: inherit;"> is the PFD a social program based on need? If it were, you’d make an excellent argument. However, since we both can agree it’s not, I cannot justify giving out free cash while at the same time “clawing it back” (h/t Gov Hammond) from a select, working group of Alaskans</span></span></span></div>
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<a aria-hidden="true" class=" _3mf5 _3mg1" data-hovercard="/ajax/hovercard/user.php?id=1244735424" href="https://www.facebook.com/bgkeithley" style="border-radius: 50%; color: #385898; cursor: pointer; display: block; font-family: inherit; margin-right: 6px; margin-top: 7px; position: relative; text-decoration-line: none;" tabindex="-1"><img alt="Brad Keithley" class="_3me- _3mf2 img" src="https://scontent-ort2-1.xx.fbcdn.net/v/t1.0-1/p80x80/51818508_10218575349435344_7467970863770370048_n.jpg?_nc_cat=108&_nc_eui2=AeFII--A-BxAQmvyPhl8AALX90jzP5Nnz60qoQDz7sJLkahhMrG24IR0YVpJG9d1iOG-zAsnAdErmZM1QLq6jBQbG4NSm4d170_frBM6QyusVQ&_nc_oc=AQlnOr214OnAbgfVUU0lG0wzRB-iobXgR1yoD9wa8v2Vn8riDGtIXN5xyNSc8_vIRfkWkJn4g3W58SGbbbfqmwHt&_nc_ht=scontent-ort2-1.xx&oh=d08491c3a9e6d332d7b3b01d7a6c6618&oe=5DD1B440" style="border-radius: 50%; border: 0px; display: block; height: 20px; overflow: hidden; width: 20px;" /></a></div>
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<a class="_6qw4" data-hovercard="/ajax/hovercard/user.php?id=1244735424&extragetparams={"directed_target_id": " "}" href="https://www.facebook.com/bgkeithley" style="color: #385898; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;">Brad Keithley</a> <span dir="ltr" style="font-family: inherit;"><span class="_3l3x _1n4g" style="font-family: inherit;"><span style="font-family: inherit;"><a class="" data-hovercard="/ajax/hovercard/user.php?id=100001547234134" href="https://www.facebook.com/duane.bannock?hc_location=ufi" style="color: #385898; cursor: pointer; font-family: inherit; text-decoration-line: none;">Duane</a><span style="font-family: inherit;"> ... You misstate our position. We believe ALL Alaskans AND non-residents should have the same skin in paying for government. </span><a data-lynx-mode="asynclazy" href="https://l.facebook.com/l.php?u=https%3A%2F%2Fmedium.com%2Falaskans-for-sustainable-budgets%2Fnotes-from-the-alaska-fiscal-cliff-our-proposed-fiscal-solution-3c003547241e%3Ffbclid%3DIwAR1xzhU3KzcEI3tcdA4O5kA0ssiJyDRA1k0diSOsJnwSQR_Jk_iTyOSR_Do&h=AT3bxyZHY7QEF5zbB_w_2c5VUK4eHQtqd7gO0ST-X4o3BXSiL5VFa1jJll43ZM4qDVfnzeKyrpNx7cSBxZOlYAQthXFPMuXnr3W0EH_nKejUpmnLIYl_1jkg1xYFlMdDSCQMaFf-XBgvJCA" rel="nofollow noopener" style="color: #385898; cursor: pointer; font-family: inherit; text-decoration-line: none;" target="_blank">https://medium.com/.../notes-from-the-alaska-fiscal-cliff...</a><br />
<br style="content: ""; display: block; margin-top: 10px;" /><span style="font-family: inherit;">As Gov Hammond said, using PFDc</span></span><span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">uts (taxes) to fund govt "would impose what is, in essence, a reversibly graduated 'head tax' on all and only Alaskans. The poor would pay a larger percentage of their ‘income’ in taxes than would the rich; transient pipeline workers, commercial fishermen and construction workers would get off scott–free.”</span><br />
<br style="content: ""; display: block; margin-top: 10px;" /><span style="font-family: inherit;">A flat tax ensures that ALL Alaskans and non-residents contribute the same.</span></span></span></span></span></div>
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<a class="_6qw4" data-hovercard="/ajax/hovercard/user.php?id=100001547234134&extragetparams={"directed_target_id": " "}" href="https://www.facebook.com/duane.bannock" style="color: #385898; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;">Duane Bannock</a> <span dir="ltr" style="font-family: inherit;"><span class="_3l3x _1n4g" style="font-family: inherit;"><span style="font-family: inherit;"><a class="" data-hovercard="/ajax/hovercard/user.php?id=1244735424" href="https://www.facebook.com/bgkeithley?hc_location=ufi" style="color: #385898; cursor: pointer; font-family: inherit; text-decoration-line: none;">Brad Keithley</a><span style="font-family: inherit;"> Here's where we fundamentally differ: "I do not deserve a PFD." If it truly were an entitlement program, I would agree with your position 100%. However, I view the check as my own October Surprise gift. I didn't work for it, or give anyth</span></span><span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">ing for it. As such, I think Gov Hammond's view is wrong (gasp!). I disagree with your assessment that the PFD is 'income' in the same context as a paycheck. One is worked for; one is a free gift.</span></span></span></span></span></div>
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<a class="_6qw4" data-hovercard="/ajax/hovercard/user.php?id=1244735424&extragetparams={"directed_target_id": " "}" href="https://www.facebook.com/bgkeithley" style="color: #385898; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;">Brad Keithley</a> <span dir="ltr" style="font-family: inherit;"><span class="_3l3x _1n4g" style="font-family: inherit;"><span style="font-family: inherit;"><a class="" data-hovercard="/ajax/hovercard/user.php?id=100001547234134" href="https://www.facebook.com/duane.bannock?hc_location=ufi" style="color: #385898; cursor: pointer; font-family: inherit; text-decoration-line: none;">Duane</a><span style="font-family: inherit;"> ... Not sure what "plans" you have been looking at. A pure flat tax is the same across the board. </span><br />
<br style="content: ""; display: block; margin-top: 10px;" /><span style="font-family: inherit;">The PFD is Alaska's version of L48 oil royalties. Many families in the L48 didn't do anything to "earn" their royalties, other than to be in the r</span></span><span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">ight place at the right time, but yet no one in the L48 states proposes to tax royalties differently than any other income. </span><br />
<br style="content: ""; display: block; margin-top: 10px;" /><span style="font-family: inherit;">Or think of it as an inheritance. Again, the recipient didn't do anything to "earn" it other than to be born into the right family. Again, we don't see anyone in Alaska proposing to treat inheritance income any differently than any other.</span><br />
<br style="content: ""; display: block; margin-top: 10px;" /><span style="font-family: inherit;">Frankly, in our view all that is going on here is the living embodiment of Sen. Long's "don't tax me" observation. The Top 20% don't want to pay for govt and are focusing on specially taxing the PFD as a way of pushing the costs of on middle & lower income Alaska families. The rationalizations are being layered on after the fact.</span><br />
<br style="content: ""; display: block; margin-top: 10px;" /><span style="font-family: inherit;">Here is what ISER said about the result. We truly are amazed when others suggest taking the road that has the "largest adverse impact" of all the various revenues options on the overall Alaska economy.</span></span></span></span></span></div>
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<a class="_6qw4" data-hovercard="/ajax/hovercard/user.php?id=100001547234134&extragetparams={"directed_target_id": " "}" href="https://www.facebook.com/duane.bannock" style="color: #385898; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;">Duane Bannock</a> <span dir="ltr" style="font-family: inherit;"><span class="_3l3x _1n4g" style="font-family: inherit;"><span style="font-family: inherit;"><a class="" data-hovercard="/ajax/hovercard/user.php?id=1244735424" href="https://www.facebook.com/bgkeithley?hc_location=ufi" style="color: #385898; cursor: pointer; font-family: inherit; text-decoration-line: none;">Brad Keithley</a><span style="font-family: inherit;"> No, I don't think "the PFD is Alaska's version of L48 oil royalties." Nor is it like an inheritance. Indeed, each of those can be based on 'right time/right place' or even the 'DNA lottery.' The Alaska PFD Program isn't based on either. I</span></span><span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">t's based on me waking up in Alaska for ____ number of days per year. That's it. Rich or poor. Short or tall. Young and old, Employed an unemployed. The common denominator is: Alaskans. I disagree with your idea that the PFD is the same as 'earned income' when it's not. If I don't give you a birthday present this year, have you really 'lost' anything? We Alaskan's really need to get over the idea that we're so special that the government 'owes' us a check</span></span></span></span></span></div>
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<a class="_6qw4" data-hovercard="/ajax/hovercard/user.php?id=1244735424&extragetparams={"directed_target_id": " "}" href="https://www.facebook.com/bgkeithley" style="color: #385898; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;">Brad Keithley</a> <span dir="ltr" style="font-family: inherit;"><span class="_3l3x" style="font-family: inherit;"><a class="" data-hovercard="/ajax/hovercard/user.php?id=100001547234134" href="https://www.facebook.com/duane.bannock?hc_location=ufi" style="color: #385898; cursor: pointer; font-family: inherit; text-decoration-line: none;">Duane</a><span style="font-family: inherit;"> ... I'll let Gov. Hammond handle that one.</span></span></span></div>
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<a class="_6qw4" data-hovercard="/ajax/hovercard/user.php?id=100001547234134&extragetparams={"directed_target_id": " "}" href="https://www.facebook.com/duane.bannock" style="color: #385898; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;">Duane Bannock</a> <span dir="ltr" style="font-family: inherit;"><span class="_3l3x _1n4g" style="font-family: inherit;"><span style="font-family: inherit;"><a class="" data-hovercard="/ajax/hovercard/user.php?id=1244735424" href="https://www.facebook.com/bgkeithley?hc_location=ufi" style="color: #385898; cursor: pointer; font-family: inherit; text-decoration-line: none;">Brad Keithley</a><span style="font-family: inherit;"> Call me a left wing liberal, but if we use those same resources, including the earning of the PF, to fund Alaska's needs (schools, roads, safety etc), doesn't that meet the state's constitutional muster? (Note: I'm no fan of the Alaska Co</span></span><span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">nstitution; I refer to it as a despicable document.) For the record: I and my wife will likely receive $3,200 in our October Surprise. $500.00 of it will go to our favorite charity; $2,200 will go to pay our local property (house) taxes and of the remaining $500, a portion will be set aside to pay the federal tax liability. Am I complaining? Absolutely NOT! I live in the best part of the greatest state in the most wonderful country on earth! Say this out loud with me: "I do not deserve a PFD check" (repeat as necessary)</span></span></span></span></span></div>
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<a class="_6qw4" data-hovercard="/ajax/hovercard/user.php?id=1244735424&extragetparams={"directed_target_id": " "}" href="https://www.facebook.com/bgkeithley" style="color: #385898; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;">Brad Keithley</a> <span dir="ltr" style="font-family: inherit;"><span class="_3l3x _1n4g" style="font-family: inherit;"><span style="font-family: inherit;"><a class="" data-hovercard="/ajax/hovercard/user.php?id=100001547234134" href="https://www.facebook.com/duane.bannock?hc_location=ufi" style="color: #385898; cursor: pointer; font-family: inherit; text-decoration-line: none;">Duane</a><span style="font-family: inherit;"> ... Oh, that's not "left wing liberal." That position is much more "Top20% trickle down." You want the availability of public goods and services ("schools, roads, safety, etc"), but you want some one else (the Remaining 80%) to pay for them throu</span></span><span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">gh a regressive head tax. The theory is the Remaining 80% will ultimately be repaid as the money the Top20% retains "trickles down" to those below.</span><br />
<br style="content: ""; display: block; margin-top: 10px;" /><span style="font-family: inherit;">Governor Hammond had a different vision. "The dividend is capitalism that works for Alaska. In a state where locals traditionally watch in frustration as most resource wealth goes Outside, the dividend’s grassroots ‘trickle up’ distribution now accounts for the largest new capital infusion into Alaska’s local economies each year." The Remaining 80% don't have to wait for the Top20% to "trickle down" their leftovers; the Remaining 80% receives their share of the wealth from the outset.</span><br />
<br style="content: ""; display: block; margin-top: 10px;" /><span style="font-family: inherit;">Commonly used public goods and services should be paid for equally by ALL Alaskans and non-residents, who benefit from them as well. That is what a flat tax does. </span><br />
<br style="content: ""; display: block; margin-top: 10px;" /><span style="font-family: inherit;">(By the way, while I am not really interested in how you dispose of your PFD, your listing proves another of Governor Hammond's points: "The dividend also increases the tax base of every community against the day when they must pick up more of the tab to fund local programs previously paid by the state -- a day already dawning as Alaska’s billion-dollar bubbles deflate.”)</span></span></span></span></span></div>
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<a aria-hidden="true" class=" _3mf5 _3mg1" data-hovercard="/ajax/hovercard/user.php?id=100001547234134" href="https://www.facebook.com/duane.bannock" style="border-radius: 50%; color: #385898; cursor: pointer; display: block; font-family: inherit; margin-right: 6px; margin-top: 7px; position: relative; text-decoration-line: none;" tabindex="-1"><img alt="Duane Bannock" class="_3me- _3mf2 img" src="https://scontent-ort2-1.xx.fbcdn.net/v/t1.0-1/p80x80/49145142_2115228598538694_7644045186963603456_n.jpg?_nc_cat=106&_nc_eui2=AeG1B_m-9A_T_hxKHQ8chIyRgYwRaPmJJwPWYZNFLbuaeV9wUKLA3priz4ar7aRO_GU6a0pmlXUmXRM6k7RkfgOmiIuYhWRMjjC2AfvDtDlfrA&_nc_oc=AQnQnSp5UaWBb8VSlu36smq5p5j_tXlJJ1DRhhMGZkVGAszesdIJNOJrgLRXeOZID7Gucv54W5cPJaQ6f-bjEWGx&_nc_ht=scontent-ort2-1.xx&oh=d26164358c18f4d8aff572076048ad46&oe=5DCA7267" style="border-radius: 50%; border: 0px; display: block; height: 20px; overflow: hidden; width: 20px;" /></a></div>
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<a class="_6qw4" data-hovercard="/ajax/hovercard/user.php?id=100001547234134&extragetparams={"directed_target_id": " "}" href="https://www.facebook.com/duane.bannock" style="color: #385898; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;">Duane Bannock</a> <span dir="ltr" style="font-family: inherit;"><span class="_3l3x" style="font-family: inherit;"><span class="_5mfr" style="font-family: inherit; margin: 0px 1px;"><span class="_6qdm" style="background-image: url("https://static.xx.fbcdn.net/images/emoji.php/v9/tbe/2/16/1f3b6.png"); background-repeat: no-repeat; background-size: contain; color: transparent; display: inline-block; font-family: inherit; height: 16px; text-shadow: none; vertical-align: text-bottom; width: 16px;">🎶</span></span> "Round and Round..." (h/t Ratt, 2005) PFD = Free Cash. Less PFD = Less Free Cash. Less Free Cash does not equal tax...sheesh</span></span></div>
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<a class="_6qw4" data-hovercard="/ajax/hovercard/user.php?id=1244735424&extragetparams={"directed_target_id": " "}" href="https://www.facebook.com/bgkeithley" style="color: #385898; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;">Brad Keithley</a> <span dir="ltr" style="font-family: inherit;"><span class="_3l3x" style="font-family: inherit;">Yup, that's the current Top20% rationalization. But to the two-term Governor that founded the program ...</span></span></div>
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<a class="_6qw4" data-hovercard="/ajax/hovercard/user.php?id=100001547234134&extragetparams={"directed_target_id": " "}" href="https://www.facebook.com/duane.bannock" style="color: #385898; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;">Duane Bannock</a> <span dir="ltr" style="font-family: inherit;"><span class="_3l3x _1n4g" style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">More Rationalization. Ask Gov Hammond this: Do kids from lower income households use more/less/same amount of school resources as high income households? Do lower income households use more/less/same amount of roads? Do lower income households use more</span></span><span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">/less/same amount of state funded social services? Would lower income households pay more/less/same amount in state income tax? Are you seeing a trend? Yet, it seems to me that your position includes: higher income households don't DESERVE to keep as much of their Free Cash as a lower income household and, instead, pay (have "clawed-back") a portion to the state. Sorry friend; I cannot rationalize that in my pea brain</span></span></span></span></span></div>
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<a class="_6qw4" data-hovercard="/ajax/hovercard/user.php?id=1244735424&extragetparams={"directed_target_id": " "}" href="https://www.facebook.com/bgkeithley" style="color: #385898; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;">Brad Keithley</a> <span dir="ltr" style="font-family: inherit;"><span class="_3l3x _1n4g" style="font-family: inherit;"><span style="font-family: inherit;"><a class="" data-hovercard="/ajax/hovercard/user.php?id=100001547234134" href="https://www.facebook.com/duane.bannock?hc_location=ufi" style="color: #385898; cursor: pointer; font-family: inherit; text-decoration-line: none;">Duane</a><span style="font-family: inherit;"> ... Hahaha. You must have a horrible time rationalizing the federal income tax structure, then.</span><br />
<br style="content: ""; display: block; margin-top: 10px;" /><span style="font-family: inherit;">As we said before, a flat tax treats all Alaska families the same. </span></span><span style="font-family: inherit;"><span style="font-family: inherit;"><br />
<br style="content: ""; display: block; margin-top: 10px;" /><span style="font-family: inherit;">PFD cuts, on the other hand, take more from a middle income family's income than from the Top 20%, and more from a lower income family's income than even that. Look at the percentages for each income class below. Is that the kind of Alaska you want to create, where govt is funded largely by middle and lower income families, the Top 20% contributes a trivial amount of their income and non-residents contribute nothing? We don't.</span></span></span></span></span></div>
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Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-35954537563355926232018-07-06T17:46:00.000-08:002018-07-06T18:04:15.133-08:00A Facebook Conversation on Oil Tax Credits<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s1600/Fiscal%2BCliff.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="369" data-original-width="553" height="266" src="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s400/Fiscal%2BCliff.jpg" width="400" /></a></div>
<span style="font-size: large;">Yesterday we engaged in an extended discussion of oil tax credits with a strong supporter of the "pay them all now" (by issuing bonds) approach taken in HB 331.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">As readers of these pages will know, we oppose that approach because it kicks the costs down the road to a future period when Alaskans likely will be even less well positioned to pay for them than now and, according to DOR's own projections, increases the ultimate cost of the program. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">As we have written elsewhere, <i><b>the resulting cost of the maneuver also may be as much as $900 million more</b></i> if, as is likely, future legislatures fill the near term fiscal space created by the bonding approach with additional government spending on other things. </span><i><span style="font-size: large;">See <a href="https://medium.com/alaskans-for-sustainable-budgets/notes-from-the-alaska-fiscal-cliff-how-a-good-deal-quickly-becomes-a-bad-deal-for-alaskans-b0d85fa51ef1">"</a><a href="https://medium.com/alaskans-for-sustainable-budgets/notes-from-the-alaska-fiscal-cliff-how-a-good-deal-quickly-becomes-a-bad-deal-for-alaskans-b0d85fa51ef1">How a “Good Deal” Quickly Becomes a Bad Deal for Alaskans"</a> (May 2018).</span></i><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">The discussion yesterday began with a post by us commenting on a response we had received in another forum from a director of one of the oil companies that will benefit from HB 331. A reader of these pages then joined the issue by starting the comment string that followed.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">We think, in its course, the discussion did a useful job of outlining the reasons why some support HB 331, and we oppose it.</span><br />
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Some argue Alaska's right to reduce <a class="_58cn" data-ft="{"tn":"*N","type":104}" href="https://www.facebook.com/hashtag/oilcredit?source=feed_text" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;"><span class="_5afx" style="direction: ltr; font-family: inherit;"><span aria-label="hashtag" class="_58cl _5afz" style="font-family: inherit; unicode-bidi: isolate;">#</span><span class="_58cm" style="font-family: inherit;">OilCredit</span></span></a> payments during $$oil downturns was in the "fine print". But it was in the same statute (in the same print) that created the program. Co's knew the risk from the start. They just wanted the state to overlook when it happened. <a class="_58cn" data-ft="{"tn":"*N","type":104}" href="https://www.facebook.com/hashtag/akleg?source=feed_text" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;"><span class="_5afx" style="direction: ltr; font-family: inherit;"><span aria-label="hashtag" class="_58cl _5afz" style="font-family: inherit; unicode-bidi: isolate;">#</span><span class="_58cm" style="font-family: inherit;">akleg</span></span></a></div>
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</span><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a class="UFIReplyLink _460i" href="https://www.facebook.com/AK4SB/photos/a.709325292488284.1073741828.699934166760730/1802944153126387/?type=3&comment_id=1803020126452123&reply_comment_id=1803025969784872#" role="button" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;">Reply</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a class="_50u0 _60p- _14hj" href="https://www.facebook.com/pages/messaging/private_reply/dialog/?activity_id=1802944153126387_1803020126452123&av=699934166760730" rel="dialog" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;">Message</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/AK4SB/photos/a.709325292488284.1073741828.699934166760730/1802944153126387/?type=3&comment_id=1803020126452123&comment_tracking=%7B%22tn%22%3A%22R2%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;"><abbr class="UFISutroCommentTimestamp livetimestamp" data-minimize="true" data-shorten="true" data-utime="1530831924" style="border-bottom: none; color: #616770; text-decoration-line: none; text-decoration-style: initial;" title="Thursday, July 5, 2018 at 8:05 PM">19h</abbr></a></span></div>
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<span class="UFICommentActorAndBody" style="background-color: #eff1f3; border-radius: 18px; display: block; font-family: inherit; line-height: 16px; padding: 8px 10px;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=699934166760730&extragetparams=%7B%22is_public%22%3Atrue%2C%22hc_location%22%3A%22ufi_admin%22%7D" dir="ltr" href="https://www.facebook.com/AK4SB/?rc=p" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;" target="_self">Alaskans for Sustainable Budgets</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;">Hmmm, a self contradiction. They knew the risk, but "Mike's point is legit." </span><br /><br /><span style="font-family: inherit;">If it's work we want, then let's pay the remainder of the PFD first. Cutting that has the "largest adverse impact" on the overall Alaska economy. Let's take care of ALL Alaskans first. Then we can start worrying about those sectors wanting additional, special treatment, like the health care (Medicaid Expansion) and oil service industries (accelerated payment of oil credits).</span></span></span></div>
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<span class=" UFICommentActorAndBody" style="background-color: #eff1f3; border-radius: 18px; display: block; font-family: inherit; line-height: 16px; padding: 8px 10px;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1032890855&extragetparams=%7B%22is_public%22%3Atrue%2C%22hc_location%22%3A%22ufi_admin%22%7D" dir="ltr" href="https://www.facebook.com/steve.cinelli?fref=ufi&rc=p" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;" target="_self">Steve Cinelli</a></span> <span style="font-family: inherit;">The part you dont understand ia that the credits arent a gift. The state wanted to incent exploration. They passed the bill as that incentive. Industry responded, and found billions of barrels. Now the State has hung industry out to dry. Thats bullshit. Absolute bullshit.</span></span></div>
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</span><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a class="UFIReplyLink _460i" href="https://www.facebook.com/AK4SB/photos/a.709325292488284.1073741828.699934166760730/1802944153126387/?type=3&comment_id=1803020126452123&reply_comment_id=1803025969784872#" role="button" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;">Reply</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a class="_50u0 _60p- _14hj" href="https://www.facebook.com/pages/messaging/private_reply/dialog/?activity_id=1802944153126387_1803220016432134&av=699934166760730" rel="dialog" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;">Message</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/AK4SB/photos/a.709325292488284.1073741828.699934166760730/1802944153126387/?type=3&comment_id=1803020126452123&reply_comment_id=1803220016432134&comment_tracking=%7B%22tn%22%3A%22R1%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;"><abbr class="UFISutroCommentTimestamp livetimestamp" data-minimize="true" data-shorten="true" data-utime="1530841979" style="border-bottom: none; color: #616770; text-decoration-line: none; text-decoration-style: initial;" title="Thursday, July 5, 2018 at 10:52 PM">16h</abbr></a></span></div>
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<span class=" UFICommentActorAndBody" style="background-color: #eff1f3; border-radius: 18px; display: block; font-family: inherit; line-height: 16px; padding: 8px 10px;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1032890855&extragetparams=%7B%22is_public%22%3Atrue%2C%22hc_location%22%3A%22ufi_admin%22%7D" dir="ltr" href="https://www.facebook.com/steve.cinelli?fref=ufi&rc=p" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;" target="_self">Steve Cinelli</a></span> <span style="font-family: inherit;">Now that the Statr got theirs they need to uphold the deal. When they pay the credits we can put Alaskans back to work and end end the fiscal problem. 500mbd of nee production solves every problem we have. Every. Single. One. The unions will be happy with pirk barrel spending. The PFD can be funded. Everyone goes back to work.</span></span></div>
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<span class=" UFICommentActorAndBody" style="background-color: #eff1f3; border-radius: 18px; display: block; font-family: inherit; line-height: 16px; padding: 8px 10px;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=699934166760730&extragetparams=%7B%22is_public%22%3Atrue%2C%22hc_location%22%3A%22ufi_admin%22%7D" dir="ltr" href="https://www.facebook.com/AK4SB/?rc=p" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;" target="_self">Alaskans for Sustainable Budgets</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody _1n4g" style="font-family: inherit;"><span style="font-family: inherit;"><a aria-describedby="js_jt" aria-owns="" class="profileLink" data-hovercard="/ajax/hovercard/hovercard.php?id=1032890855&extragetparams=%7B%22hc_location%22%3A%22ufi%22%7D" dir="ltr" href="https://www.facebook.com/steve.cinelli?hc_location=ufi" id="js_ju" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;" target="_blank">Steve</a><span style="font-family: inherit;"> ... And the part you -- and Mike -- don't understand is that the state reserved the right during periods of low revenues to reduce payments subject to a minimum. That was in the statute, the companies agreed to it as part of entering the program</span></span><span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">. </span><br /><br /><span style="font-family: inherit;">But when the risk arose and the time came to implement that provision, the companies didn't want to man up and accept the terms. Notwithstanding that the statute was clear, the companies didn't want to accept the terms. They wanted the state just to overlook it. </span><br /><br /><span style="font-family: inherit;">As for jobs, one more time, cutting the PFD has the "LARGEST ADVERSE IMPACT" on jobs. If industry really was so concerned about Alaska jobs they would have stepped up to support that; they didn't. Instead, they just wanted the state to give them a special break while other segments -- and the state overall -- continues to suffer.</span><br /><br /><span style="font-family: inherit;">Finally, as to your 500 MBD comment, that's the real BS laying on the floor. If that's really there, others -- like Oil Search has -- will come in to finance it's development without accelerated payment of the credits. The fact that no one has at Smith Bay and elsewhere speaks volumes about what others in the industry think of it's commerciality. They -- and their bankers -- just want the state to look the other way now that the price risk they accepted at the time has come due.</span></span></span></span></span></span></span></span></div>
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<span class=" UFICommentActorAndBody" style="background-color: #eff1f3; border-radius: 18px; display: block; font-family: inherit; line-height: 16px; padding: 8px 10px;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1032890855&extragetparams=%7B%22is_public%22%3Atrue%2C%22hc_location%22%3A%22ufi_admin%22%7D" dir="ltr" href="https://www.facebook.com/steve.cinelli?fref=ufi&rc=p" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;" target="_self">Steve Cinelli</a></span> <span style="font-family: inherit;">We understand it. Thats not tge issue. The first is trust. Why come to AK when the State is disingenous. 2. The tax credits wont pay for developing the field. They MIGHT pay for some reasonable interrogation of the reservoir to bring on investors. That was the whole point of the program.</span></span></div>
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</span><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a class="UFIReplyLink _460i" href="https://www.facebook.com/AK4SB/photos/a.709325292488284.1073741828.699934166760730/1802944153126387/?type=3&comment_id=1803020126452123&reply_comment_id=1803025969784872#" role="button" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;">Reply</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a class="_50u0 _60p- _14hj" href="https://www.facebook.com/pages/messaging/private_reply/dialog/?activity_id=1802944153126387_1803440509743418&av=699934166760730" rel="dialog" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;">Message</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/AK4SB/photos/a.709325292488284.1073741828.699934166760730/1802944153126387/?type=3&comment_id=1803020126452123&reply_comment_id=1803440509743418&comment_tracking=%7B%22tn%22%3A%22R%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;"><abbr class="UFISutroCommentTimestamp livetimestamp" data-minimize="true" data-shorten="true" data-utime="1530852624" style="border-bottom: none; color: #616770; text-decoration-line: none; text-decoration-style: initial;" title="Friday, July 6, 2018 at 1:50 AM">13h</abbr></a></span></div>
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<span class=" UFICommentActorAndBody" style="background-color: #eff1f3; border-radius: 18px; display: block; font-family: inherit; line-height: 16px; padding: 8px 10px;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=699934166760730&extragetparams=%7B%22is_public%22%3Atrue%2C%22hc_location%22%3A%22ufi_admin%22%7D" dir="ltr" href="https://www.facebook.com/AK4SB/?rc=p" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;" target="_self">Alaskans for Sustainable Budgets</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody _1n4g" style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">"We understand" the risk. But the industry doesn't want to live up to it. The state wasn't disingenuous. It lived up to its end of the bargain. It's the companies that don't want to. </span><br /><br /><span style="font-family: inherit;">And yup, you just proved the point. The fields aren't ready for pri</span></span><span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">me time. Especially at these price levels, if knowledgable industry money thought they were worth the money it takes for additional interrogation and development they would fund it. Oil Search has. The others haven't attracted knowledgeable industry money. This whole program has been full of over hyped rhetoric. The "500 MBD" is just one more example.</span></span></span></span></span></span></span></span></div>
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<span class=" UFICommentActorAndBody" style="background-color: #eff1f3; border-radius: 18px; display: block; font-family: inherit; line-height: 16px; padding: 8px 10px;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1032890855&extragetparams=%7B%22is_public%22%3Atrue%2C%22hc_location%22%3A%22ufi_admin%22%7D" dir="ltr" href="https://www.facebook.com/steve.cinelli?fref=ufi&rc=p" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;" target="_self">Steve Cinelli</a></span> <span style="font-family: inherit;">Given the rock quality in portions of the slope and the size of the discoveries 500mbd is entirely possible. There are z2 wells all over the west GDWFI that make 30 mbd. 10 good wells would be 300mbd. If we pay the credits we will get the oil. All the reserves in the world dont help up if its left in the ground.</span></span></div>
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<span class=" UFICommentActorAndBody" style="background-color: #eff1f3; border-radius: 18px; display: block; font-family: inherit; line-height: 16px; padding: 8px 10px;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=699934166760730&extragetparams=%7B%22is_public%22%3Atrue%2C%22hc_location%22%3A%22ufi_admin%22%7D" dir="ltr" href="https://www.facebook.com/AK4SB/?rc=p" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;" target="_self">Alaskans for Sustainable Budgets</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody _1n4g" style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">Steve ... As we said, that's the real BS in this discussion, "if we pay the credits we get the oil." That's been the promise this entire program. Hasn't happened yet. </span><br /><br /><span style="font-family: inherit;">If knowledgable industry money thought there was 500 MBD laying there for the picki</span></span><span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">ng, it would be all over it. They aren't. Both the state and industry should finish out the program on the terms to which each originally agreed. The industry should stop whining, and the state should stop being gullible.</span></span></span></span></span></span></span></span></div>
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</span><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a class="UFIReplyLink _460i" href="https://www.facebook.com/AK4SB/photos/a.709325292488284.1073741828.699934166760730/1802944153126387/?type=3&comment_id=1803020126452123&reply_comment_id=1803025969784872#" role="button" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;">Reply</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/AK4SB/photos/a.709325292488284.1073741828.699934166760730/1802944153126387/?type=3&comment_id=1803020126452123&reply_comment_id=1803482459739223&comment_tracking=%7B%22tn%22%3A%22R%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;"><abbr class="UFISutroCommentTimestamp livetimestamp" data-minimize="true" data-shorten="true" data-utime="1530854879" style="border-bottom: none; color: #616770; text-decoration-line: none; text-decoration-style: initial;" title="Friday, July 6, 2018 at 2:27 AM"><span class="timestampContent" style="font-family: inherit;">13h</span></abbr></a></span></div>
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<span class=" UFICommentActorAndBody" style="background-color: #eff1f3; border-radius: 18px; display: block; font-family: inherit; line-height: 16px; padding: 8px 10px;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1032890855&extragetparams=%7B%22is_public%22%3Atrue%2C%22hc_location%22%3A%22ufi_admin%22%7D" dir="ltr" href="https://www.facebook.com/steve.cinelli?fref=ufi&rc=p" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;" target="_self">Steve Cinelli</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody _1n4g" style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">I dont know what to tell you. Despite what some want us to think there is no vast oil industry conspirarcy to screw Alaska. This is a terrible place to do business. The legislature is full of idiots. God knows that the legislature never misses a ch</span></span><span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">ance to screw with taxes. The weather and environmental scrutiny is a NIGHTMARE. Finally, it truly is the most expensive place on earth to do business. I know exactly what the real lifting costs in various locals are. I cant tell anyone because it confidential, but the slope is brutally expensive. Thereis a reason the State has lease sales in active basins and no one bids.</span><br /><span style="font-family: inherit;">However, despite the self inflicted political damage, there is no doubt about the potential quality and size of the basin. Few people who arent genuine in the rock geos or petroleum engineers have any understanding how massive that basin is. That is a big lure.</span><br /><span style="font-family: inherit;">Oil companies are in business to make money. They went looking to find money. They found it, and an integral piece of the business plan were the credits. If we pay the credits we can make some money. Otherwise we are screwed.</span></span></span></span></span></span></span></span></div>
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</span><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a class="UFIReplyLink _460i" href="https://www.facebook.com/AK4SB/photos/a.709325292488284.1073741828.699934166760730/1802944153126387/?type=3&comment_id=1803020126452123&reply_comment_id=1803025969784872#" role="button" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;">Reply</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a class="_50u0 _60p- _14hj" href="https://www.facebook.com/pages/messaging/private_reply/dialog/?activity_id=1802944153126387_1803527256401410&av=699934166760730" rel="dialog" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;">Message</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/AK4SB/photos/a.709325292488284.1073741828.699934166760730/1802944153126387/?type=3&comment_id=1803020126452123&reply_comment_id=1803527256401410&comment_tracking=%7B%22tn%22%3A%22R%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;"><abbr class="UFISutroCommentTimestamp livetimestamp" data-minimize="true" data-shorten="true" data-utime="1530857093" style="border-bottom: none; color: #616770; text-decoration-line: none; text-decoration-style: initial;" title="Friday, July 6, 2018 at 3:04 AM">12h</abbr></a></span></div>
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<span class=" UFICommentActorAndBody" style="background-color: #eff1f3; border-radius: 18px; display: block; font-family: inherit; line-height: 16px; padding: 8px 10px;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=699934166760730&extragetparams=%7B%22is_public%22%3Atrue%2C%22hc_location%22%3A%22ufi_admin%22%7D" dir="ltr" href="https://www.facebook.com/AK4SB/?rc=p" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: 600; text-decoration-line: none;" target="_self">Alaskans for Sustainable Budgets</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody _1n4g" style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">Steve ... Heard the rhetoric before. Hugely long on promises; hugely short on delivery. </span><br /><br /><span style="font-family: inherit;">Both the state and companies should live with the terms of the program they agreed. Just like happened with Oil Search, if there is something there, knowledgeable </span></span><span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">industry money will find its way. The fact it hasn't elsewhere its a good indication they don't believe the rhetoric either.</span><br /><br /><span style="font-family: inherit;">Industry isn't getting "screwed." They agreed to the terms of the program and the price risk. But when those occurred they nevertheless want to jump to the front of the treasury window before the overall economy and even Alaskan citizens. Shouldn't happen; hopefully won't.</span></span></span></span></span></span></span></span></div>
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Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-92007324029245407542018-06-14T02:30:00.000-08:002018-06-14T02:47:33.227-08:00Fact check: Governor Walker is wrong, the FY 2019 isn't sustainable<div class="separator" style="clear: both; text-align: center;">
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<span style="font-size: large;">In a series of <a href="https://twitter.com/AkGovBillWalker/status/1007125479814508544">recent tweets</a>, Governor Walker claims that Alaska now has a "sustainable budget." But that's not true.<br /><br />The FY 2019 budget isn't sustainable even in the most basic sense. It <a href="http://juneauempire.com/news/state/2018-06-13/analysis-alaska-gov-bill-walker-signs-deficit-slashing-budget-shadow-deficit">continues to rely on draws from the Constitutional Budget Reserve</a> in order to balance. Revenues don't equal spending in this or any other projected year.<br /><br />But as we have long explained, whether or not a government budget is "sustainable" in the full sense of the term is about more than simply whether long term revenues equal long term spending. In the words of <a href="http://www.legis.state.ak.us/basis/folioproxy.asp?url=http://wwwjnu01.legis.state.ak.us/cgi-bin/folioisa.dll/acontxt/query=*/doc/{t5}?">Section 1.2 of the Constitution</a>, to be considered sustainable a budget must also be designed for "the good of the people <i>as a whole</i>."<br /><br />In short, a government budget can't be considered fully "sustainable" if it undercuts the overall economy or benefits some Alaskans at the expense of others. While such an approach may benefit -- sustain -- <i>some</i> segments, to be fully "sustainable" fiscal policy needs to both adequately fund government and also serve to sustain the overall economy and individual citizens "as a whole."<br /><br />It is that second role where the FY 2019 budget fails the most. As ISER consistently has advised, cutting the PFD -- the foundation of the FY 2019 budget -- has the <a href="http://www.iser.uaa.alaska.edu/Publications/2016_03_30-ShortrunEconomicImpactsOfAlaskaFiscalOptions.pdf">"largest adverse impact" on the overall economy</a> and is <a href="http://www.iser.uaa.alaska.edu/Publications/2016_03_30-ShortrunEconomicImpactsOfAlaskaFiscalOptions.pdf">"by far the costliest measure for Alaska families"</a> of any of the various new revenue options.<br /><br />While that approach may help <i>some</i> segments of the economy -- particularly those portions tied to government spending and those in the Top 20% income bracket, who avoid paying a proportionate share of the cost of government by using PFD cuts as the primary public funding mechanism -- it fails miserably in meeting the test of sustaining the overall economy and individual citizens "<i>as a whole</i>."<br /><br />As <a href="https://www.goodreads.com/book/show/639815.Tales_of_Alaska_s_Bush_Rat_Governor">Jay Hammond made clear</a>, "...under Alaska’s Constitution, [Alaska's resource income] and the resources it comes from, belong to all Alaskans; not to government nor to a few ‘J.R. Ewings’ .... Alaska’s founding fathers wanted every citizen to have a piece of the action.” <br /><br /> Diverting to government a portion of the income set aside to provide "every citizen with a piece of the action" so that those tied to the government economy and the Top 20% -- Alaska's version of the 'J.R. Ewings' -- are better off, but at the expense of the overall economy and the Other 80%, does not meet the Constitutional objective of acting for "the good of the people <i>as a whole</i>."<br /><br />There are ways that do so. By applying to all Alaskans the same, proportionate assessment to cover the cost of government, <a href="http://bgkeithley.blogspot.com/2017/09/earlier-this-year-in-may-as-we-started.html">a broad based flat tax</a> would treat all Alaskans the same -- "as a whole."<br /><br /> By raising a portion of the revenue from non-residents receiving Alaska income and spreading the remainder out across a broad base, <a href="http://bgkeithley.blogspot.com/2017/10/icymi-tax-math.html">a broad based flat tax also would minimize the burden on individual Alaskans, and thus the effect on the overall economy</a>. <br /><br /> The FY 2019 budget does neither of those, however, and in doing so fails the test of sustainability.<br /><br /> Governor Walker's -- and others -- claims that it does is simply a shameless attempt to co-opt a phrase made popular by others for his own political purposes. It fails the fact check, however.</span>Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-82292306593332941582018-05-09T16:19:00.002-08:002018-05-09T17:59:18.537-08:00Let's be real about the potential costs of HB 331<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s1600/Fiscal%2BCliff.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="369" data-original-width="553" height="213" src="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s320/Fiscal%2BCliff.jpg" width="320" /></a></div>
<span style="font-size: large;">Some legislators who we have criticized for voting yes on HB 331 posted a link yesterday to a response to an <a href="https://medium.com/alaskans-for-sustainable-budgets/notes-from-the-alaska-fiscal-cliff-how-a-good-deal-quickly-becomes-a-bad-deal-for-alaskans-b0d85fa51ef1" target="_blank">earlier piece we did on the subject</a>, presumably because they think the response rebuts our criticism of their vote. </span><br />
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<span style="font-size: large;">It doesn't.</span><br />
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<span style="font-size: large;">We can sort of understand the initial inclination to interpret it in that way. The title is <i><a href="http://kingeconomicsgroup.com/follow-up-hb-331-is-still-a-good-deal/" target="_blank">Follow-up: HB 331 is Still a Good Deal</a>. </i>But those reading the article quickly understand that the title really is "HB 331 is a good deal ... if you do certain things." </span><br />
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<span style="font-size: large;">As it was constructed when those legislators voted for it -- and remains to this day -- HB 331 doesn't do those things. Without them, even the response effectively admits HB 331 results in "a net negative to the state."</span><br />
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<span style="font-size: large;">After working through some initial Latin, here is what the response says:</span><br />
<blockquote class="tr_bq">
<span style="font-size: large;"><i>What if, rather than budgeting based on what the state needs, the legislature budgets to a target amount of spending?</i> </span></blockquote>
<blockquote class="tr_bq">
<span style="font-size: large;"><i>That would lead to a real problem. Now, rather than reducing the budget and keeping the extra money in the bank to earn interest, the legislature instead views the reduced budget as an excuse to spend that money in another way.</i> </span></blockquote>
<blockquote class="tr_bq">
<i><b><span style="font-size: large;">If that’s the way this whole thing plays out, throw my previous analysis out the window.</span></b></i></blockquote>
<blockquote class="tr_bq">
<span style="font-size: large;"><i> Some argue that this is basically what happens with the POMV draw created by SB 26. The legislature will view that calculation as the amount they should spend, rather than the amount they can spend.<br /><br />If we are going to take on debt under the pretense that the debt service will be paid with the interest on the savings, we need to protect those savings. Otherwise we may end up with an empty savings account and a debt service payment on top of it.</i> </span></blockquote>
<blockquote class="tr_bq">
<i><span style="font-size: large;">Even if the discount on the face of the certificates warrants the bill on its own,<b> the financial implications are a net negative to the State if those savings are wasted. Which means that, at least in my mind, the passage of this bill relies upon the fact that it reduces the budget and those savings are saved.</b></span></i></blockquote>
<span style="font-size: large;">The problem? HB 331 doesn't provide in any way protections "that it reduces the budget and those savings are saved." And as the response admits elsewhere, the history of the legislature with respect to issues related to</span><span style="font-size: large;"> fiscal responsibility</span><span style="background-color: white; color: #565656; font-family: "raleway" , sans-serif; font-size: 15px;"> </span><span style="font-size: large;">"isn’t great." </span><span style="font-size: large;">In short, this isn’t an issue on which a legislative “trust me” deserves much weight. </span><br />
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<span style="font-size: large;">As did our initial piece, the response goes on to list certain ways that HB 331 might be amended, or otherwise parallelled by other actions, potentially to provide the needed protections. Those are the certain things that, "if" done, potentially could help make HB 331"a good deal." (In our view, there are other risks beyond those that still could make it a bad deal, but at least the number of risks would be reduced).</span><br />
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<span style="font-size: large;">But, again, none of those were contained, proposed or even discussed at the time the House voted on HB 331, and at least to this point still haven't. Without them, there is a high risk, and given the legislature's history, some (including us) might even say a virtual certainty that this or future legislatures will use the reduction in current spending levels created by the approach as an opportunity to increase spending in other areas. </span><br />
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<span style="font-size: large;">Indeed, some might suggest that this Legislature already is doing so with its proposed increase in K-12 spending.</span><br />
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<span style="font-size: large;">If this or future legislatures do? In the words of the response,"the financial implications are a net negative to the State."</span><br />
<span style="font-size: large;"><br />Moreover, even if the additional things outlined in the response are done this session in an effort to salvage HB 331, they easily can be undone. Under the Supreme Court's recent decision in <a href="https://goo.gl/qVM4FR" target="_blank"><i>Wielechowski v. State</i>, 403 P.3d 1141 (2017)</a>, </span><span style="font-size: large;">each year during the appropriation process </span><span style="font-size: large;">the legislature can revise and reshuffle the manner in which funds are appropriated, even if contrary to statute.</span><br />
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<span style="font-size: large;">As a result, even if the legislature were to reduce the POMV draw as we suggested in our initial piece and is repeated in the response, or set aside the requisite amount of funds in the Alaska Capital Income Fund or a separate subaccount of the Permanent Fund corpus with a firm commitment to direct the proceeds (and the appropriate part of the accumulated earnings) from that subaccount only to repayment of the debt (both of which are suggested in the response), </span><span style="font-size: large;">nothing prevents either the very next or a subsequent Legislature as a part of the appropriation process from redirecting — directly or through various accounting tricks — all or a portion of those funds right back into the general fund to help pay for other things.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">While some attempting to defend HB 331 may seek to dismiss or minimize the potential for such actions, the current Legislature's own use of so-called designated funds f</span><span style="font-size: large;">or other purposes </span><span style="font-size: large;">and current reappropriation of past capital appropriations to other projects provides more than ample evidence of behavior along these precise lines.</span><br />
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<span style="font-size: large;"><i><b>The consequence if this or a subsequent legislature did so? Any such steps -- whether direct or indirect -- would immediately increase the cost of HB 331 to future Alaskans to the levels we discussed in our initial piece (depending on when they occurred, potentially up to a net negative of $940 million).</b></i></span><br />
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<span style="font-size: large;">To be clear, we recognize that the state has an obligation to pay off the oil credits which qualify for cash purchase. But the state already has a statutory mechanism in place for dealing with those. While that mechanism comes with a cost, it is both one to which those seeking such payments agreed at the time they entered into the oil credit program and one which, based on current projections, has an end date with largely known costs in the relatively near future.</span><br />
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<span style="font-size: large;">Even under the best case scenario outlined in the response, the alternative proposed by HB 331 bears a substantial risk of increasing those costs significantly more over the lifetime of the bonds if the required safeguards necessary to its success either are not put in place from the outset by the current Legislature or ignored by future ones.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Those safeguards aren't contained in the current bill and, in passing SB 26 (the POMV bill) without a deduction mechanism, one opportunity for doing so has already passed. As we outlined in our initial piece -- and as the response effectively concludes as well -- without them the so-called "good deal" quickly can -- and given the past behavior of the legislature, likely will -- become a very bad deal for Alaskans.</span><br />
<span style="font-size: large;"><br /></span>Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-31114441209934407172018-05-06T11:34:00.000-08:002018-05-06T11:37:09.123-08:00HB 331: How a "Good Deal" Quickly Becomes a Bad Deal for Alaskans<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s1600/Fiscal%2BCliff.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="369" data-original-width="553" height="213" src="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s320/Fiscal%2BCliff.jpg" width="320" /></a></div>
<span style="font-size: large;">Last week on the eve of the House Finance Committee meeting and subsequent House floor debates on HB 331 -- the bill authorizing the issuance of state bonds to pay for oil tax credits -- a new analysis emerged asserting that the bonds might be a "good deal" for Alaska. <i><a href="http://kingeconomicsgroup.com/bonding-for-tax-credit-purchases-may-be-a-good-deal-for-alaska/" target="_blank">Bonding for Tax Credit Purchases may be a Good Deal for Alaska</a> </i>(May 2018).</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">The analysis claimed that, by issuing bonds and using them to pay the oil credits currently, the state might "make" as much as $600 million on the "spread" between earnings on the amounts that the state would have paid out currently in credits but was able to defer because of the bonds, and the amount of interest owed in paying the bonds back.</span><br />
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<span style="font-size: large;">The analysis was immediately adopted and hailed by proponents of the bill during both the Committee and House floor debates, and picked up and repeated by some blogs.</span><br />
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<i><b><span style="font-size: large;">But the analysis is built on a number of assumptions and in the din of the week, one particularly important assumption went missing.</span></b></i><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">That assumption is that, in the current and subsequent years, the "savings" produced by using the bonding approach -- that is, the difference between the amount that would have been spent to pay off the credits under the current statute and the amounts due on the bonds -- will be retained in the Permanent Fund earnings reserve <b><i>and not spent on other things.</i></b></span><br />
<b><i><span style="font-size: large;"><br /></span></i></b>
<span style="font-size: large;">In other words,<span style="background-color: white;"> if during the period the bonds are projected to produce a savings (roughly FY 2019 - FY 2023) the budget otherwise would be $4.5 billion with $0.2 billion paying the credits, then the budget needs to be reduced to $4.3 billion (the difference in the spending between the statutory and bonding approaches), with the difference not spent on other things.<br /><br />Anyone who has been around the legislature for any period of time knows it is highly unlikely that the legislature can exercise that level of constraint. If there is current money available, the legislature will find someplace to spend it.</span></span><br />
<span style="background-color: white;"><span style="font-size: large;"><br /></span></span>
<span style="background-color: white;"><span style="font-size: large;">Certainly, a commitment to exercise such constraint is not contained in the statute, and went unmentioned in the Committee and floor debate.</span></span><br />
<span style="background-color: white;"><span style="font-size: large;"><br /></span></span>
<span style="font-size: large;"><span style="background-color: white;"><i><b>What happens if the legislature does not exercise the constraint? Bad things. </b></i></span><span style="background-color: white;"><i><b>Instead of the bonding approach "making money" for Alaskans (compared to the current, statutory approach), it will lose even more of it. </b></i></span></span><br />
<span style="background-color: white;"><span style="font-size: large;"><br /></span></span>
<span style="background-color: white;"><span style="font-size: large;">To measure the potential effects we extended the calculations done in the original analysis.</span></span><br />
<span style="background-color: white;"><span style="font-size: large;"><br /></span></span>
<span style="background-color: white;"><span style="font-size: large;">Here are the results from the original analysis. Under the assumptions made in the analysis, the results show that the bonding approach potentially could result in retaining ("making") an additional $623 million ($1.301 billion, minus $678 million) over the life of the program.</span></span><br />
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<a href="https://4.bp.blogspot.com/-q1tY7erNNqk/Wu89rDc7oKI/AAAAAAAAQwo/itRg6fS6oD0FEl9Lg7wpPmc1zJTNcuQMgCLcBGAs/s1600/Analysis%2Bof%2BFiscal%2BEffect%2Bif%2BSavings%2Bfrom%2BBonding%2BSpent%2Bon%2BOther%2BThings%2B%2528King%2B5.5.2018%2529.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="947" data-original-width="1551" height="390" src="https://4.bp.blogspot.com/-q1tY7erNNqk/Wu89rDc7oKI/AAAAAAAAQwo/itRg6fS6oD0FEl9Lg7wpPmc1zJTNcuQMgCLcBGAs/s640/Analysis%2Bof%2BFiscal%2BEffect%2Bif%2BSavings%2Bfrom%2BBonding%2BSpent%2Bon%2BOther%2BThings%2B%2528King%2B5.5.2018%2529.jpg" width="640" /></a></div>
<span style="background-color: white;"><span style="font-size: large;">But here are the results if, instead of saving the differences between the amounts "Appropriated for Next Year Credit Purchases" (the payments due under the current statutory program) and "Debt Service Payments Required for Next Year" (the payments due under the bonding approach), the legislature spends all or a portion of them.</span></span><br />
<span style="background-color: white;"><span style="font-size: large;"><br /></span></span>
<span style="background-color: white;"><span style="font-size: large;">If the legislature spends all of the savings on other things, <i><b>the state loses $940 million</b></i> over what it is obligated to pay under the current, statutory program (the difference between the $678 million FY 2031 balance under the statutory formula, and the -$262 million FY 2031 balance if all of savings are spent on other things).</span></span><br />
<span style="background-color: white;"><span style="font-size: large;"><br /></span></span>
<span style="background-color: white;"><span style="font-size: large;">Even if the legislature only spends 50% of the savings on other things,<i><b> the state still loses $96 million </b></i>over what it is obligated to pay under the current, statutory program (the difference between the $678 million FY 2031 balance under the statutory formula, and the $582 million FY 2031 balance if 50% of the savings are spent on other things).</span></span><br />
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<a href="https://4.bp.blogspot.com/-NCLnnBWmcVM/Wu9EXaivv2I/AAAAAAAAQxA/o25ifKAs-WoQY3YvHH6_sSoaeF4ZutrUQCLcBGAs/s1600/Analysis%2Bof%2BFiscal%2BEffect%2Bif%2BSavings%2Bfrom%2BBonding%2BSpent%2Bon%2BOther%2BThings%2B%2528If%2BSpent%2B5.5.2018%2529.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1000" data-original-width="1329" height="480" src="https://4.bp.blogspot.com/-NCLnnBWmcVM/Wu9EXaivv2I/AAAAAAAAQxA/o25ifKAs-WoQY3YvHH6_sSoaeF4ZutrUQCLcBGAs/s640/Analysis%2Bof%2BFiscal%2BEffect%2Bif%2BSavings%2Bfrom%2BBonding%2BSpent%2Bon%2BOther%2BThings%2B%2528If%2BSpent%2B5.5.2018%2529.jpg" width="640" /></a></div>
<span style="font-size: large;"><span style="background-color: white;"><b><i>In short, if the legislature is unable to restrain itself from spending the "savings" on other things, from a fiscal perspective the state will end up even worse off than complying with the current statutory repayment approach.</i></b></span></span><br />
<span style="font-size: large;"><span style="background-color: white;"><b><i><br /></i></b></span></span>
<span style="font-size: large;"><span style="background-color: white;">When approached about these results one legislator who voted for HB 331 this past week said that he "hoped" future legislators would be able to exercise the necessary constraint.</span></span><br />
<span style="font-size: large;"><span style="background-color: white;"><br /></span></span>
<span style="font-size: large;"><span style="background-color: white;">But such past "hopes" are how the state has found itself in the fiscal shape it is now. And relying on the same "hope" going forward will quickly result in turning what some claim is a "good deal" for Alaskans into an even worse one than we have now.</span></span><br />
<span style="font-size: large;"><span style="background-color: white;"><br /></span></span>
<span style="font-size: large;"><span style="background-color: white;">In the past some in the Senate have claimed that in order ultimately to instill fiscal discipline the state needs to reduce the revenue it has to spend. That hasn't seemed to work too well in the past; when it hasn't had current revenue, the legislature has simply drawn down savings more.</span></span><br />
<span style="font-size: large;"><span style="background-color: white;"><br /></span></span>
<span style="font-size: large;"><span style="background-color: white;">But giving some weight to that view here is one way the legislature could demonstrate it is somewhat committed to saving the amounts assumed in the earlier analysis.</span></span><br />
<span style="font-size: large;"><span style="background-color: white;"><br /></span></span>
<span style="font-size: large;"><span style="background-color: white;">Under SB 26, the legislature proposes to limit the annual draw on the Permanent Fund to approximately 5% of the fund's value. Assuming an average value of roughly $50 billion, that results in an annual draw of roughly $2.5 billion.</span></span><br />
<span style="font-size: large;"><span style="background-color: white;"><br /></span></span>
<span style="font-size: large;"><span style="background-color: white;">If the legislature is committed at least to attempting to turn the bonding approach into a "good deal" for Alaskans it could agree to limit the draw to 5% of the fund's value, <b><i>minus the annual savings projected to be achieved by the bonding program.</i></b></span></span><br />
<span style="font-size: large;"><span style="background-color: white;"><b><i><br /></i></b></span></span>
<span style="font-size: large;"><span style="background-color: white;">At least in the first instance, doing so would leave in the earnings reserve the amounts necessary under the analysis to achieve the potentially "good deal." Of course, nothing would prevent the legislature from end running the limitation by making a separate, additional draw on the earnings reserve in future years or by achieving the same objective through making an additional draw on the amounts remaining in the CBR.</span></span><br />
<span style="font-size: large;"><span style="background-color: white;"><br /></span></span>
<span style="font-size: large;"><span style="background-color: white;">But at least that step would demonstrate some recognition of the issue and some commitment to taking it seriously.</span></span><br />
<span style="font-size: large;"><span style="background-color: white;"><br /></span></span>
<span style="font-size: large;"><span style="background-color: white;"><b><i>On the other hand, following in the footsteps of the House and failing to make even that minimum commitment will demonstrate that HB 331 is really about something else (i.e., providing an additional state subsidy to certain oil companies) and the legislature is fine with it ending up costing Alaskans even more than the current statute provides.</i></b></span></span>Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-79245550074796455132018-04-21T18:58:00.000-08:002020-08-28T07:57:36.751-08:00Alaska's legislators adopt fiscal measures that are better for themselves than other Alaskans ...<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s1600/Fiscal%2BCliff.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="369" data-original-width="553" height="213" src="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s320/Fiscal%2BCliff.jpg" width="320"></a></div>
<span style="font-size: large;">Consistent with the way in which we have watched the <i>Washington Post</i> and others cover proposed tax and other fiscal legislation at the national level, over the course of the last week we have put together an analysis of the economic impact of PFD cuts -- Alaska's equivalent -- on Alaska's legislators compared with their constituents.</span><br>
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<span style="font-size: large;"><i><b>The results are startling</b></i>. <i><b>The level of PFD cuts passed by both the House and Senate this session ($1100 per Alaskan) will reduce the income of a middle income Alaska family of 4 by nearly 8%.</b></i> <b><i><u>No</u> legislator, on the other hand, will experience anywhere near the same impact.</i></b></span><br>
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<span style="font-size: large;">The largest impact on a Senator, for example, is only 2.74%, more than 3 times less. The average on all Senators is only 1.34%, nearly 6 times less.</span><br>
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<span style="font-size: large;">The cut reduces the income of one Senator who has been a leading advocate for the measure by only 0.27%, nearly 30 times less than the impact on a middle income Alaska family of 4. The cut reduces the income of the Senate Majority Leader, who last year suggested that he was a <i>Profile in Courage</i> because of his support for such a measure, by only 1.13%, or nearly 7 times less than the impact on a middle income Alaska family of 4. </span><span style="font-size: large;">What he really was proposing, it seems, is that someone else take the economic bullet, not him.</span><div><br>
<span style="font-size: large;">The results in the House are roughly the same. The largest impact on a House member is slightly higher, at 5.88%, but that is still 25% lower than the impact on a middle income family of 4. The average impact on all House members is only 1.38%, almost exactly the same as the average impact on Senators.</span><br>
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<span style="font-size: large;">The cut reduces the income of the Co-Chair of the House Finance Committee, the leading advocate of the measure on the House side, by only .39%, or roughly 25 times less than the impact on a middle income Alaska family of 4.</span><br>
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<span style="font-size: large;">In short, in responding to Alaska's current fiscal situation, whether intentional or not a majority of the members of both bodies in the Alaska legislature are looking out for themselves first, and pushing the costs off on those lower down the earnings ladder.</span><br>
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<span style="font-size: large;"><i><b>In our view, Alaska's legislators should be required to contribute the same toward the costs of government as every other Alaskan. After all, legislators are the ones that create those costs. They should have to deal with the consequences to the same extent as everyone else.</b></i></span><br>
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<span style="font-size: large;">As Governor Hammond said in <i><a href="https://www.cgdev.org/files/1426542_file_Ch2_GovernorsSolution.pdf" target="_blank">Diapering the Devil</a>: </i></span><br>
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<span style="font-size: large;"><i>... the best therapy for containing malignant government growth is a diet forcing politicians to spend no more than that for which they are willing to tax.</i></span></blockquote>
<span style="font-size: large;">That doesn't work, however, if legislators are able to adopt an approach which lets themselves largely off the hook while they pass the costs on to others.</span><br>
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<span style="font-size: large;">What Governor Hammond meant was "a diet forcing politicians to spend no more than that for which they are willing to tax <i style="font-weight: bold;">themselves.</i>"</span><br>
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<span style="font-size: large;">As we have <a href="http://bgkeithley.blogspot.com/2017/09/earlier-this-year-in-may-as-we-started.html" target="_blank">discussed previously on these pages</a>, a broad based flat tax designed to treat <i><b>all</b></i> Alaskans the same would do exactly that. To raise the same amount of revenue as the legislature proposes to raise through PFD cuts <i><b>all</b></i> Alaskans would contribute roughly 2.75%.</span><br>
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<span style="font-size: large;">The legislature's approach, on the other hand, let's them get away with paying only around 1.35%, while an Alaska family of 4 in the Upper Middle income bracket pays 4.68%, an Alaska family of 4 in the Middle income bracket pays 7.79%, an Alaska family of 4 in the Lower Middle income bracket pays 13.54% and an Alaska family of 4 in the Low income bracket pays a staggering 27.5% of income.</span><br>
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<span style="font-size: large;"><i><b>Heck, on average under their approach legislators are contributing <u>less</u> toward the costs of government than even an Alaska family of 4 earning the average income in the Top 20% income bracket (1.76%).</b></i></span><br>
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<span style="font-size: large;">Voting for that approach wasn't a <i>Profile in Courage</i>; it is a vote in clear self-interest.</span><br>
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<span style="font-size: large;">A chart summarizing the results of the analysis, by legislator, follows below:</span><br>
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</div>Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-85167543238832839222018-04-11T08:20:00.000-08:002018-04-11T09:18:20.080-08:00Our morning twitter storm ...<blockquote class="twitter-tweet" data-lang="en">
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<span style="font-size: large;">Our reaction this morning after reviewing <a href="http://www.akleg.gov/basis/Meeting/Detail?Meeting=HFIN%202018-04-10%2017:00:00" target="_blank">DOR Commissioner Sheldon Fisher's testimony on HB 411</a> (Oil & Gas Production Tax; Payments; Credits) late yesterday afternoon. The overriding question: who is running this state and whose benefit are they running it for?</span><br />
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SMH. <a href="https://twitter.com/hashtag/AKGov?src=hash&ref_src=twsrc%5Etfw">#AKGov</a>'s argument: We shouldn't > taxes on oil because that would harm the state's economics. BUT it's ok to > tax on Alaskans individually through PFD cuts even though that has the "largest adverse impact" on the overall Alaska economy. <a href="https://t.co/Uw5Tya4FcO">https://t.co/Uw5Tya4FcO</a> <a href="https://twitter.com/hashtag/akleg?src=hash&ref_src=twsrc%5Etfw">#akleg</a> 1/</div>
— Brad Keithley (@bgkeithley) <a href="https://twitter.com/bgkeithley/status/984096775718998016?ref_src=twsrc%5Etfw">April 11, 2018</a></blockquote>
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To <a href="https://twitter.com/hashtag/AKGov?src=hash&ref_src=twsrc%5Etfw">#AKGov</a>: How about this instead: Let's use a <a href="https://twitter.com/hashtag/NewRev?src=hash&ref_src=twsrc%5Etfw">#NewRev</a> option that has a LOW impact on the overall <a href="https://twitter.com/hashtag/AKecon?src=hash&ref_src=twsrc%5Etfw">#AKecon</a> & <a href="https://twitter.com/hashtag/AKfams?src=hash&ref_src=twsrc%5Etfw">#AKfams</a>. We happen to have one -- a broad-based <a href="https://twitter.com/hashtag/FlatTax?src=hash&ref_src=twsrc%5Etfw">#FlatTax</a>, just like 8 other states already. <a href="https://t.co/jbLTXk3sRs">https://t.co/jbLTXk3sRs</a> <a href="https://twitter.com/hashtag/akleg?src=hash&ref_src=twsrc%5Etfw">#akleg</a> 2/</div>
— Brad Keithley (@bgkeithley) <a href="https://twitter.com/bgkeithley/status/984100463086727168?ref_src=twsrc%5Etfw">April 11, 2018</a></blockquote>
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To <a href="https://twitter.com/hashtag/AKGov?src=hash&ref_src=twsrc%5Etfw">#AKGov</a>: But if you don't like that, then let's have a face-off, ><a href="https://twitter.com/hashtag/OilTax?src=hash&ref_src=twsrc%5Etfw">#OilTax</a> v. ><a href="https://twitter.com/hashtag/PFDcuts?src=hash&ref_src=twsrc%5Etfw">#PFDcuts</a> and see which is least worst for overall <a href="https://twitter.com/hashtag/AKecon?src=hash&ref_src=twsrc%5Etfw">#AKecon</a> and <a href="https://twitter.com/hashtag/AKfams?src=hash&ref_src=twsrc%5Etfw">#AKfams</a>. We have a pretty good sense of how that comes out, do you? <a href="https://twitter.com/hashtag/akleg?src=hash&ref_src=twsrc%5Etfw">#akleg</a> 3/</div>
— Brad Keithley (@bgkeithley) <a href="https://twitter.com/bgkeithley/status/984101518629421059?ref_src=twsrc%5Etfw">April 11, 2018</a></blockquote>
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<br />Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-50597466728553790292018-04-08T10:43:00.001-08:002018-04-08T11:02:01.924-08:00Want to really control state spending? Use a flat tax.<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s1600/Fiscal%2BCliff.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="369" data-original-width="553" height="266" src="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s400/Fiscal%2BCliff.jpg" width="400" /></a></div>
<span style="font-size: large;">Some argue that new revenues aren't required in order to resolve the state's current fiscal situation, or if they are the revenues resulting from the implementation of Governor Hammond's 50/50 plan are sufficient.</span><br />
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<span style="font-size: large;">They argue that spending cuts will resolve the remainder of the problem.</span></div>
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<span style="font-size: large;"><br />That view is <i>theoretically</i> correct. Numerous groups, ours included, have repeatedly offered detailed proposals on how to curb spending to long term sustainable levels (i.e., without the need for various forms of "new revenues"). <br /><br />However, given the level of spending that the Governor, House -- and Senate -- have continually agreed to the last ten years, including the years even since the current fiscal situation has become apparent, relying on cuts alone to address the state's fiscal situation is no longer realistic. </span></div>
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<span style="font-size: large;">While various proposals to cut spending often have received lip service from legislators, in the end they all have been ignored. </span></div>
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<span style="font-size: large;"><i><b><br /></b></i></span></div>
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<span style="font-size: large;"><i><b>Indeed, this year the Alaska Senate itself is proposing a spending <u>increase</u> in at least one of the very categories -- the University system -- that would have to be cut back significantly further in order to achieve such an objective.</b></i><br /><br />In short, while technically accomplishable, and while some from some parts of the state (MatSu comes immediately to mind) appear willing to cast the votes necessary to achieve at least some of it, the statewide political will just doesn't exist to take the steps necessary to achieve the required level of overall cuts, not even in the currently R-led Alaska Senate. </span></div>
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<span style="font-size: large;"><br />As a result, a different question increasingly has taken precedence over the last two years -- if we aren't going to reduce spending to long term sustainable levels, what should we do instead. <br /><br />Some, particularly those who are driven by concerns about a progressive income tax which would put the largest share of the burden on the Top 20% of Alaskans (but also some just looking for any easily accessible source of "new revenues" to fund government), argue in favor of PFD cuts. </span></div>
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<span style="font-size: large;">But that approach is just as biased as a progressive income tax, pushing a disproportionate share of the costs off on the Remaining 80% and leaving the Top 20% almost completely unscathed. <br /><br />Moreover, PFD cuts have the "largest adverse impact" on the overall Alaska economy, are "by far the costliest to Alaska families" and, because they draw funds only from Alaskans, take the largest share of dollars out of the Alaska private sector than any other option.<br /><br />As we have explained previously on these pages, we believe there is a better way, which uses Governor Hammond's 50/50 plan to help fill some of the gap, and then uses a broad based flat tax to fill the remainder. </span><span style="font-size: large;"><i>"<a href="https://goo.gl/ncRirP">Notes from the Alaska Fiscal Cliff: Our Proposed Fiscal Solution</a>"</i> (Nov. 2017).</span></div>
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<span style="font-size: large;"><i><b>A broad based flat tax results in ALL Alaskans contributing a proportionate share to pay for the costs of government instead of merely shifting the costs -- as do both a progressive income tax and a PFD cut -- from one bracket to another.</b></i></span></div>
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<span style="font-size: large;"><br />Moreover, because it is broad based the individual impact of a flat tax is much lower than other options, minimizing the adverse impact on the overall economy and all Alaska families. Because a broad based flat tax applies to income received by non-residents from Alaska sources, it additionally reduces the share of dollars taken out of the Alaska private sector.<br /><br />Some have complained that, even if that approach has merit, it still involves a tax and that spending cuts would be better.<br /><br />Our response is the same as above; that's just no longer realistic. But we also suggest that if some level of spending cuts remains a goal -- as it should -- that our approach is the best out there for accomplishing that as well.<br /><br />As he did with other issues, Governor Hammond saw this one coming. As he said in <i><a href="https://www.cgdev.org/files/1426542_file_Ch2_GovernorsSolution.pdf" target="_blank">Diapering the Devil</a></i>, "the best therapy for containing malignant government growth is a diet forcing politicians to spend no more than that for which they are willing to tax." </span></div>
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<span style="font-size: large;"><i><b>Put another way, want to motivate Alaskans to focus on actually reducing spending -- rather than just paying lip service to the objective -- tell them they will be taxed to pay for it if they don't.</b></i><br /><br />To be effective, however, that consequence has to apply equally to ALL Alaskans. Threatening to raise revenues (i.e., tax) through PFD cuts motivates middle and lower income Alaskans, but as we have seen in the Alaska Senate, not the Top 20%. </span></div>
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<span style="font-size: large;">Instead, taxing the Top 20% at less than the cost of a Starbucks a day ($1100/365 = $3.01) results largely in a shrug.<br /><br />On the other hand, using a progressive income tax, which would raise the largest share of revenues from the Top 20%, would have the same effect on those at the lower end of the scale. Using <a href="https://www.wsj.com/articles/top-20-of-americans-will-pay-87-of-income-tax-1523007001" target="_blank">national figures as a proxy</a>, if the Top 20% are going to pay nearly 90% of the resulting costs then why should others care about restraining continued government spending growth.</span></div>
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<span style="font-size: large;">A <a href="http://bgkeithley.blogspot.com/2017/09/earlier-this-year-in-may-as-we-started.html" target="_blank">broad based flat tax</a> addresses that problem, by distributing the costs of government proportionally among all Alaskans. Under that approach, <i>all </i>Alaskans make an equal, proportionate contribution toward the costs of government; as a consequence, all have an equal, proportionate incentive to keep them as low as possible. </span></div>
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<span style="font-size: large;">So, in an era where it isn't occurring otherwise, want to really control state spending? Use a flat tax. Create an incentive for ALL Alaskans to engage in the effort, not just those on the receiving end of a biased approach that merely shifts the costs from one group to another.</span></div>
Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-69243437962081443852018-04-06T12:10:00.000-08:002018-04-06T12:24:59.951-08:00The fallacy of Alaska State Rep. Dan Ortiz (and others) ...<div class="separator" style="clear: both; text-align: center;">
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<span style="font-size: large;">A recent <i>Facebook</i> post by Rep. Dan Ortiz attempting to explain his vote for cutting the PFD from the $2,700 provided by statute to a relatively arbitrary $1,600 provides a good opportunity to analyze the claim made by him and others (Sen. Mia Costello comes immediately to mind) that "you have to cut the PFD to save it."</span><br />
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<span style="font-size: large;">Rep. Ortiz's full post is <i><a href="https://www.facebook.com/repdanortiz/posts/998163000335053" target="_blank">here</a></i>. </span><span style="font-size: large;">The crux of his argument is this:</span><br />
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<span style="font-size: large;"><i>The size of draw required to pay a full $2,700 dividend would require an additional [over the $1,600 passed by the House] $1 billion draw on the Earnings Reserve. The Commissioner of Revenue, the Director of the Permanent Fund Corp., and the Legislative Finance Director all ... have recommended a sustainable draw on the earnings reserve of 4.75% to 5.25%. The added draw from the Earnings Reserve to pay out the $2,700 would require a 6.7% draw on the market value of the fund.</i></span></blockquote>
<span style="font-size: large;">Let's start with his last claim -- that "[t]he added draw from the Earnings Reserve to pay out the $2,700 would require a 6.7% draw on the market value of the fund."</span><br />
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<span style="font-size: large;"><i><b>Assuming -- as from his numbers seems to be the case -- that he is using the Permanent Fund's current $65 billion market value as the basis for his calculations, the draw required to pay out a PFD of $2,700 would only require a roughly 2.5% draw from the Permanent Fund, not the "6.7%" claimed by Rep. Ortiz.</b></i></span><span style="font-size: large;"> </span></div>
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<span style="font-size: large;">So where is Rep. Ortiz getting his numbers from, then? </span></div>
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<span style="font-size: large;">His numbers take as a given that the draw made from the Permanent Fund earnings goes first to fund state government at a specified level, and then treats the PFD as an incremental draw on top of that.</span></div>
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<span style="font-size: large;">The House budget appropriates roughly $3.1 billion from the Permanent Fund earnings reserve. That represents a 5.25% draw based on an average market value of roughly $59 billion (or a 4.75% draw on the current $65 billion market value Rep. Ortiz appears to be using). </span></div>
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<span style="font-size: large;">Of that, the House budget then rakes </span><span style="font-size: large;">off the top</span><span style="font-size: large;"> two-thirds of that, or roughly $2.1 billion, for government. Rep. Ortiz treats that as a given.</span></div>
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<span style="font-size: large;">His numbers then analyze the draws to fund the PFD as incremental to that. Adding the draw required to fund a $1600 PFD results in an overall draw of 5.25% (using an average Permanent Fund market value of roughly $59 billion). Adding the "additional $1 billion" which Rep. Ortiz claims would be required to fund a $2,700 PFD results in his claimed overall "6.7% draw on the market value of the fund."</span></div>
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<span style="font-size: large;"><i><b>There are several glaring problems, however, with Rep. Ortiz's analysis.</b></i></span></div>
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<span style="font-size: large;"><i><b>The most fundamental is that it not only ignores, but subverts, the current state statutes by treating the PFD as an incremental, rather than the base, draw.</b></i></span></div>
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<span style="font-size: large;">The statutes could not be any more clear on this point. AS 37.13.145, the statute that governs "Disposition of Income" from the Permanent Fund, provides in relevant part as follows:</span><br />
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<span style="font-size: large;">(b) At the end of each fiscal year, <b><i>the corporation shall transfer from the earnings reserve account to the dividend fund established under <a href="http://www.legis.state.ak.us/basis/statutes.asp#43.23.045">AS 43.23.045</a>, 50 percent of the income available for distribution under <a href="http://www.legis.state.ak.us/basis/statutes.asp#37.13.140">AS 37.13.140</a>.</i></b></span> </blockquote>
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<span style="font-size: large;">(c) <i><b>After the transfer under (b) of this section</b></i>, the corporation shall transfer from the earnings reserve account to the principal of the fund an amount sufficient to offset the effect of inflation on principal of the fund during that fiscal year. </span></blockquote>
<span style="font-size: large;">Only once those two transfers occur is there any scope under the current statutes for a draw for government.</span></div>
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<span style="font-size: large;">Rep. Ortiz not only entirely ignores that prioritization, his approach in fact reverses (i.e., subverts) it, taking the draw for government first and treating the draw for the PFD as what comes last.</span></div>
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<span style="font-size: large;"><b><i>If Rep. Ortiz followed the statutes in his analysis the blame for the excessive draw would fall directly on the government overdrawing its share of the Permanent Fund earnings, not on the PFD. But in order to justify his conclusion, he applies the statute exactly backwards.</i></b></span></div>
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<span style="font-size: large;"><b><i><br /></i></b></span></div>
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<span style="font-size: large;"><b><i>Rep. Ortiz's failure to follow the statutes is at best disingenuous and, more fairly put, results in an outright false conclusion.</i></b></span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">But that's not the only fallacy in his piece. </span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">Rep. Ortiz also attempts to justify his position by claiming that "[t]</span><span style="font-size: large;">he size of draw required to pay a full $2,700 dividend would require an additional [over the $1,600 passed by the House] $1 billion draw on the Earnings Reserve."</span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">It wouldn't. The House's calculation of a $1600 draw appears to be based on the assumption of roughly 615,000 recipients, <a href="https://pfd.alaska.gov/Division-Info/Summary-of-Applications-and-Payments" target="_blank">the same number as last year</a>. Adding an additional $1100 to bring the total to the statutory $2700 would only require an additional $675 million, not the "additional $1 billion" claimed by Rep. Ortiz.<br /><br />Overstating the amount by nearly 50% is more than a mathematical mistake, it's an intentional scare tactic designed to prop up his already fallacious percentages.</span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">Given the elevated spending levels that both the House and Senate appear to be on their way to adopting, we agree that some new revenues are required to make the budget sustainable over the long term. But subverting state statutes and using fake numbers to justify one approach over another is not the way to decide which approach is best for doing so.</span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">According to ISER's <i>undisputed</i> economic analyses over the last two years, cutting the PFD has the "largest adverse impact" on the overall Alaska economy, is "by far the costliest to Alaska families," and because it takes money only from Alaska residents rather than other alternatives which would draw also on non-residents, costs the Alaska private sector the most of all of the various "new revenue" options.</span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;"><i><b>In short, if you are concerned about the overall Alaska economy, Alaska families and the Alaska private sector -- which we would hope legislators are -- cutting the PFD should be the last option taken, not the first.</b></i></span></div>
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<span style="font-size: large;"><i><b><br /></b></i></span></div>
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<span style="font-size: large;">There are better ways. </span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">As we have discussed elsewhere, implementing Governor Hammond's original 50/50 plan for drawing funds from the Permanent Fund earnings, then using a flat tax to fill the remaining gap, not only has a smaller impact on the overall Alaska economy than other options, it also is less costly to Alaska families and, because it raises a proportionate share from non-residents receiving income in the state, also costs the Alaska private sector less. <i>See </i></span><span style="font-size: large;"><a href="https://medium.com/alaskans-for-sustainable-budgets/notes-from-the-alaska-fiscal-cliff-our-proposed-fiscal-solution-3c003547241e" style="font-style: italic;" target="_blank">Notes from the Alaska Fiscal Cliff: Our Proposed Fiscal Solution</a><i> </i>(Nov. 2017).</span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">Rep. Ortiz doesn't even analyze that or other, similar approaches. He simply adopts the worst approach, first, and then seeks to cover his tracks using fallacious percentages and fake numbers.</span></div>
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<span style="font-size: large;"><br /></span></div>
<span style="font-size: large;"><b><i>Let's be crystal clear about one thing. Under the current state statutes it's not the level of the current PFD that is threatening future PFD levels; it's the government's overtake of its share of earnings.</i></b></span><br />
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">We are deeply disappointed in Rep. Dan Ortiz (just as we have been previously with others that arguing similarly -- again, Sen. Mia Costello comes immediately to mind) for subverting the statutes and making up fake numbers to claim otherwise.</span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">It's bad enough to make the wrong decision. It's worse to then try to cover it up by using fallacious reasoning and fake numbers.</span></div>
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Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-88168911890239831362018-04-01T15:21:00.000-08:002018-04-01T15:29:48.217-08:00Let's be absolutely clear ...<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s1600/Fiscal%2BCliff.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="369" data-original-width="553" height="266" src="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s400/Fiscal%2BCliff.jpg" width="400" /></a></div>
<span style="font-size: large;"><i><b>Let's start by being absolutely clear about three things. </b></i><br /><br /><i><b>First</b></i>, according to ISER's <i>undisputed economic</i> <i>analysis</i>, cutting the PFD has the "largest adverse impact" on the overall Alaska economy, is "by far the costliest for Alaska families" and, because it draws money only from Alaskans (as opposed to alternatives which result in contributions by non-residents) takes the most money out of the Alaska private sector of <b><i>all</i></b> of the so-called "new revenue" options.<br /><br /><i><b>Second</b></i>, compared to a flat tax, the <i><b>only</b></i> segment of the Alaska population that benefits from PFD cuts are the Top 20%, which pay a slightly smaller portion of their income under a PFD cut (1.81%) than they would under a flat tax (2.65%). <b><i>The Remaining 80% of Alaska families are worse off under PFD cuts than a flat tax</i></b>. (See chart below.)</span><br />
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<span style="font-size: large;"><br /></span>
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<div class="separator" style="clear: both; text-align: center;">
<a href="https://2.bp.blogspot.com/-U2wNXIZlZBM/WsEieDCmgzI/AAAAAAAAQb4/ziIfDrGoBWgYSq1Sy9ElamOiteMGLf8pgCLcBGAs/s1600/Comparison%2Bof%2Bthe%2Beffect%2Bon%2Ban%2BAlaska%2Bfamily%2Bof%2Bfour%2Bof%2BPFD%2Bcuts%2Bv.%2BFlat%2BTax%2B%2528by%2Bincome%2Bgroup%2BFY%2B2019%2Best%2529.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="598" data-original-width="1600" height="236" src="https://2.bp.blogspot.com/-U2wNXIZlZBM/WsEieDCmgzI/AAAAAAAAQb4/ziIfDrGoBWgYSq1Sy9ElamOiteMGLf8pgCLcBGAs/s640/Comparison%2Bof%2Bthe%2Beffect%2Bon%2Ban%2BAlaska%2Bfamily%2Bof%2Bfour%2Bof%2BPFD%2Bcuts%2Bv.%2BFlat%2BTax%2B%2528by%2Bincome%2Bgroup%2BFY%2B2019%2Best%2529.jpg" width="640" /></a></div>
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<span style="font-size: large;"><br /><b><i>Third</i></b>, contrary to what some claim, continuing to pay a PFD while implementing a flat tax <b><i>does not mean</i></b> that the income from the flat tax is being used to pay the PFD. </span><span style="font-size: large;">The PFD always has and always will be paid from revenues earned off the Permanent Fund, period. A flat tax will go only to funding the costs of government. Those who suggest otherwise are using</span><span style="font-size: large;"> a <i><b>fake argument</b></i> </span><span style="font-size: large;">to divert attention from the real facts.</span><br />
<span style="font-size: large;"><br /><i><b>With those three things in mind, here is what is really happening in the PFD debate</b></i>. </span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">In order to avoid paying their proportionate share of the cost of government (which would happen under a flat tax), <i><b>those in the Top 20% are making up arguments</b></i> to justify cutting the PFD instead. The goal of those efforts is to shift the cost of government disproportionately to middle and lower income Alaskans so that upper income Alaskans continue largely to have a free ride. <br /><br />To achieve that free ride, those in the Top 20% are willing to take the very step that has the</span><br />
<ul><span style="font-size: large;">
<li><i><b>"Largest adverse impact" on the overall Alaska economy;</b></i></li>
<li><i><b>Is "by far the costliest for Alaska families;"and</b></i></li>
<li><i><b>Takes the most money out of the Alaska private sector</b></i></li>
</span></ul>
<span style="font-size: large;">
</span></div>
<div>
<span style="font-size: large;"> of all of the various new revenue options.</span><br />
<br /></div>
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<span style="font-size: large;">In essence, they are willing to undermine the overall Alaska economy and Alaska families just so that they are able to pay less than their proportionate share of the costs of Alaska government.<br /><br /><i><b>There is a better way</b></i> -- <b><i>a flat tax under which all Alaskans pay an equal, proportionate share of the cost of government</i></b>. </span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">We previously have described how we would construct that approach. <i>"<a href="http://bgkeithley.blogspot.com/2017/09/earlier-this-year-in-may-as-we-started.html" target="_blank">ICYMI: Designing a Flat Tax</a>" </i>(Sept. 2017). </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Under that approach ALL Alaskans -- including even those in the lower income brackets -- would pay a proportionate share of the costs of government. <i><b>No</b></i> income bracket would pay more proportionately than any other.</span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">But those in the Top 20% apparently aren't satisfied even with that; they want middle and lower income Alaskans to pay more, so that the Top 20% can pay less and yet, continue to have the benefit of largely free government services. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">No wonder we can't get spending under control.<br /><br />Governor Hammond had this right in <i>Diapering the Devil</i>: "the best therapy for containing malignant government growth is a diet forcing politicians to spend no more than that for which they are willing to tax." </span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">By avoiding paying a proportionate share of the costs of government, the Top 20% is trying to have their cake (continued government services) and eat it too (without paying for it). </span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;"><i><b>If those in the Top 20% aren't affected by those costs, they don't have an incentive to help push to control them. Indeed, because many are beneficiaries of continued government spending, they have a positive incentive to keep spending. </b></i></span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">In light of that, we have come largely to believe that their continued talk about "spending cuts" is just another diversionary tactic to keep some at bay while they continue pursuing their plan for "new revenues" through PFD cuts. </span><span style="font-size: large;"><i>"<a href="http://bgkeithley.blogspot.com/2017/10/are-alaskans-being-played.html">Are Alaskans being played</a>"</i> (Oct. 2017).</span><br />
<span style="font-size: large;"><br /><i><b>Want to do something about it?</b></i> </span></div>
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<br /></div>
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<span style="font-size: large;">If you agree that we should be going in a different direction, we ask that you consider the approach taken in the <a href="https://medium.com/alaskans-for-sustainable-budgets/notes-from-the-alaska-fiscal-cliff-our-proposed-fiscal-solution-3c003547241e" style="font-style: italic; font-weight: bold;" target="_blank">Alaskans for Sustainable Budgets Fiscal Plan</a><i style="font-weight: bold;"> </i>and, if you agree, recommend to your friends and representatives that they look into it as well. </span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">As outlined in <i><a href="https://www.cgdev.org/files/1426542_file_Ch2_GovernorsSolution.pdf" target="_blank">Diapering the Devil</a>,</i> Governor Hammond's original vision for the Permanent Fund was simple and straightforward:</span></div>
<blockquote class="tr_bq">
<span style="font-size: large;"><i>I wanted to transform oil wells pumping oil for a finite period into money wells pumping money for infinity. …[Once that was in place,] each year one-half of the account’s earnings would be dispersed among Alaska residents …. The other half of the earnings could be used for essential government services.</i></span></blockquote>
<span style="font-size: large;">Building on that starting point, the Alaskans for Sustainable Budgets Fiscal Plan develops a long-term, sustainable budget approach that spreads the need for new revenues proportionately across all income brackets, and </span><span style="font-size: large;">creates an equal and significant incen</span><span style="font-size: large;">tive for <i><b>all</b></i> Alaskan</span><span style="font-size: large;">s to restrain and reduce the costs of government.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Unless we all are in this together, some Alaskans will continue to seek advantages over others. It doesn't appear to bother those that are seeking those advantages that their approach undermines the overall economy, Alaska families and costs the Alaska private sector more than other alternatives. Their only concern is that it benefits <i>them</i>.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Our plan to avoid such a selfish -- and harmful -- outcome is here: </span><span style="font-size: large;"><i>"</i><a href="https://medium.com/alaskans-for-sustainable-budgets/notes-from-the-alaska-fiscal-cliff-our-proposed-fiscal-solution-3c003547241e"><i>Notes from the Alaska Fiscal Cliff: Our Proposed Fiscal Solution</i></a><i>"</i> (Nov. 2017)</span><span style="font-size: large;">. Read it and if you agree with us, let your representatives know you support the plan, then share and forward it to friends and ask them to do the same.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;"><b><i>This battle is about the future of the overall Alaska economy and Alaska families. It's too important to remain on the sidelines.</i></b></span></div>
Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-38806252574124353782018-03-22T11:34:00.000-08:002018-03-22T12:07:38.407-08:00What draw rate should we use with a POMV approach?<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s1600/Fiscal%2BCliff.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="369" data-original-width="553" height="266" src="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s400/Fiscal%2BCliff.jpg" width="400" /></a></div>
<span style="font-size: large;">One of the issues that has received some, but relatively little attention compared to others during the current fiscal debate is </span><span style="font-size: large;">what the so-called <i>draw rate</i> should be </span><span style="font-size: large;">if we start using a percent of market value (POMV) approach to establish the flow of cash from the Permanent Fund.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">There have been various proposals. SB 26 (the Senate's version of a fiscal plan) uses 5.25% for a couple of years at the start, then reduces it to 5%. The Governor's most recent proposal uses 5% from the start. The House's proposed Constitutional Amendment (HJR 23) was originally 5%, but in the course of redrafting was lowered to 4.75%.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">The rate used makes a difference. The Permanent Fund has a current market value of roughly $60 billion. A draw rate of 5.25%, results in an annual draw of roughly $3.15 billion; a draw rate of 4.75% in an annual draw of roughly $2.85 billion, $300 million less. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">If split 50/50 between the PFD and government (as it should be), the use of the lower draw rate translates into $150 million less to the PFD, or, using last year's number of recipients, roughly $250 less per PFD. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">A lower contribution to the government also means increased pressure for the use of other options, such as taxes or a PFD cut.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">The difference between a higher and lower draw rate increases with the size of the Permanent Fund. At a market value of $80 billion, for example, the difference between a 5.25% and a 4.75% draw rate would be $400 million, compared to the $300 million difference at a market value of $60 billion.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Generally speaking the draw rate is intended to equal the so-called "real" rate of return anticipated to be generated going forward from the investments made by the Permanent Fund. The "real" rate is equal to the overall rate of return, including inflation (the so-called "nominal" rate of return) anticipated to be generated by the Fund, less the rate of inflation.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;"><i><b>Using the "real" rate of return is simply another (and in our view, better than the current) way of inflation proofing the Fund.</b></i></span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">To this point in the discussion, all of the numbers have been based on the <i>anticipated </i>real rate of return -- that is the real rate of return anticipated to be earned in the future. That requires projections not only of the future overall rate of return that will be earned on the Permanent Fund, but also future inflation rates as well.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Generally speaking, the reason that projections are used under the POMV approach is because the goal of using a real rate of return is to keep the relevant fund protected against inflation into the future. Thus, projections of future rates (both of return and inflation) are perceived to be more relevant than past experience.<br /><br />But there also is a problem with using projected returns and inflation rates.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">In a nutshell, that problem is that the future may not turn out as anticipated. Overall returns may turn out to be more or less than projected, and inflation rates may turn out to be more or less than projected.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">For example, rather than the 7.5% overall return and 2.5% inflation rate anticipated by those who recommend using a 5% draw rate, the future may result in an 8% overall return and a 2% inflation rate, or a 7% overall return and a 3% inflation rate.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">In the first case (8% overall, 2% inflation), a 5% draw rate will understate the 6% draw rate that actual experience demonstrates could have been used, leaving money "on the table" (i.e., in the Fund) that could have gone to support the current generation through higher PFD's and government support without penalizing those that come after.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">In the latter case (7% overall, 3% inflation), a 5% draw rate will overstate the 4% draw rate that actual experience demonstrates should have been used, distributing money to the current generation that, instead, should have been retained in the Fund to protect future generations.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Normally, endowments and other institutions that use a POMV approach do not worry that much about inaccurate projections. As conditions change proving the original projection wrong, the boards of the relevant institutions simply change the draw rate to better reflect revised projections.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">But the potential (even likelihood) that the future does not match projections creates a special challenge for establishing a draw rate for the Permanent Fund. Especially if the draw rate is "constitutionalized," as proposed by HJR 23, for example, it may be hard, if not impossible, to make adjustments as conditions change, locking in permanent over or under draws and with it, potentially significant intergenerational consequences.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">As a result, the more we have thought about it the more we have come to the conclusion that the better way to set a draw rate for the Alaska Permanent Fund is to use past experience, rather than a projected look. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Using actual, past experience protects against over- or under-stating the amount which each generation may draw without impairing others. If the investment policies of the Permanent Fund Corporation result in higher than the anticipated real rate of return, as they have at many times in the past, both current and future generations will share in the resulting benefit, rather than shifting all of the benefit to future generations (and potentially leaving the current generation with higher tax rates than necessary).</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">If, on the other hand, those investment policies result in lower than the anticipated real rate of return, both current and future generations will share in the resulting burden, rather than shifting all of the burden to future generations.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">One legitimate question about such an approach is what past period should be used in calculating the realized real rate of return. Actual real rates may vary substantially from year-to-year depending on a variety of circumstances. As with statutory earnings used in the current calculation, it is better to use an average calculated over time to smooth those out.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Changes in averages determined over time also tend to be gradual, providing the Permanent Fund Corporation with more predictability about what the draw is likely to be -- a key argument behind the use of a permanently fixed rate -- and government and residents receiving the PFD also with more predictability about what their receipts are likely to be.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">In the following chart we have calculated, by year, the actual real rate of return realized by the Permanent Fund in every year since its inception, along with a rolling 5-, 10-, 15-, 20- and 25-year average.</span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://2.bp.blogspot.com/-9QJXVOZiLxU/WrQMZweIuoI/AAAAAAAAQZY/mWe19HURpL8Bn65duZ6hJyfuu5gSaJr_wCLcBGAs/s1600/PFD%2BReal%2BRates%2Bof%2BReturn%2B%25281977-2017%2529%2B%25283.20.2018%2Brev%2529.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1600" data-original-width="1358" height="640" src="https://2.bp.blogspot.com/-9QJXVOZiLxU/WrQMZweIuoI/AAAAAAAAQZY/mWe19HURpL8Bn65duZ6hJyfuu5gSaJr_wCLcBGAs/s640/PFD%2BReal%2BRates%2Bof%2BReturn%2B%25281977-2017%2529%2B%25283.20.2018%2Brev%2529.jpg" width="542" /></a></div>
<span style="font-size: large;">Two things leap out (to us, at least) from charting the results in that way. The first is that the longer the time period over which the average is calculated, the smaller the year-to-year changes and the smoother the adjustments. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">The second is that <i>every</i> measure -- 5-year, 10-year, 15-year, 20-year, 25-year and full life (some 40 years) -- averages out to an actual, real rate of return of somewhere in the 6+% range. To us, the</span><span style="font-size: large;"> second point is important and raises significant questions about the substantially lower percentages (4.75 - 5.25%) that have been proposed in the current round of discussions for use in connection with the Permanent Fund. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Recall that the lower the percentage, the lower the PFD and government draw (and the greater the potential need for finding other sources of "new revenues"). Given the intergenerational issues resulting from using a draw rate significantly lower than the actual real rate of return, to us these results add even more weight to our proposal to use a draw rate based on the <i>actual</i> real rate of return realized over some period of time, rather than one based on <i>anticipated </i>future real rates of return.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Because it generates the least amount of change year-to-year, we believe the 25-year average is the best approach, but likely could be convinced as well of the suitability of the 15- or 20-year averages. Looking at the results, we are concerned that the use of 5- and 10-year averages could generate an unnecessary amount of year-to-year change.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">But at the end of the day we believe that the use of some sort of averaged actual rate of return is more appropriate than the use of anticipated rates. The potential for significant intergenerational problems resulting from the use of a constitutionally or even statutory fixed rate is too great.</span>Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-67928997260071964892018-03-19T08:43:00.001-08:002018-03-19T08:46:38.906-08:00Just who is the Alaska Senate Majority trying to protect?<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s1600/Fiscal%2BCliff.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="369" data-original-width="553" height="266" src="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s400/Fiscal%2BCliff.jpg" width="400" /></a></div>
<span style="font-size: large;">In an article in this Sunday's edition of the <i>Anchorage Daily News </i>(<i><a href="https://www.adn.com/politics/2018/03/18/new-forecast-of-alaska-oil-revenue-takes-chunk-out-of-states-deficit/" target="_blank">"New forecast of Alaska oil revenue takes chunk out of state’s deficit</a>"</i>), the Senate Majority's fiscal position is summarized this way:</span><br />
<blockquote class="tr_bq">
<span style="font-size: large;"><i>The Senate majority ... favors lower [Permanent Fund] dividends ... Senate leaders have said taxes would hurt Alaska's economy and aren't needed ....</i></span></blockquote>
<span style="font-size: large;">But the Senate isn't really concerned about the overall Alaska economy; if it was, its position would be the reverse.<br /><br />According to <a href="http://www.iser.uaa.alaska.edu/Publications/2016_03_30-ShortrunEconomicImpactsOfAlaskaFiscalOptions.pdf" target="_blank">a study from the University of Alaska-Anchorage's Institute of Social and Economic Research (ISER) last March</a>, <i><b>"the PFD cut ... has the largest adverse impact on the economy"</b></i> of all of the so-called "new revenue" sources it analyzed, including sales, income (progressive and flat) and property taxes. If the Senate was truly concerned about the overall economy, cutting the PFD would be the last option taken, not the first, and certainly not ahead of taxes.<br /><br />The Senate also isn't really concerned about Alaska families. According to <a href="http://www.iser.uaa.alaska.edu/Publications/2017_02-EffectOfAlaskaFiscalOptionsOnChildrenAndFamilies_summary.pdf" target="_blank">a second study from ISER</a> in early 2017, a <i><b>"cut in PFDs would be by far the costliest measure for Alaska families."</b></i> As in the earlier study, the analysis included also sales and income taxes. If the Senate was truly concerned about Alaska families, cutting the PFD would be the last option taken, not the first, and again, certainly not ahead of taxes.</span><br />
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<span style="font-size: large;">The Senate also isn't really concerned about the amount of money Alaskans are required to pay to support government. As both the first and second ISER studies make clear, "[n]on-residents would pay a share of any of the potential taxes, reducing the burden on Alaska households." Because PFDs are only paid to residents, however, "the impact of the PFD cut falls almost exclusively on residents." </span><br />
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<span style="font-size: large;">Using ISER's numbers we have estimated that </span><span style="font-size: large;"><i><b>Alaskans will be required to pay more than $500 million more overall under PFD cuts over 10 years than would be the case under any of the tax cases. </b></i></span><span style="font-size: large;">Again, if the Senate was truly concerned about limiting the amount of money Alaskans are required to support government -- and optimizing contributions from non-residents receiving income in the state -- cutting the PFD would be the last option taken, not the first, and again, certainly not ahead of taxes. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">So, if the Senate doesn't really care about the overall Alaska economy, Alaska families or limiting the amount of money Alaskans are required to pay overall to support government, what <i>does</i> it care about. </span><br />
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<span style="font-size: large;">Put another way, just who is the Senate trying to protect by putting PFD cuts ahead of taxes.</span><br />
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<span style="font-size: large;">To analyze that we compared the effect of PFD cuts with that of a flat tax on a family of four. We have previously discussed the type of flat tax we envision. <i><a href="http://bgkeithley.blogspot.com/2017/09/earlier-this-year-in-may-as-we-started.html" target="_blank">ICYMI: Designing a Flat Tax</a> </i>(Sept. 2017)<i>.</i></span><br />
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<span style="font-size: large;">To identify just who the Senate is trying to protect we calculated the crossover point at which a flat tax would take more from a typical family of four than the Senate's proposed PFD cuts.</span></div>
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<span style="font-size: large;">Those below that point would fare better under a flat tax. Those above fare better under a PFD cut; as a result, they are the ones the Senate's actions are protecting. Our analysis is here (the crossover point by year is in the yellow column):</span><br />
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<span style="font-size: large;"><br />The answer was higher than even we guessed off the top of our head; roughly, those with incomes above $160,000-$170,000. </span><br />
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<span style="font-size: large;">Only those receiving above that amount would pay more under a flat tax; all those receiving less than that amount lose more under the Senate's proposed PFD cut plan.<br /><br /><i><b>So, using a family of four as the measure, who is the Senate trying to protect?</b></i><br /><br />The answer: families with incomes greater than $160,000 - $170,000, about the Top 10%.<br /><br />At whose expense? Families earning less than $160,000 - $170,000 -- the Remaining 90%.</span><br />
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<span style="font-size: large;"><b><i>Let that sink in -- in order to save the Top 10% of Alaska families from paying a bit more under a flat tax, the Alaska Senate Majority is prepared to hurt the overall Alaska economy, the Remaining 90% of Alaska families, and make Alaskans pay more for government overall.</i></b></span><br />
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<span style="font-size: large;">Just wow. Their upper income donors must be so proud. The Remaining 90% of Alaska families? Not so much.</span></div>
Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-18432362430014312018-03-07T03:59:00.000-09:002018-03-07T04:25:46.938-09:00Maintaining the PFD is important to achieving real spending cuts ...<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s1600/Fiscal%2BCliff.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="369" data-original-width="553" height="266" src="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s400/Fiscal%2BCliff.jpg" width="400" /></a></div>
<span style="font-size: large;">Some ask why we are so focused on preserving the PFD. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">There are a number of reasons -- the significant adverse effect of cuts on the overall Alaska economy & families, its critical role in protecting against raids on the corpus, its role in creating a private sector economy similar to those in other oil producing states.</span><br />
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<span style="font-size: large;"><b><i>But another, similarly important reason is the significant role maintaining the PFD plays in restraining government spending to long-term sustainable levels.</i></b><br /><br />Because PFD cuts largely don't affect their donor class, some legislators from more affluent parts of the state (or more affluent themselves) have made clear that they have no problem cutting the PFD to zero. Their willingness to do so enables them to avoid focusing on the hard work of constraining spending. <br /><br />As Governor Hammond well understood, "the best therapy for containing malignant government growth is a diet forcing politicians to spend no more than that for which they are willing to tax." </span><span style="font-size: large;"><a href="https://www.cgdev.org/files/1426542_file_Ch2_GovernorsSolution.pdf"><i>Diapering the Devil</i></a> at p. 31. </span><span style="font-size: large;">Cutting the PFD enables the legislators to put off the date they have to do so even longer. </span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">It provides a cushion of an additional $750 million - $1 billion (and growing) in revenue before they have to begin confronting the need for taxes. They can continue to say "yes" to their constituents -- particularly including those corporations tied to government spending which make up a significant part of their donor class -- to a much greater extent and for a lot longer than if they were confronted instead with the need to raise new revenues through taxation now.<br /><br />That delay has significant, long-term adverse consequences to Alaska, however. </span><span style="font-size: large;">As is the case at the federal level, all that resulting increase in spending ultimately will do is bring Alaska closer to economic peril. </span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">Enabling spending to increase up to the level it can be funded through current revenues plus conversion of the PFD to government revenue will put the overall Alaska economy at even greater risk the next time oil revenues decline or, once we start relying on that source of revenues, investment returns drop. <br /><br />A significant portion of the Alaska economy is already built on a somewhat artificial base of free government services funded by oil revenues. We have seen the last four years how unreliable that is.</span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">Expanding spending to include the PFD simply will double up on that artificial base by including free government services dependent on projected investment returns. Those with long-term experience and a long-term perspective in financial markets know how unreliable those are as well. See, e.g., Financial Times, "<i><a href="https://www.ft.com/content/42edaa8c-2147-11e8-a895-1ba1f72c2c11" target="_blank">Norway’s oil fund could lose over $420bn in next big market crash</a></i>" ("The $1tn fund said that it could lose more than 40 per cent of its value in a single year because of a combination of a plunge in stock markets as well as a potential strengthening in the Norwegian krone.")<br /><br />From our perspective it is important to draw a line in the sand on state spending now. We may need more than our current revenue base can sustain, but as Governor Hammond said, the revenues to fund any addition should only come to the extent "politicians ... are willing to tax." </span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">Going beyond that -- by converting the PFD to government revenue -- only walks Alaska's economy farther out on thinning ice, so that Alaska is over deeper water and farther from shore when the ice inevitably fails. It also removes the safety net that the PFD provides to the Alaska economy and Alaska families during challenging economic times, making the economy and those families entirely dependent on government when those times come.</span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">That, inevitably, will lead to an even larger crash and burn for the overall Alaska economy and Alaska families than if we start to face up to the hard work of reigning in spending now.<br /><br />The Alaska Senate started hearings yesterday on <a href="http://www.akleg.gov/basis/Bill/Detail/30?Root=SB196" target="_blank">SB 196</a>, a bill that would purportedly impose statutory limits on spending. They will tell you that approach is the solution to Alaska's spending binge. </span></div>
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<span style="font-size: large;"><i><b>But as we have seen with the PFD, Alaska statutes dealing with fiscal issues are nearly as worthless as the paper on which they are written. They don't even have to be repealed; they can just be ignored.</b></i><br /><br /><i><b>What we need instead are hard, real world limits on spending.</b></i> </span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">As Governor Hammond wisely understood, those are only created when government spending is put on a "diet forcing politicians to spend no more than that for which they are willing to tax." Cutting the PFD enables them to dodge that diet yet again, allowing them to continue to fatten government spending, putting the Alaska economy and families at even greater long term peril.<br /><br />We have the opportunity to stop that now by preserving the PFD, and from the perspective of building a sustainable economy and budget that is exactly what we should do.<br /><br />We would suggest the results of the Governor's and legislature's proposed spending levels would look much different if we do. Regardless of what the Alaska Senate tries to tell you about SB 196, we doubt it will if we don't.</span></div>
Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-27722129893483806982018-02-07T08:12:00.000-09:002018-02-07T08:25:33.376-09:00Hmmm, a POMV approach may produce a higher PFD than the current statute after adjusting for inflation proofing <div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s1600/Fiscal%2BCliff.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="369" data-original-width="553" height="266" src="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s400/Fiscal%2BCliff.jpg" width="400" /></a></div>
<span style="font-size: large;">Recently, we wrote a piece in which we explained that the current formulation of the PFD is not entirely as Governor Hammond intended, once the state starts using the "other half" of the earnings stream for "essential government services." <i>See "<a href="https://medium.com/alaskans-for-sustainable-budgets/is-the-current-formulation-of-the-pfd-what-governor-hammond-intended-1f7b36bc4ba">Is the current formulation of the PFD what Governor Hammond intended?</a>"</i> (Jan. 2018).<br /><br />Our point was that due to how the so-called "inflation proofing" provisions work, under the current statute the earnings available after inflation proofing are not split 50/50 between residents (through the PFD) and government (through the earnings reserve) as Governor Hammond intended.<br /><br />Instead, using FY 2016 as an example, we demonstrated that while residents receive 50% of the current distributions, government received only 27%. The remaining 23% was available to neither residents nor government but instead reinvested in the Permanent Fund corpus. <br /><br />As a result, between the portion split between residents and government, residents received roughly 65% of the earnings made available for distribution and government 35%. This departs from Governor Hammond's vision, expressed in <a href="https://goo.gl/FFTi9M"><i>Diapering the Devil</i></a>, that once the "money wells" created by the Permanent Fund started pumping,</span><br />
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<blockquote class="tr_bq">
<span style="font-size: large;">Each year one-half of the account’s earnings would be dispersed among Alaska residents …. The other half of the earnings could be used for essential government services.</span></blockquote>
<span style="font-size: large;"><br />While not our principal point, in the course of writing the piece we commented, based on some prior work, that in addition to imbalancing the split between residents and government, the current statutory inflation proofing mechanism also appeared to overcompensate for inflation. We speculated -- as we had also in <a href="https://medium.com/alaskans-for-sustainable-budgets/notes-from-the-alaska-fiscal-cliff-our-proposed-fiscal-solution-3c003547241e">an earlier November piece</a> -- that the percent of market value (POMV) approach favored by some to calculate distributions from the Permanent Fund might actually result in a more accurate assessment, and thus a better net result.<br /><br /> In response, some readers of the January piece appropriately challenged us to prove that latter statement. Over the course of the past couple of weeks we have worked to analyze the results under the two approaches.<br /><br /> It turns out, based on what we believe is an appropriate methodology for comparing the two, the POMV approach, in fact, results in a higher overall level of net distribution after inflation proofing than the current approach. <br /><br /><i><b> Put another way, assuming a 50/50 split in distributions between residents and government, PFD's would be higher under a POMV (5%) approach than under the current statute, once adjusted to reflect an equal split of the earnings remaining after current inflation proofing.</b></i><br /><br />Largely because of the lingering effects of FY 2009 on Statutory Net Income (when SNI was a -$2.51 B), looking back over the last 5 years (FY 2014-2018) the difference would have been significant. The annual distribution net to the PFD would have averaged roughly $245 million higher under POMV (5%) than under the current statute, once adjusted to reflect an equal split of the earnings remaining after inflation proofing.<br /><br /> Going forward the projected differences are not as significant. Using Permanent Fund Corporation (PFC) projections, for example, over the 10-year period between FY 2019 and 2028 (a copy is available <i><a href="https://bgkeithley.files.wordpress.com/2018/02/comparison-of-pomv-and-current-statutory-approach-net-of-inflation-adjustment-2-5-2018.pdf" target="_blank">here</a></i>), the difference between the two, net to the PFD, would average roughly $60 million per year (or, at 650,000 applicants, a little less than $100 per PFD check). <br /><br /> But the fact there is some difference both demonstrates that the current methodology likely is, in fact, overcounting for inflation and that, far from being adverse to the PFD, the use of POMV may actually be helpful, if the split remains as intended by Governor Hammond and other founders, equally between residents and government.<br /><br />Of course, the results depend on the approach taken. <br /><br /> In calculating the POMV distribution we largely adopted the approach reflected in SB 26, using a rolling five year average of the market value of the Permanent Fund as the base, with a draw rate of 5.25% for 2019 and 2020, and 5% before (for the lookback) and thereafter. We calculated the average value of the Permanent Fund using the PFC's most recent estimates for such balances between now and 2028. The average for each year was calculated by averaging the end of the previous year and the end of the current year.<br /><br />In calculating the distribution under the current statute we used the PFC's most recent estimate of Statutory Net Income (SNI) and Inflation Proofing (IP). To determine the net available for distribution after inflation proofing we subtracted the number for Inflation Proofing from Statutory Net Income. To avoid timing distortions, we used the five year rolling average for each, as the current statute requires for the calculation of the PFD.<br /><br />As should be expected, the results are heavily influenced by the POMV draw rate used. As noted above, we used the 5% rate included in SB 26. Using a 4.5% rate reverses the results, with the current approach producing a better result, even after subtracting the inflation adjustment. <br /><br /> But at a 5% draw rate a POMV approach produces a higher PFD than under the current statute, once adjusted to reflect an equal split of the earnings remaining after inflation proofing.<br /><br />We believe that is a significant fact to keep in mind as we continue the current discussions.<br /><br />For those interested, the detailed calculations are available at the spreadsheet below, or available also for download <i><a href="https://bgkeithley.files.wordpress.com/2018/02/comparison-of-pomv-and-current-statutory-approach-net-of-inflation-adjustment-2-5-2018.pdf" target="_blank">here</a></i>.</span><br />
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Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-11793894029601947582018-01-25T21:48:00.001-09:002018-01-25T22:38:06.986-09:00Is the current formulation of the PFD what Governor Hammond intended?<div class="separator" style="clear: both; text-align: center;">
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<span style="font-size: large;">As we spend more and more time on the issue, increasingly we are coming to the view that the current formulation of the PFD is not entirely as Governor Hammond intended, once the state starts taking its "other half" of the earnings stream.</span><br />
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<span style="font-size: large;">Here is what Governor Hammond said in <i><a href="https://goo.gl/FFTi9M" target="_blank">Diapering the Devil</a>, </i>a book which, while published posthumously, was taken from manuscript and notes he had been working on before his passing and is consistent with his earlier writings in other books on fiscal policy.</span></div>
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<span style="font-size: large;"><br /></span></div>
<span style="font-size: large;">The first relates to the creation of the Permanent Fund itself (at p. 15):</span><br />
<blockquote class="tr_bq">
<span style="font-size: large;">I wanted to transform oil wells pumping oil for a finite period into money wells pumping money for infinity. …</span></blockquote>
<span style="font-size: large;">The second focuses on what to do with the earnings, once the “money wells” were pumping (at p. 19):</span><br />
<blockquote class="tr_bq">
<span style="font-size: large;">Each year one-half of the account’s earnings would be dispersed among Alaska residents …. The other half of the earnings could be used for essential government services.” </span></blockquote>
<span style="font-size: large;">Given the backdrop of how Alaska's mineral interests are owned, the so-called 50/50 split makes sense and is one we have -- and will continue to -- defend strongly on these pages.</span><br />
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<span style="font-size: large;">But that is not entirely how the current formulation of the PFD works.</span><br />
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<span style="font-size: large;">Instead, using <a href="file:///C:/Users/Bradford/Downloads/2017_12_APFC_History-and-Projections.pdf" target="_blank">FY 2016 numbers</a> (the last year the Governor or the legislature didn't override the current statute), this is how the current statute (<a href="http://www.legis.state.ak.us/basis/statutes.asp#37.13.145" target="_blank">AS 37.13.145</a>) operates:</span><br />
<ul>
<li><span style="font-size: large;">Overall earnings (5-year average): $2.746 B</span></li>
<li><span style="font-size: large;">PFD: $1.373 B (50%)</span></li>
<li><span style="font-size: large;">Retained in the Earnings Reserve Account (i.e., the state's share): $0.749 (27%)</span></li>
<li><span style="font-size: large;">"Inflation proofing" (i.e., returned to the corpus): $0.624 B (23%)</span></li>
</ul>
<span style="font-size: large;"><i><b>As noted, under the current formulation the state's share was only 27% of the earnings stream, not the "other half" envisioned by Governor Hammond.</b></i></span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">The reason for the shortfall is that, under the current statute, the portion used for "inflation proofing" -- purportedly the amount necessary to keep the Fund whole against inflation -- is taken entirely from the "other half" of the stream, instead of being divided equally between the "residents'" share and the "state's" share. As we wrote on these pages in November, we believe inflation proofing benefits both sides (residents and state) of the split, and thus, should be borne equally. <i>See "<a href="https://medium.com/alaskans-for-sustainable-budgets/notes-from-the-alaska-fiscal-cliff-our-proposed-fiscal-solution-3c003547241e" target="_blank">Notes from the Alaska Fiscal Cliff: Our Proposed Fiscal Solution</a>" </i>(Nov. 2017).</span><br />
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<span style="font-size: large;"><br /></span></div>
<div>
<span style="font-size: large;">Before the past two years the fact that the split wasn't entirely as envisioned by Governor Hammond didn't make much of a difference. Because the state wasn't using it's share of the split anyway, there really wasn't any significant, current harm from the way that the statute operated. It simply took some of the state’s share and transferred it to Permanent Fund principal, not a bad place for surplus earnings.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Now that the state is beginning to take a share of the earnings, however, the formulation of the statute does make a significant difference. It reduces the state's share substantially below the "other half" envisioned by Governor Hammond.</span></div>
<div>
<span style="font-size: large;"><br /></span></div>
<div>
<span style="font-size: large;">As we also wrote in our November piece, we believe that the current inflation proofing formula overstates the current costs of inflation and should be revised as well. We believe that a POMV approach could be a good solution to that (as long as the resulting earnings available for distribution continue to be split 50/50 between the private sector (residents) and state).</span></div>
<div>
<span style="font-size: large;"><br /></span></div>
<div>
<span style="font-size: large;">But that is a secondary point. The primary point is that, even if inflation proofing is reduced to a more appropriate level and works perfectly, the current statute still won't reflect Governor Hammond's 50/50 split because all of whatever portion is set aside for inflation proofing comes from the state's share.</span></div>
<div>
<span style="font-size: large;"><br /></span></div>
<div>
<span style="font-size: large;">As we approach implementing Governor Hammond's full vision -- splitting the use of earnings from the state's "money wells" evenly between the private sector (residents) and state government -- we believe it's important to ensure that the split is done right.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">For that reason, and as we outlined in our November piece, we favor making changes to the statute both to revise the manner in which inflation proofing is calculated and to ensure that the resulting transfers to the principal are shared equally between the residents' 50% (the PFD) and the portion made available for state spending.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">And for that same reason we also will oppose simply moving the current statute to the Constitution. As we explain above, once the government starts taking its share of the earnings the current statute doesn't fully achieve Governor Hammond's original intent. Until it is corrected we believe locking that approach into the Constitution would be a significant mistake.</span></div>
Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-1103296349912650762018-01-02T12:31:00.000-09:002018-01-02T12:31:12.482-09:00Analyzing the Governor's Proposed FY 2019 Budget: Part 2 (formula spending)<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://1.bp.blogspot.com/-ZtPYq3xe694/Wkv5boqgDXI/AAAAAAAAPw0/usCpPQmB-CIYU4fDHOWnknVjLhzZ9NC9ACLcBGAs/s1600/10_Year_Plan_12-15-17%2B%2528formula%2529.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1236" data-original-width="1600" height="494" src="https://1.bp.blogspot.com/-ZtPYq3xe694/Wkv5boqgDXI/AAAAAAAAPw0/usCpPQmB-CIYU4fDHOWnknVjLhzZ9NC9ACLcBGAs/s640/10_Year_Plan_12-15-17%2B%2528formula%2529.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span style="font-size: small;">Right click to enlarge</span></td></tr>
</tbody></table>
<span style="font-size: large;">Last week we walked through an overview of the Governor's proposed FY 2019 budget. <i>See </i><i><a href="http://bgkeithley.blogspot.com/2017/12/analyzing-governors-proposed-fy-2019.html" target="_blank">Analyzing the Governor's Proposed FY 2019 Budget: Part 1 (an overview)</a>. </i></span><br />
<span style="font-size: large;"><i><br /></i>In this column we take a deeper dive into the major formula programs that, as occurs also at the federal level, drive a large part of state government spending.</span><br />
<br />
<h3>
<span style="font-size: large;">What are the "formula programs'</span></h3>
<span style="font-size: large;"><span style="font-size: large;"><br /></span>
For purposes of its 10-year forecast (above), OMB lumps three "Agency Operations (formula)" categories together. The included categories are:</span><span style="font-size: large;"><ul>
<li>Education (K-12) Foundation and Pupil Transportation (which together are referred to by OMB as the Education Formula programs), </li>
<li>Medicaid, and </li>
<li><span style="font-size: large;">What OMB refers to as the "Other Formula" programs (which are composed of three fairly small programs administered each by the Departments of Health & Social Services (non-Medicaid), Administration and Military & Veterans Affairs). </span></li>
</ul>
</span><span style="font-size: large;">In the above spreadsheet, we have hi-lited in yellow the combined, projected spending number for the three programs. They constitute approximately 45% of total FY 2019 UGF spending ("Budget (before Dividend)").</span><span style="font-size: large;"><br /></span><span style="font-size: large;"><br />For purposes of this column we also treat expenditures for debt, retirement (PERS/TRS) and oil tax credits -- which are categorized in the budget as "Statewide" expenditures -- as formula programs, as they are driven also by formula calculations external to the annual budget process. We have hi-lited those in blue.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Those additional, "Statewide" programs constitute 11% of total FY 2019 UGF spending. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Combined, all of the formula programs -- those included in the "Agency Operations" and those included in "Statewide" -- account for approximately 56% of total FY 2019 UGF spending.</span><br />
<br />
<h3>
<span style="font-size: large;">"Agency Operations" formula spending grows substantially over the 10-year period</span></h3>
<span style="font-size: large;"><br />OMB's forecast contemplates a significant increase in the three categories of "Agency Operations" formula spending over the 10-year period.</span><br />
<span style="font-size: large;"><br /></span><span style="font-size: large;">Based on OMB's 10-year forecast, combined the three formula categories increase by 22% over the 10-period, a compound growth rate of 2.25%, OMB's assumed inflation rate.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">But OMB readily admits that may be too low. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">In <a href="http://www.akleg.gov/basis/get_documents.asp?session=30&docid=28069" target="_blank">an earlier version of the 10-year forecast included as part of the Governor's support in October's Special Session</a> (the "October 10-year forecast"), OMB admitted that:</span><br />
<blockquote class="tr_bq">
<span style="font-size: large;">... if health care costs including Medicaid grow at historic rates rather than simply tracking inflation; if K-12 spending grows at historic rates rather than inflation; if the federal government shifts health care costs onto states ... </span><span style="font-size: large;">the budget gap [could widen] by hundreds of millions of dollars ....</span></blockquote>
<span style="font-size: large;">All of those contingencies are governed by the formula programs. Under the current formula approach, if those costs go up so will spending, automatically by simple operation of the formulas.</span><br />
<span style="font-size: large;"><br /></span><span style="font-size: large;">As noted above, </span><span style="font-size: large;">as it is </span><span style="font-size: large;">the Agency Operations formula programs already represent approximately 45% of total FY 2019 UGF spending. Because OMB escalates all spending in that budget segment (both formula and non-formula) by roughly the same percentage, in the forecast the percentage of overall Agency spending arising from the formula programs remains fairly constant throughout the entire 10 year period.</span><br />
<span style="font-size: large;"><br />If, as noted in the October 10-year forecast, however, spending determined by the formula programs escalates more rapidly, on its current trajectory it will not be surprising to see Agency Operations formula spending alone drive more than half of overall spending by the end of the period.</span><br />
<span style="font-size: large;"><br /></span>
<h3>
<span style="font-size: large;">"Statewide" formula spending also rises </span></h3>
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Unlike "Agency Operations" formula spending, OMB does not tie changes in "Statewide" formula spending to inflation. Each of those programs have separate drivers.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Projected contributions to the state's "retirement" accounts (PERS/TRS) over the 10-year period, for example, increase by roughly 75%. That is because the state currently uses an amortization approach which enables it largely to kick the retirement spending "can" down the road, imposing a greater share of retirement costs in later years.<br /><br />The result is to make current spending levels artificially lower. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Even that increase potentially understates the rise in costs, however. Unlike most other programs across the country, Alaska continues to assume an 8% rate of return in the portion of its investment portfolio set aside for the retirement accounts. If -- as other programs increasingly assume -- the realized rate turns out instead </span><span style="font-size: large;">to be </span><span style="font-size: large;">in the range of 6%, the shortfall required to be made up in future years will be substantially higher.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Payments into the oil tax credit program similarly rise over the 10-year period, increasing by roughly 433% between FY 2019 and FY 2028. As with the retirement contributions, the reason is because of the proposed adoption of a method (the Administration's proposed "<a href="https://www.omb.alaska.gov/ombfiles/19_budget/PDFs/Tax_Credit_Certificates_Bond_Financing_Program_Summary_12-15-17.pdf" target="_blank">Oil & Gas Exploration Credit & Repayment Plan</a>") which defers current spending required under the existing statute to future years.</span><br />
<span style="font-size: large;"><br />Funding the oil tax credit program through the Administration's proposed plan reverses the change over time which otherwise would result under the current oil tax credit statute. If the current statute remains in place, spending on oil tax credits will drop to zero by the end of the period (from a projected FY 2019 level of $206 million to zero in FY 2028) rather than rise.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Offsetting the trend of rapidly rising spending in other categories, projected debt costs decrease over the same period by 55%. But that is somewhat misleading. As OMB's October 10-year forecast admits, that amount assumes </span><span style="font-size: large;">"[n]o new debt is issued - payments fall as outstanding obligations are paid off." If new debt is issued -- as likely will be the case if for no other reason that to refinance existing debt -- the projected spending levels will rise.<br /><br />Even after factoring in the reduction in debt costs, the three formula programs included in the "Statewide" spending category still rise by roughly 34% over the 10-year period. If, as likely, new debt is issued or retirement spending rises (due to a restatement of the assumed rate of return on invested assets) the growth in spending will be even greater.</span><br />
<br />
<h3>
<span style="font-size: large;">What does that mean for this coming session</span></h3>
<div>
<span style="font-size: large;"><br /></span></div>
<div>
<span style="font-size: large;">Based on the assumptions made in OMB's10-year forecast, combined formula spending already accounts for approximately 56% of overall UGF expenditures in FY 2019, increasing slightly to 57% by FY 2028.<br /><br />But if -- as OMB put it in the October 10-year version -- "</span><span style="font-size: large;">health care costs including Medicaid grow at historic rates rather than simply tracking inflation; if K-12 spending grows at historic rates rather than inflation; if the federal government shifts health care costs onto states," or if "</span><span style="font-size: large;">the retirement system misses earnings targets or has other negative experiences," formula spending easily could exceed -- and perhaps substantially exceed -- 60% of overall UGF expenditures by FY 2028.</span></div>
<div>
<span style="font-size: large;"><br /></span></div>
<div>
<span style="font-size: large;">As OMB's 10-year forecast admits, the amount of overall spending that is formula driven is unsustainable even at projected levels without support by significant amounts of "new revenues." The level of "new revenues" required to support overall spending if any of the "ifs" occur will be even greater.<br /><br />As recent history has demonstrated it takes a substantial amount of time and effort to address state spending of any sort, much less the challenges presented by reevaluating the formulas that underlie much of it. The fiscal challenges created by permitting the current formulas to continue unabated are clear, and should be addressed now, before the problems they present become even worse.</span></div>
<div>
<span style="font-size: large;"><br /></span></div>
<div>
<span style="font-size: large;">If it were us, we would dedicate a substantial part of the upcoming legislative session specifically to "looking under the hood" of each of the various formula programs and finding ways to bring them under control. If the legislature chooses not to do that (or even if it does but fails to produce significant results) we would make "formula reform" a significant part of our campaign during the upcoming election cycle. </span></div>
<div>
<span style="font-size: large;"><br /></span></div>
<div>
<span style="font-size: large;">We know that <i>Alaskans for Sustainable Budgets</i> will do precisely that.</span></div>
<span style="font-size: large;"><br />In our next installment of this series we will look at the Administration's proposed "<a href="https://www.omb.alaska.gov/ombfiles/19_budget/PDFs/Tax_Credit_Certificates_Bond_Financing_Program_Summary_12-15-17.pdf">Oil & Gas Exploration Credit & Repayment Plan</a>." As we said in our first column in this series, 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.</span>Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-36190819159380934872017-12-26T10:08:00.003-09:002017-12-30T10:13:46.801-09:00Analyzing the Governor's Proposed FY 2019 Budget: Part 1 (an overview)<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://1.bp.blogspot.com/-MY6rsNZs3fs/WkKUozdAMyI/AAAAAAAAPtM/pdj-jws4Ed4GvLhswGDD2L-i2Vi-ILy_wCLcBGAs/s1600/10_Year_Plan_12-15-17%2B%2528hi-lited%2529.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1236" data-original-width="1600" height="494" src="https://1.bp.blogspot.com/-MY6rsNZs3fs/WkKUozdAMyI/AAAAAAAAPtM/pdj-jws4Ed4GvLhswGDD2L-i2Vi-ILy_wCLcBGAs/s640/10_Year_Plan_12-15-17%2B%2528hi-lited%2529.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span style="font-size: small;">Right click to enlarge. Also available from the <a href="https://www.omb.alaska.gov/ombfiles/19_budget/PDFs/10_Year_Plan_12-15-17.pdf" target="_blank">OMB website</a> (p. 16).</span></td></tr>
</tbody></table>
<br />
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;">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.<br /><br />Today, however, we start with a simple overview, using as the baseline a spreadsheet from among the various materials published on the <a href="https://www.omb.alaska.gov/html/budget-report/fy2019-budget/proposed.html">OMB website</a> in support of the budget. The spreadsheet we are using (above) -- and will continue to use throughout -- is <a href="https://www.omb.alaska.gov/ombfiles/19_budget/PDFs/10_Year_Plan_12-15-17.pdf">the Administration's 10-year fiscal forecast</a>. 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. </span><br />
<div>
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><br /></span></div>
<div>
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;">Using OMB's 10-year forecast as a baseline enables us to put those in perspective.<br /><br />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 <a href="https://www.omb.alaska.gov/ombfiles/19_budget/PDFs/FY2019_Budget_Transparency_Report_12-15-17.pdf">“transparent budget”</a> 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.<br /><br />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.<br /><br />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).<br /><br />But as mentioned above, those numbers need to be adjusted for accounting tricks. <br /><br />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.<br /><br />There also is a question about how to treat the additional spending included in the Governor’s proposed “Alaska Economic Recovery Act.” <br /><br />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.<br /><br />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.<br /><br />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.<br /><br />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.<br /><br /> 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.</span></div>
Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-78321625214652516642017-11-18T09:24:00.000-09:002017-11-18T09:37:00.515-09:00Some argue accelerating the payment of oil credits is more valuable to Alaskans than coming current on the PFD. They are wrong.<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s1600/Fiscal%2BCliff.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="369" data-original-width="553" height="213" src="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s320/Fiscal%2BCliff.jpg" width="320" /></a></div>
<span style="font-size: large;">Earlier this year we wrote a couple of columns comparing the legislature's treatment of the PFD and oil credits.</span><br />
<br />
<span style="font-size: large;">The first focused on whether in a then-upcoming vote the legislature would treat both according to the current Alaska statutes. <a href="http://bgkeithley.blogspot.com/2017/07/todays-vote-will-demonstrate-whether.html"><i>Today's vote will demonstrate whether Alaska legislators believe in the rule of law</i></a> (July 2017).</span><br />
<br />
<span style="font-size: large;">The second was written after the vote </span><span style="font-size: large;">was taken, in which the legislature upheld the rule of law as applied to oil credits, but effectively voted to default on the state's statutory obligations to Alaska's citizens with respect to the PFD. </span><span style="font-size: large;"><a href="http://bgkeithley.blogspot.com/2017/07/the-alaska-legislature-tosses-out-rule.html"><i>The Alaska Legislature tosses out the Rule of Law</i></a> (July 2017).</span><br />
<br />
<div class="separator" style="clear: both; text-align: left;">
<span style="font-size: large;">
A recent </span><span style="font-size: large;">post now appears to argue for granting a priority for an even greater level of payments to oil companies over PFD payments based on some unsupported claims about the jobs impact.</span></div>
<span style="font-size: large;"><br />
The post is circled in the following string:</span><br />
<span style="font-size: large;"><br /></span>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-JQq2J3irBgY/Wg4X6S-qrHI/AAAAAAAAPU8/L2jm0cxDLkQ1NivlNIaIEXA894Gt7IsHQCPcBGAYYCw/s1600/2017-11-16%2B%2528Andrew%2BJensen%2529.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="902" data-original-width="972" height="593" src="https://1.bp.blogspot.com/-JQq2J3irBgY/Wg4X6S-qrHI/AAAAAAAAPU8/L2jm0cxDLkQ1NivlNIaIEXA894Gt7IsHQCPcBGAYYCw/s640/2017-11-16%2B%2528Andrew%2BJensen%2529.jpg" width="640" /></a></div>
<span style="font-size: large;"><br /></span><span style="font-size: large;">The string started with a tweet from the <i>Alaska Journal of Commerce </i>claiming<i> </i>that so-called "unpaid" tax credits had played a role in "thwarting" efforts by a couple of Cook Inlet oil companies this coming drilling season. </span><br />
<span style="font-size: large;"><br />
</span><span style="font-size: large;">As with <i><a href="http://bgkeithley.blogspot.com/2017/08/oh-good-lord.html" target="_blank">other, previous hyperinflated claims by the Journal</a></i> on the subject, that's an overstatement. Webster's <i><a href="https://www.merriam-webster.com/dictionary/thwart" target="_blank">defines "thwart"</a></i> as follows:</span><br />
<div class="sense" style="margin: 0px; padding: 0px;">
<blockquote class="tr_bq">
<span class="sn" style="margin: 0px; padding: 0px;"><span class="num" style="font-weight: 600; left: 0px; margin: 0px; padding: 0px; position: absolute; top: 2px;"><br />
</span></span><span style="font-size: large;"><span class="sn" style="margin: 0px; padding: 0px;">a :to oppose successfully :defeat the hopes or aspirations of</span><span class="sn" style="margin: 0px; padding: 0px;"><br />
</span><span class="sn" style="margin: 0px; padding: 0px;"><br />
</span><span class="sn" style="margin: 0px; padding: 0px;">b :to run counter to so as to effectively oppose or baffle :contravene</span></span></blockquote>
</div>
<span style="font-size: large;">Neither applies in this case. It is inaccurate to claim that the state "opposes" the efforts of the companies.<br />
<br />
As those who have read the applicable statutes will know, all that the state has done with respect to the two companies is to decline accelerating payments of certain "tax credits" on a faster schedule than agreed between it and the companies. </span> <span style="font-size: large;"><a href="http://bgkeithley.blogspot.com/2017/08/a-balanced-piece-on-oil-taxes.html"><i>Finally, a balanced piece on cashable oil tax credits</i></a> (Aug 2017).</span><br />
<span style="font-size: large;"><br />
</span> <span style="font-size: large;">To claim the state's failure to accelerate future payments into the present as now sought by the companies "thwarts" the companies' efforts is the same as claiming that homeowners "thwart" a mortgage company from making additional profits when the homeowners fail to pay their full 20-year mortgage obligation all at one time.<br />
<br />
Both are obligations due over time. The failure to pay early doesn't "thwart" anything. It simply observes the parties' original agreement.</span><br />
<span style="font-size: large;"><br />
</span><span style="font-size: large;">The PFD became involved in the latest exchange when we responded that, compared to the <i>Journal's </i>hyperinflated oil credit claims, cutting the PFD below statutory levels -- something the Walker Administration and the legislature actually <i><b>did</b></i> do earlier this year -- had "the largest adverse impact" on the overall economy of any of the so-called new revenue options and was, "by far," the worst alternative for Alaska families. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Those statements are based on </span><span style="font-size: large;">analyses published last year and earlier this by the University of Alaska - Anchorage's Institute of Social and Economic Research (ISER). </span><span style="font-size: large;"><i><a href="http://www.iser.uaa.alaska.edu/Publications/2016_03_30-ShortrunEconomicImpactsOfAlaskaFiscalOptions.pdf" target="_blank">Short-run Economic Impacts Of Alaska Fiscal Options</a> </i>(March 2016)<i>; </i></span><span style="font-size: large;"><i><a href="http://www.iser.uaa.alaska.edu/news/?p=1494">Effect of Alaska Fiscal Options on Children and Families</a> (February 2017).</i></span><br />
<br />
<span style="font-size: large;">The reply to our comment attempts to dismiss the ISER analyses, but without offering any competing, professional analysis in return.<br />
<br />That strikes us as sort of the Alaska version of "alternative facts." On the one hand we have detailed analyses by a preeminent, non-partisan set of professional economists who follow the Alaska economy closely, and on the other we have ... rank speculation by some with a vested interest in undermining the conclusions.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Just as it is hard to give any weight to most other claims of "alternative facts," so it is with these unsubstantiated claims.<br />
<br />
Applying the factors contained in the ISER analysis, the annual PFD cuts of the last two years have resulted in a reduction of somewhere between 3,900 and 6,250 full time equivalent (FTE) Alaska jobs. Using a consistent evaluation approach (the same one used also to measure the impact of other new revenue options), ISER has concluded that level of job loss is more than would have occurred had the resulting "new revenues" (to government) been raised any other way. <br />
<br />
Those who claim otherwise offer no -- none, nada, zip -- in the way of professional economic analysis to support their claim. <br />
<br />In the post one of those advocating for accelerated payments to the oil companies tries a new tack, comparing the effect on jobs between the failure to accelerate the payments and those generated by the PFD.</span><br />
<span style="font-size: large;">
<br />
Certainly, any job loss is a problem in a recessionary economy. But i</span><span style="font-size: large;">t's hard to get exorcised about the effects when the state is following its own law.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Moreover, the post overstates the potential effect of accelerating the payments. <br /><br />Of the 2100 jobs lost in the oil & gas sector cited in the post, likely few -- and perhaps very few -- are tied to the state's decision not to accelerate the statutory payment schedule. Most are likely tied to other reasons, such as the wind down of the Pt Thomson project and workforce efficiencies implemented as a result of the drop in oil prices. <br />
<br />
But even if you assume that 15% of the overall job loss could have been avoided by accelerating the payments and even if you assume the full 10:1 instate multiplier on that level implied by a <a href="https://www.aoga.org/sites/default/files/final_mcdowell_group_aoga_report_8.16.17.pdf" target="_blank">recent McDowell Group study</a>, that still produces only 3000 or so total jobs, well short of the 3,900 to 6,250 arising from the PFD cut.<br />
<br />
There are other reasons why maintaining the current PFD is important -- the positive effect on overall Alaska income, Alaska families and poverty levels to name three. </span><span style="font-size: large;"><a href="http://bgkeithley.blogspot.com/2017/09/if-we-are-going-down-this-road-it-makes.html"><i>It's still the economy, stupid</i></a> (Sept. 2017).</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">But even when focused only on jobs the numbers remain compelling.<br />
<br />
We certainly agree that the state should meet its financial obligations made during the oil credit program. But those obligations have been tied explicitly since the outset of the program to the level of funds the state receives during the same period from production taxes. The oil companies and their bankers knew and accepted those limitations on the state's payment obligations going in. <br />
<br />
There is no justification for bailing those companies out of the effects of those limitations now, especially when at the same time the state is undeniably delinquent on its statutory obligations to its own citizens. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">As the jobs numbers alone show, putting contingent oil company claims ahead of fully matured statutory obligations to Alaska's citizens is a recipe for disaster, especially in a recession. </span>Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-37611683103283530192017-11-14T03:35:00.002-09:002017-11-14T03:35:57.697-09:00A blast from the past explains some of the present ... <div class="separator tr_bq" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s1600/Fiscal%2BCliff.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="369" data-original-width="553" height="213" src="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s320/Fiscal%2BCliff.jpg" width="320" /></a></div>
<span style="font-size: large;">Recently for another purpose, we were paging back through <i><a href="https://bgkeithley.com/" target="_blank">our primary blog</a></i> to identify when it was we started voicing concerns about the state's fiscal situation. (The <i><a href="https://bgkeithley.com/2011/05/14/alaska%E2%80%99s-%E2%80%9Cfiscal-conservatives%E2%80%9D-%E2%80%93-missing-in-action-a-facebook-conversation-on-alaska%E2%80%99s-capital-budget/" target="_blank">answer is May 2011</a></i>.)<br /><br />Along the way, however, we ran across <i><a href="https://bgkeithley.com/2012/07/20/understanding-alaskas-budget-may-explain-much-more-than-it-intends/" target="_blank">a piece from July 2012</a></i> that answered in one fell swoop something that has puzzled us for the last couple of years as the Alaska Senate R's increasingly have gone off the deep end by first, two sessions ago, passing a bill permanently to tax statutory income from the PFD (what some euphemistically refer to as "cut" the PFD) at more than 50% and then, last session, not only doing that again but essentially giving up on cutting government spending further and cutting the PFD instead.<br /><br />The piece discusses what then was a new (in 2012) -- and apparently still available -- <i><a href="http://www.alaskabudget.com/" target="_blank">website</a></i> sponsored by the so-called "House Special Committee on Fiscal Policy." According to the Chair of the Special Committee, the website was designed to help Alaskans prepare "to handle the challenges [of declining oil revenues] before we reach a crisis.”<br /><br />What has puzzled us is why the Alaska Senate R's this last session seemed to run out of steam in their efforts further to cut the budget down to long term sustainable levels. We also have puzzled over the statement we have heard some make occasionally that deeper cuts in government spending would worsen the state's recession.<br /><br />Then we ran across the following quote from the House website contained in the article. When reading this keep in mind that this was written while the R's controlled the House. Keep in mind also that the Chair of the Special Committee was then-Rep. Anna Fairclough (now, MacKinnon). MacKinnon is now </span><span style="font-size: large;">Senator MacKinnon and Co-Chair of the Finance Committee.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">The quote is from a tab entitled "Why not just cut the budget" as a response to the, even then, painfully apparent coming fiscal crisis (we have added emphasis to parts that we think provide significant insight into the actions of the current Senate R's):</span><br />
<blockquote>
<b><i><span style="font-size: large;">Why not just cut the budget?</span> </i></b></blockquote>
<blockquote>
<span style="font-size: large;">Alaska’s operating budget has been increasing at about 9% per year for the last decade and is expected to continue on this path. Even with tighter budget control, the budget will need to increase as population increases and to adjust for inflation just to maintain current levels of service. Increases in future obligations due to an aging population are a part of fiscal gap calculations and one reason why Alaska is not alone in facing future budget woes.</span> </blockquote>
<blockquote>
<span style="font-size: large;"><i><b>While deep cuts to state services could help the plug the fiscal gap, they would hurt the economy and Alaska families. State government not only provides needed services and infrastructure, it also plays a significant role in the state’s economy, directly employing around 7% of working Alaskans (24,000 people in 2011) and generating even more jobs by providing grants and contracts to the non-profit and private sectors and by being a major purchaser of goods and services from Alaska businesses. Without state funding some of those jobs will disappear.</b></i><br /> </span><span style="font-size: large;"><br /></span><span style="font-size: large;">Often when people talk about cutting government spending they mean cutting out excess bureaucracy and paring back non-essential services. It will be important to find efficiencies and look for ways to trim waste, but there is a limit to what can be cut without cutting into basic services that many Alaskans rely on. Administration only accounts for 4% of the state operating budget. While there may be efficiencies that can be found, administration cannot be gutted since it includes core services like IT and telecommunications services, accounting and payroll that state agencies need to operate.</span> </blockquote>
<blockquote>
<span style="font-size: large;">In past years, the state has cut the capital budget when short-term deficits have occurred in years of low oil prices. Cutting the capital budget provides immediate savings but is a short-term fix that has its own negative impacts, such as higher future costs due to deferred maintenance on public buildings. <i><b>Cuts to the capital budget also impact general contractors, engineers, and people working in the trades throughout Alaska who contract with the state to plan and build infrastructure projects.</b></i> Maintaining public infrastructure, including roads, bridges, ferries and public health clinics is a core function of government that no one else is going to pay for if the state doesn’t do it.</span> </blockquote>
<blockquote>
<span style="font-size: large;">Budget cuts impact people differently. Cuts to education impact children and families, while cuts to the capital budget impact the Alaskans in the construction industry, and cuts to health and human services impact people with fewer resources. In one way or another, state spending improves the quality of life for all Alaskan. We are used to receiving high levels of service from our government. In a recent statewide telephone survey, Alaskans from all political parties chose maintaining state services over balancing the budget for nearly all state services.</span></blockquote>
<div>
<span style="font-size: large;">As we went on in <i><a href="https://bgkeithley.com/2012/07/20/understanding-alaskas-budget-may-explain-much-more-than-it-intends/" target="_blank">our 2012 post</a></i> to discuss at length, the emphasis on maintaining jobs and a government role in the economy was troublesome. As we said then in our commentary,</span></div>
<blockquote class="tr_bq">
<span style="font-size: large;">... the focus on the role of “government” as a source of jobs ... is something that one would ordinarily expect to hear from the far-left wing of the Democrat party, not a committee composed primarily of Alaska Republican House members. What happened to the usual — and economically sound — principle that government should leave the role of job creation — and more importantly, picking economic winners and losers — to the private sector, and limit taxes in order to permit the private sector to create those jobs and make those choices? This rhetoric sounds much more like that which justified the federal government’s recent economic stimulus packages than anything normally associated with “fiscal conservatives.”</span></blockquote>
<span style="font-size: large;"> As we have entered an era where the Senate R's have now voted to cut the PFD rather than spending further, that philosophy is even more troublesome.<br /><br />While solving one puzzle, however, finding the Senate R's past rationalization for their current actions creates another. <br /><br />If the "Special Committee" then -- and the Senate R's now -- are so concerned about the effect of their actions on "the economy and Alaska families," why is it they have chosen to tax (what some euphemistically refer to as "cut") the PFD as their primary means of keeping elevated government spending levels in place.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">As ISER's <i>undisputed </i>economic analysis has made clear, taxing/cutting the PFD:</span><br />
<span style="font-size: large;"><ul>
<li>“Has the <b><i>largest adverse impact on the economy</i></b> [of all the new revenue options] per dollar of revenues raised,” <a href="https://goo.gl/ZxR1Hw">https://goo.gl/ZxR1Hw</a> at A-15;</li>
</ul>
<ul>
<li>Is “<i><b>by far the costliest measure for Alaska families</b></i>,” <a href="https://goo.gl/ivf9D2">https://goo.gl/ivf9D2</a> at 1; and</li>
</ul>
<ul>
<li>“[W]ill likely increase the number of Alaskans below the poverty line by 12–15,000 (2% of Alaskans),” <a href="https://goo.gl/iuTjv2">https://goo.gl/iuTjv2</a> at 14.</li>
</ul>
<div>
<i><b>In short, in order to avoid making "deep cuts to state services" because they "would hurt the economy and Alaska families," the Senate R's have chosen to implement the very option that ... hurts the economy ("has the largest adverse impact") and Alaska families ("by far the costliest measure for Alaska families") the most.</b></i></div>
<div>
<i><b><br /></b></i></div>
<div>
What the heck?</div>
<div>
<br /></div>
<div>
The portion of the website we covered in our 2012 commentary doesn't provide an insight into solving that puzzle. But when we have the time we will keep digging in the remainder to see if it provides any clues.<br /><br />We doubt, as we have <i><a href="http://while%20deep%20cuts%20to%20state%20services%20could%20help%20the%20plug%20the%20fiscal%20gap%2C%20they%20would%20hurt%20the%20economy%20and%20alaska%20families./" target="_blank">suggested elsewhere</a></i> is the likely case, that we will find any smoking guns that say, "we have chosen to cut the PFD in order to protect the Top 20% from paying any significant share of the cost," but you never can tell.</div>
</span>Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-78654322883454262052017-11-11T12:57:00.000-09:002017-11-11T12:57:50.477-09:00Notes from the Alaska Fiscal Cliff: Our Proposed Fiscal Solution<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s1600/Fiscal%2BCliff.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="369" data-original-width="553" height="213" src="https://3.bp.blogspot.com/-8cRgOkMJGFI/UWBeYQxLIlI/AAAAAAAAAaY/tLbZ7hgdU6cRfmzbvQyir7GbgZB6_WAygCPcBGAYYCw/s320/Fiscal%2BCliff.jpg" width="320" /></a></div>
<span style="font-size: large;">Yesterday we posted a comment on a presentation made Thursday of this week by David Teal, the head of the Alaska Legislature's Legislative Finance Division (LFD). </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">The presentation discussed the projected status of the state's fiscal situation over the next eight years (FY 2019 - 2026) based on the most recent revenue and spending projections. Teal's presentation is available here: <a href="https://goo.gl/jw5pmE">https://goo.gl/jw5pmE</a>.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">We expressed both surprise and disappointment at certain aspects of the numbers and analysis. Our comment is here: <a href="https://goo.gl/sanZ1k">https://goo.gl/sanZ1k</a>.</span><br />
<span style="font-size: large;"><br /></span>
<br />
<h3>
<span style="font-size: x-large;">The baseline</span></h3>
<span style="font-size: large;">Nonetheless, in this piece we use Teal's presentation as a springboard to discuss our proposed solution to the state's fiscal situation. Using the same revenue and spending numbers, and format, as Teal used during LFD's presentation, our solution is summed up in the chart below.</span><br />
<span style="font-size: large;"><br /></span>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://3.bp.blogspot.com/-pt9Km3PINCY/WgdVRdFGaBI/AAAAAAAAPQQ/cV-nX4uxdr0ttaAeEvSQoo_LjpBoHW86ACLcBGAs/s1600/Using%2BHammond%2B50-50%2Band%2Ba%2BFlat%2BTax%2Bto%2BBalance%2BAlaska%2527s%2BBudget%2B%252811-11-2017%2529.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="512" data-original-width="1600" height="204" src="https://3.bp.blogspot.com/-pt9Km3PINCY/WgdVRdFGaBI/AAAAAAAAPQQ/cV-nX4uxdr0ttaAeEvSQoo_LjpBoHW86ACLcBGAs/s640/Using%2BHammond%2B50-50%2Band%2Ba%2BFlat%2BTax%2Bto%2BBalance%2BAlaska%2527s%2BBudget%2B%252811-11-2017%2529.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span style="font-size: small;">Right click to enlarge</span></td></tr>
</tbody></table>
<div class="separator" style="clear: both; text-align: center;">
</div>
<span style="font-size: large;">The numbers for the first two lines -- "Traditional Revenue" and "Expenses" -- are taken directly from LFD's presentation. </span><br />
<span style="font-size: large;"><br />The <i>"Traditional Revenue"</i> number is the projection of unrestricted general fund revenues by the relevant fiscal year taken from the Department of Revenue's <i>Preliminary Fall 2017 Revenue Forecast, </i><a href="https://goo.gl/kEFWzN">https://goo.gl/kEFWzN</a><i>. </i></span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">The <i>"Expenses"</i> are LFD's representation of the projection of unrestricted general fund spending by the same year taken from the Office of Management and Budget's <i>Ten Year Budget Forecast Relative to Preliminary Fall 2017 Revenue Projections, </i><a href="https://goo.gl/GTaLtM">https://goo.gl/GTaLtM</a>. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">For some reason the numbers used in LFD's presentation consistently are about $50 million higher per year than those in the OMB presentation. To make our analysis match up with LFD's, we nonetheless have used their numbers.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">The <i>"Initial Deficit"</i> number is the simple difference between the "Traditional Revenue" and "Expenses" numbers for each year. Adjusted for the $50 million added to the "Expenses" line in LFD's presentation, the deficit numbers used here correlate to the deficit numbers also shown for each year in the OMB Forecast.<br /><br />The Initial Deficit forms the baseline of the state's fiscal situation.</span><br />
<span style="font-size: large;"><br /></span>
<h3>
<span style="font-size: x-large;">The first part of the proposed solution: Hammond 50/50</span></h3>
<span style="font-size: large;">Starting with the baseline, we propose two steps in our effort to develop a balanced budget.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">The first is to implement what we have referred to previously as the "Hammond 50/50 plan," an equal split of the earnings from the Permanent Fund between the PFD and government. </span><span style="font-size: large;"><i>See "Implementing Governor Hammond’s “50/50” Plan for the use of Permanent Fund earnings," </i><a href="https://goo.gl/5kZg2x">https://goo.gl/5kZg2x</a>.</span><br /><br />
<span style="font-size: large;">With one adjustment, the <i>"50/50 Government Revenue"</i> number in the above spreadsheet is the "other half" of the annual Permanent Fund earnings stream calculated in the manner required for the Permanent Fund Dividend (AS 37.13.140), based on the levels of Statutory Net Income </span><span style="font-size: large;">most recently projected by the Permanent Fund Corporation. </span><span style="font-size: large;"><i>Alaska Permanent Fund Financial History & Projections as of September 30, 2017, </i><a href="https://goo.gl/awaekb">https://goo.gl/awaekb</a>.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">For purposes of this proposed solution we reduce the earnings stream by the amount of the current statutory inflation adjustment factor <i>before </i>dividing the remaining earnings stream equally (50/50) between the PFD and government. We believe that the current statutory adjustment factor overcompensates for actual inflation, but recognize that some inflation adjustment is appropriate and so, utilize the current adjustment factor until a more accurate approach is developed.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">The effect of making the adjustment <i>before</i> calculating the 50/50 split is to charge the inflation adjustment equally to the PFD and government shares of the Permanent Fund earnings stream, rather than take it entirely out of the government's share as historically has been the approach. We include that as part of our proposed solution because both future PFD <i><b>and</b></i> government revenue levels benefit from inflation proofing the Permanent Fund principal.<br /><br />For those interested in that level of detail, our approach to calculating the "other half" used in the analysis is summed up below:</span><br />
<span style="font-size: large;"><br /></span>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://4.bp.blogspot.com/-GILFe-8_kAU/WgdQTB1qxhI/AAAAAAAAPP0/5kTTA5zp418_cxocr-tJuZZV2nxz7-pMQCLcBGAs/s1600/Computation%2Bof%2B50-50%2B%2528PFD%2Bformula%2B-%2BInfAdj%2529%2B%252811.11.2017%2529.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="969" data-original-width="1359" height="456" src="https://4.bp.blogspot.com/-GILFe-8_kAU/WgdQTB1qxhI/AAAAAAAAPP0/5kTTA5zp418_cxocr-tJuZZV2nxz7-pMQCLcBGAs/s640/Computation%2Bof%2B50-50%2B%2528PFD%2Bformula%2B-%2BInfAdj%2529%2B%252811.11.2017%2529.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span style="font-size: small;">Right click to enlarge</span></td></tr>
</tbody></table>
<span style="font-size: large;">The <i>"Remaining Deficit" </i>in the previous chart is the deficit remaining after applying the "other half" of the Permanent Fund earnings stream </span><span style="font-size: large;">as government revenue</span><span style="font-size: large;">. </span><br />
<span style="font-size: large;"><br /></span>
<br />
<h3>
<span style="font-size: x-large;">The second part of the proposed solution, if we need to go there: A Flat Tax</span></h3>
<span style="font-size: large;">At the projected spending levels used in LFD's analysis, while the adoption of the Hammond 50/50 approach reduces the deficit to lower, more manageable levels it does not eliminate the deficit entirely.<br />
<span style="font-size: large;"><br /></span>
As a result, in order to balance the budget we calculate the <i>"Flat Tax"</i> required to raise the additional revenue needed to close the remaining deficit. The Flat Tax is equal to the amount of the deficit divided by $27 billion, roughly the amount of Adjusted Gross Income (AGI) currently received by Alaskans, adjusted to reflect the additional amount of AGI estimated to be received from Alaska sources by non-residents. </span><span style="font-size: large;"><i>See </i></span><span style="font-size: large;"><i>"ICYMI: Designing a Flat Tax,"</i> <a href="https://goo.gl/o8f4jt">https://goo.gl/o8f4jt</a>.</span><span style="font-size: large;"><br /></span><span style="font-size: large;"><i><br /></i></span><span style="font-size: large;">Under a flat tax, all Alaska families -- upper, middle and lower income -- would bear the costs of government proportionately. No Alaskans would be required to bear a higher cost in order to subsidize the proportionate share of others. As we have explained previously, there also are other significant benefits of the approach. <i>See "Why a flat tax,"</i> <a href="https://goo.gl/trVzaQ">https://goo.gl/trVzaQ</a>.</span><br />
<span style="font-size: large;"><br /></span>
<h3>
<span style="font-size: x-large;">Further adjustments</span></h3>
<div>
<span style="font-size: large;">The level of flat tax required to close the remaining deficit is influenced significantly by two factors. The first is the level of government spending ("Expenses"); the second is the level of the inflation adjustment used in the calculation of the "Hammond 50/50" revenue contribution.<br /><br />The lower the level of government spending, the lower the deficit and as a result, the lower the level of flat tax required to offset the remaining deficit.</span></div>
<div>
<span style="font-size: large;"><br /></span></div>
<div>
<span style="font-size: large;">Similarly, the lower the level of the inflation adjustment, the higher the level of the "Hammond 50/50" revenue contribution, the lower the remaining deficit and, as a result, the lower the required level of flat tax.</span></div>
<div>
<span style="font-size: large;"><br /></span></div>
<div>
<span style="font-size: large;">Substantial effort has gone into -- and we assume, will continue to go into -- efforts to reduce the level of government spending. Despite those efforts, however, <b><i>both</i></b> legislative bodies <i><b>and</b></i> the Governor essentially have concluded that there are limits to making further reductions in spending levels and that some source of "new revenues" is required.<br /><br />To avoid becoming bogged down in that issue we have used the LFD's projection of future government spending levels in the above analysis. Suffice it to say that the required flat tax levels will be lower if government spending levels are reduced further.<br /><br />Some effort also has gone into -- and we assume, will continue to go into -- efforts to more accurately calculate the adjustment mechanism necessary to keep the Permanent Fund whole against inflation. <br /><br />To date, most efforts have centered around converting the basis for the calculation of the Permanent Fund earnings stream from Statutory Net Income to a Percent of Market Value (POMV) approach. We are not necessarily opposed to that change <i>if</i> the POMV approach is proven to be more accurate than other inflation proofing approaches, but we have not been convinced yet that it is.<br /><br />As a result, again to avoid becoming bogged down in that issue in this piece we have simply continued to use the inflation adjustment factor incorporated in the current statute at the future levels projected by the Permanent Fund Corporation. </span><span style="font-size: large;">Suffice it to say that the required flat tax levels will be lower if the inflation adjustment is reduced.</span></div>
<div>
<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">One final adjustment also is appropriate. </span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">In the above analysis we have calculated the level of the flat tax, required to close the deficit remaining after the implementation of Hammond 50/50, on an annual basis. In practice, we believe the level of tax should be averaged over an extended period based on periodic projections. </span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">Using the projections contained in the LFD analysis, the appropriate level of flat tax averaged over the eight year period, rounded to the nearest quarter percent, is 4.75%.</span></div>
Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-23045401866022457192017-11-09T08:18:00.002-09:002017-11-09T08:24:12.455-09:00Notes from the Alaska Fiscal Cliff: The Alaska Republican Establishment shows its true colors<div class="separator" style="clear: both; text-align: center;">
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<span style="font-size: large;">A piece yesterday from often-times Alaska Republican Party mouthpiece <i>Must Read Alaska</i> may say more about the priorities of establishment Alaska R's than anything else. <i>See</i> "<i>Sheldon Fisher: ‘We owe the credits’ to oil companies," </i><a href="https://goo.gl/tc79BP">https://goo.gl/tc79BP</a>.</span><br />
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<span style="font-size: large;"><br />In an extended effort to paint the current Administration as an unreliable trading partner <i>Must Read</i> attempts to use Alaska's oil tax credit program as an example of where the current Administration has "stiffed" those to whom it has obligations. The oil tax credit program contemplates that the state will reimburse certain producers for certain types of expenditures.<br /><br /><b><i>But </i>Must Read's<i> attack entirely misses the mark</i></b>. Alaska is in full compliance with its statutory payment obligations to recipients of the oil tax credit program. It has made and continues to make payments on the timeframe and at the levels required by the statutory provisions in place since the program began. While the Administration (and legislature) haven't accelerated payments as some recipients (and Outside bankers) would like, it hasn't "stiffed" (or another <i>Must Read </i>claim, become "delinquent" to) <i>anyone</i> under the program.<br /><br />The irony? </span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">In its effort to overdramatize the false claims of some oil companies and their bankers <i>Must Read</i> appears intentionally to overlook a massive group that the Governor (and legislature) actually have "stiffed." The state's citizens. </span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">This past session the legislature passed and the Governor signed an appropriations bill that intentionally underfunds the state's annual Permanent Fund Dividend (PFD) -- a direct <i>statutory</i> obligation to the state's citizens -- by more than 50%. The state's <i>statutory default</i> -- which economically speaking is a tax on Alaskans -- has been diverted to state government.<br /><br />In overreaching to claim that the Administration has "stiffed" those that haven't been, and ignoring Alaska's citizens who actually have been stiffed, <i>Must Read</i> shows its true colors.</span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">Those it favors to the point of making up false arguments? Certain oil companies, their suppliers and bankers. </span></div>
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<br /></div>
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<span style="font-size: large;">Those it ignores? Average Alaskans.<br /><br /><b><i>By overplaying the first and ignoring the second </i>Must Read<i> shows which side of the divide they are on -- and it's not the side of average Alaskans.</i></b><br /><br />That is consistent with the side taken also these past two years by the establishment R's in the Alaska Senate. </span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">As we have explained elsewhere, in passing proposals the past two years permanently to cut the PFD and voting this year with the Governor and House to do so through the appropriations process, the Alaska Senate R's repeatedly have sided with those in the state's Top 20% income bracket (and some of the state's large businesses tied to elevated government spending levels) against the Remaining 80%. </span><span style="font-size: large;"><i>See, e.g., "The Alaska Senate's REAL deal," </i><a href="https://goo.gl/8C7JZF">https://goo.gl/8C7JZF</a><i>.</i></span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">And it's not just middle and lower income Alaskans that are being caught in the Alaska Senate R's -- and now, <i>Must Read's</i> -- class war.</span></div>
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<span style="font-size: large;"><br /></span></div>
<span style="font-size: large;">According to <i>unrefuted</i> economic studies from last year by the University of Alaska Anchorage's Institute of Social and Economic Research, taxing the PFD at the level pursued by the Alaska Senate R's:</span><br />
<ul><span style="font-size: large;">
<li>“Has the largest adverse impact on the economy [of all the new revenue options] per dollar of revenues raised,” <a href="https://goo.gl/ZxR1Hw">https://goo.gl/ZxR1Hw</a> at A-15;</li>
</span></ul>
<span style="font-size: large;">
<ul>
<li>Is “by far the costliest measure for Alaska families,” <a href="https://goo.gl/ivf9D2">https://goo.gl/ivf9D2</a> at 1; and</li>
</ul>
<ul>
<li>“[W]ill likely increase the number of Alaskans below the poverty line by 12–15,000 (2% of Alaskans),”<a href="https://goo.gl/iuTjv2">https://goo.gl/iuTjv2</a> at 14.It doesn't have to be this way. </li>
</ul>
Let that sink in for a moment.<br /><br />The headline analysis of the Alaska Senate's proposal: "Largest adverse impact on the economy." "By far the costliest measure." "Will likely increase the number of Alaskans below the poverty line" by 2% of the state's total population.<br /><br /><i>Must Read </i>closes its piece by urging that accelerated oil tax payments should be included in this year's budget:</span><br />
<blockquote class="tr_bq">
<span style="font-size: large;">[Revenue Commissioner Sheldon] Fisher and the Office of Management and Budget are in the final stages of budget preparation. Gov. Walker must present to the Legislature his FY19 budget by Dec. 15, a budget that will be debated and signed during his re-election cycle. ... While he travels back to Alaska from China, his budget people may want to hammer out a plan for paying those [so-called] delinquent tax credits ....</span></blockquote>
<span style="font-size: large;">Our hope is the opposite.<br /><br />Especially given the state's fiscal situation, we hope that Governor Walker -- and the legislature -- continue to maintain spending across the board to no more than statutorily required levels. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Despite <i>Must Read's </i>special pleading, that means continuing to pay oil tax credits at no more than the statutorily required level -- not the accelerated levels being sought by some oil companies, their suppliers and Outside bankers.<br /><br />And that also means paying Alaskans what is due them under the state's existing statutes -- 50% of the earnings from the Permanent Fund.</span><br />
<span style="font-size: large;"><br />That is the simple test that we believe should be used to measure the Governor's and legislature's actions this coming session -- whether they live up to the state's statutory obligations.<br /><br />We certainly will oppose -- and frankly, be aghast at -- any effort by the Governor and legislature to pay certain special interests more than required by the statutes, while continuing to default on those same statutory obligations to all Alaskans.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">We are somewhat surprised the Alaska Republican establishment is so blatant about wanting something else -- but it appears that it is.</span>Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-3266124939329725882017-11-06T15:42:00.000-09:002017-11-06T15:53:51.352-09:00Notes from the Alaska Fiscal Cliff: It makes a difference how we 'act' on fiscal policy<div class="separator" style="clear: both; text-align: center;">
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<span style="font-size: large;">In a weekend editorial, the <i>Juneau Empire</i> editorial board says it's time to act on Alaska's fiscal situation. </span><span style="font-size: large;"><i>"The fiscal cliff is here: It’s time to act," </i><a href="http://bit.ly/2y5AfEh">http://bit.ly/2y5AfEh</a></span><span style="font-size: large;"><br /><br />Our initial reaction to the column is that it <i><b>has</b></i> been "time to act" since the government started spending well in excess of sustainable levels in 2011. <i>See "It’s time to cut state spending: The numbers show future has arrived," </i><a href="https://goo.gl/MmzGFm">https://goo.gl/MmzGFm</a> (<b>October 2012</b>).</span><br />
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">Where was the <i>Empire </i>back then? Our memory was still urging increased spending. But we agree nonetheless that it's <i>still</i> time. <br /><br />It's not time for just <i>any</i> action, however.<br /><br />Continuing to cut government spending deeply from current levels is one action in response to the state's fiscal situation and many argue a responsible one. But in voting this past session for bills that would permanently raise new revenues the majority of <i>both</i> legislative bodies decided against that approach because of the harm they perceive it would do.<br /><br /><i><b>In that same vein, not just any "new revenue" measure is the right one. Some approaches do much more harm than good to the overall Alaska economy and Alaska families.</b></i><br /><br />In evaluating the effect of their tax reform proposal Congressional R's recently have focused on the effect on a family of four earning an income of $59,000. <i>The Tax Cuts & Jobs Act: Policy Highlights, </i><a href="https://goo.gl/QZu8uH">https://goo.gl/QZu8uH</a><br /><br />Under the Congressional R's proposal that family <i>keeps</i> $1,182 more in take home income. <br /><br />Applying that same benchmark, under both the Alaska Senate R's and House Majority Coalition fiscal proposals (which rely heavily on a PFD tax), that same family in Alaska suffers a <i>reduction</i> in income in the range of $4,000. <br /><br />Not only is that reduction bad for the affected families, it is bad for the overall economy and other Alaska families as well.</span><br />
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">Alaska is in a recession. According to last year's <i>unrefuted </i>economic analysis by the University of Alaska-Anchorage's Institute of Social and Economic Research, raising new revenue through a PFD tax as the Alaska Senate R's and House Majority Coalition have proposed:</span><br />
<ul>
<li><span style="font-size: large;">“Has the largest adverse impact on the economy [of all the new revenue options] per dollar of revenues raised,” <a href="https://goo.gl/ZxR1Hw">https://goo.gl/ZxR1Hw</a> at A-15;</span></li>
</ul>
<ul>
<li><span style="font-size: large;">Is “by far the costliest measure for Alaska families,” <a href="https://goo.gl/ivf9D2">https://goo.gl/ivf9D2</a> at 1; and</span></li>
</ul>
<ul>
<li><span style="font-size: large;">“[W]ill likely increase the number of Alaskans below the poverty line by 12–15,000 (2% of Alaskans),” <a href="https://goo.gl/iuTjv2">https://goo.gl/iuTjv2</a> at <a href="http://14.it/">14.</a></span></li>
</ul>
<span style="font-size: large;">In short, </span><span style="font-size: large;">at a time when Congressional R's are trying to make the average family's financial situation better, </span><span style="font-size: large;">going down the road of a PFD tax, as some have urged, will just make Alaskans' situation worse. It is as bad -- if not a worse -- remedy for the overall economy and Alaska families as some believe are further cuts in spending. </span></div>
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<span style="font-size: large;"><br />Fortunately, there are other, better options.</span></div>
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<span style="font-size: large;">If we have to go there, under a flat tax (designed to raise the same amount of new revenue as the Alaska Senate R's PFD tax) the drop in the income of the benchmark family of four would be reduced to $1,622. </span></div>
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<span style="font-size: large;"><b><i><br /></i></b></span></div>
<span style="font-size: large;"><i><b>In short, under a flat tax the benchmark Alaska family of four would keep roughly $2,400 <u>more</u> in take home pay than they do under the Alaska Senate R's and House Majority Coalition proposals. That family, as well as the overall economy and Alaska families would be far better off.</b></i></span><div>
<span style="font-size: large;"><br />A flat tax also is more equitable.<br /><br />It treats all Alaska families proportionately. Unlike under the highly regressive PFD tax at one extreme and a progressive income tax at the other, under a flat tax no Alaska family would be required proportionately to bear more of the costs of government than any other. <br /><br />Under a flat tax all Alaska families would pay the same proportionate share of the cost of government.<br /><br />In short, if we have to go there a flat tax is much better for the overall Alaska economy and Alaska families -- and much more equitable -- than a PFD tax, progressive income tax or other approaches.<br /><br />Yes, it's time to act, but the action we take needs to be one that avoids making Alaska's overall economic situation worse.</span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">Call your representative and tell them if we have to go there to support a flat tax instead of a PFD cut or any other new revenue measures.</span></div>
Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-10412243130672526292017-11-04T10:44:00.001-08:002017-11-06T07:50:10.972-09:00Notes from the Alaska Fiscal Cliff: The Alaska Senate's REAL deal<div class="separator" style="clear: both; text-align: center;">
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<span style="font-size: large;">In a guest commentary in this week's <i>Alaska Journal of Commerce</i>, Senate President Pete Kelly says he is telling Alaskans "the deal" about the positions being taken by the Alaska Senate R's. <i>The sky isn't falling, </i><a href="https://goo.gl/rf7Z3s">https://goo.gl/rf7Z3s</a>.<br /><br />He isn't. </span><br />
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">Here's the real deal. Right now in DC, Congressional Republicans are working to <i>increase the income</i> of the average American family of four by $1,100 by reducing federal income taxes.<br /><br />This past session Senator Kelly's Alaska Senate Republicans voted to <i>decrease the income</i> of that exact same family of four in Alaska by more than $4,000 by taxing (what some refer to euphemistically as "cutting") the PFD by over 50%.<br /><br /><i><b>Its that simple. R's in DC are working to <u>increase</u> the income of the average family of four. In Alaska, the Alaska Senate R's are working to <u>decrease</u> the income of the same family by roughly four times more.</b></i></span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">The Senate's approach also has negative effects beyond the family of four. According to <i>unrefuted</i> economic studies from last year by the University of Alaska Anchorage's Institute of Social and Economic Research, taxing the PFD at such a level: </span></div>
<div>
<span style="font-size: large;"></span><br />
<ul><span style="font-size: large;">
<li>“Has the largest adverse impact on the economy [of all the new revenue options] per dollar of revenues raised,” <a href="https://goo.gl/ZxR1Hw">https://goo.gl/ZxR1Hw</a> at A-15;</li>
</span></ul>
<span style="font-size: large;">
</span>
<br />
<ul><span style="font-size: large;">
<li>Is “by far the costliest measure for Alaska families,” <a href="https://goo.gl/ivf9D2">https://goo.gl/ivf9D2</a> at 1; and</li>
</span></ul>
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</span>
<br />
<ul><span style="font-size: large;">
<li>“[W]ill likely increase the number of Alaskans below the poverty line by 12–15,000 (2% of Alaskans),”<a href="https://goo.gl/iuTjv2">https://goo.gl/iuTjv2</a> at 14.It doesn't have to be this way. </li>
</span></ul>
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</span>
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<span style="font-size: large;"><span style="font-size: large;">Let that sink in for a moment.<br /><br />The headline analysis of the Alaska Senate's proposal: "Largest adverse impact on the economy." "By far the costliest measure." "Will likely increase the number of Alaskans below the poverty line" by 2% of the population.<br /><br />That is the real "deal" about the Alaska Senate's proposal.</span></span></div>
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<span style="font-size: large;"><span style="font-size: large;"><br /></span></span></div>
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It doesn't have to be this way. As we have explained elsewhere, we believe that with some additional cuts in government spending Alaskans could avoid the need for <i>any</i> so-called new revenues by implementing Governor Hammond's original vision for use of earnings from the PFD, the so-called "Hammond 50/50 plan." <i>See "The Special Session version of “Implementing Governor Hammond’s 50/50 Plan,” </i><a href="https://goo.gl/nE15Eo">https://goo.gl/nE15Eo</a>.</span></div>
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<span style="font-size: large;"><i><br /></i>But even if government can't cut spending enough to avoid raising some new revenues there are other alternatives that spread the burden much more broadly -- and much more fairly -- than the Senate's approach of dumping the resulting revenue burden almost entirely onto the backs of middle and lower income families, with the consequential adverse effect on the overall Alaska economy and Alaska families. </span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-size: large;">The alternative we support and believe is the best option for both the overall economy and Alaska families is a flat tax, the same that already has been adopted in eight other states that have analyzed the issue. <br /><br />Raising the same amount as the Senate proposes through PFD cuts would only require a 2.75% tax on Alaskans rather than, as under the Senate's proposal, a less than 2% tax on those in the upper 20% income level, but a greater than 30% cut on a family of four in the lowest income class. </span><span style="font-size: large;"><i>See "If we have to go there,"</i> <a href="https://goo.gl/58t16s">https://goo.gl/58t16s</a>.</span><span style="font-size: large;"><br /><br />In his piece Senator Kelly argues that the Senate's approach solves the state's fiscal situation "without taxing Alaska’s wage earners."<br /><br />That's simply wrong. The Congressional R's are reducing taxes precisely so that, nationally, average "wage earners" can keep more of their income in their pocket.<br /><br />In Alaska, the Alaska Senate R's are taking the exact opposite approach. <br /><br />For an Alaska family of four that takes home roughly $50,000 before federal tax reform, instead of the $51,100 in take home that the Congressional R's approach would achieve, the Alaska Senate R's proposal will <i>cut </i>the family's income to below $47,100. There are no two ways about it, that is taxing Alaska wage earners.<br /><br />By giving up on cutting government spending further the Alaska Senate R's have put new revenue measures -- taxes -- on the table. The question is do we need to go there and, if so, what is the best way.<br /><br />If we do need new revenues there is a much, much, much better way for both the overall Alaska economy and Alaska families than the Senate's approach.<br /><br />And that is the real deal.</span></div>
Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-40715629550734719792017-10-30T07:11:00.000-08:002017-10-30T08:48:49.870-08:00Notes from the Alaska Fiscal Cliff: A conversation about the role of economic analysis in Alaska fiscal policy<div class="separator" style="clear: both; text-align: center;">
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<span style="font-size: large;">Often, all too often it seems, conversations on social media about fiscal policy descend into personal attacks. While one we had the other day about the role of economic analysis in the development of Alaska fiscal policy bordered at times on going down that path, for the most part it stayed on point.</span><br>
<span style="font-size: large;"><br></span>
<span style="font-size: large;">This particular conversation was notable because it was largely with Daniel McDonald, who, in his day job, serves as Press Secretary to the Alaska (largely Republican) Senate Majority. The Senate Majority has passed legislation the last two years that would permanently cut the Permanent Fund Dividend (PFD) in half, and this past session voted to reduce (i.e., tax) statutory income from the PFD otherwise due Alaskans at a 50% rate rather than cut government spending further.<br><br>Throughout the debate over taxing the PFD some of the strongest arguments against doing so have been the results of some economic analyses done last year by the University of Alaska-Anchorage's Institute of Social and Economic Research ("ISER"), at least in our view the state's best economic think tank.<br><br>In various studies ISER economists have concluded that cutting the PFD:</span><br>
<ul><span style="font-size: large;">
<li>“Has the largest adverse impact on the economy [of all the new revenue options] per dollar of revenues raised,” <a href="https://goo.gl/ZxR1Hw">https://goo.gl/ZxR1Hw</a> at A-15;</li>
</span></ul>
<span style="font-size: large;">
</span>
<ul><span style="font-size: large;">
<li>Is “by far the costliest measure for Alaska families,” <a href="https://goo.gl/ivf9D2">https://goo.gl/ivf9D2</a> at 1; and</li>
</span></ul>
<span style="font-size: large;">
<ul>
<li>“[W]ill likely increase the number of Alaskans below the poverty line by 12–15,000 (2% of Alaskans),”<a href="https://goo.gl/iuTjv2">https://goo.gl/iuTjv2</a> at 14.</li>
</ul>
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Other parts of the studies have been cited often during the state's fiscal policy debates for other findings related to the impact that cuts in government spending would have on jobs.<br>
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But when it comes to the PFD, those advocating reductions have responded to the studies largely with radio silence, at least publicly going out of their way to ignore the analysis and conclusions.<br>
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We have often wondered why that is. While McDonald made clear that he was speaking for himself and on his own time in the discussion, his reaction offers at least some insight into how at least some in Juneau are justifying that approach behind the scenes.<br>
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The irony is that the same arguments he makes below also undercut the portions of the ISER studies that some others, including some members of the Senate Majority, have used to justify maintaining current government spending levels.<br>
<br>
But consistency among those seeking to impose a targeted income tax on PFD income generally has been rare in any event. The discussion with McDonald, for example, started as a branch off of a claim by a former staffer to the House Republican Minority Leader that members of the House Republican Minority consistently had voted earlier this year against "income taxes," overlooking the fact that at least ten of the members did that very thing by voting for substantial reductions (i.e., taxes) on income derived from the PFD when a proposal to do so came over from the Senate.<br>
<br>
For those interested in context, the overall discussion of which the following is a branch starts here, <a href="https://goo.gl/sqRw5j">https://goo.gl/sqRw5j</a>.</div>
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<div aria-label="Comment" class="UFIRow UFIComment _4oep" data-ft="{"tn":"R2"}" id="comment_js_hb" role="article" style="background-color: #f6f7f9; color: #1d2129; font-family: Helvetica, Arial, sans-serif; font-size: 12px; margin: 0px 12px; padding: 4px 0px; position: relative; word-wrap: break-word;">
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<span class=" UFICommentActorAndBody" style="font-family: inherit;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1782537585&extragetparams=%7B%22is_public%22%3Afalse%2C%22hc_location%22%3A%22group%22%2C%22directed_target_id%22%3A%221617128385183698%22%7D" dir="ltr" href="https://www.facebook.com/hans.rodvik?fref=gc&dti=1617128385183698" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: bold; text-decoration-line: none; white-space: nowrap;">Hans Rodvik</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody" style="font-family: inherit;"><span style="font-family: inherit;">Okay let me be very specific here. All House Republican members of the House Republican caucus who were present that day voted against the income tax bill introduced by the Governor. The PFD is a completely separate vote and issue. The 3 Rs who voted for the income tax are not part of the House Republican caucus</span></span></span></span></span></span><span style="font-family: inherit;"></span><br>
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<span class=" UFICommentActorAndBody" style="font-family: inherit;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1244735424&extragetparams=%7B%22is_public%22%3Afalse%2C%22hc_location%22%3A%22group%22%2C%22directed_target_id%22%3A%221617128385183698%22%7D" dir="ltr" href="https://www.facebook.com/bgkeithley?fref=gc&dti=1617128385183698" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: bold; text-decoration-line: none; white-space: nowrap;">Brad Keithley</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody" style="font-family: inherit;"><span style="font-family: inherit;">Hans .. The PFD is a separate issue only to those in the Top 20% that want to wish it so. To those who focus on economic reality, it's precisely the same. Indeed, it's worse. That form of taxation has the largest adverse impact on the overall economy (both jobs and income) of any of the so-called new revenue options, and is "by far" the worst for Alaska families. </span><a class="" dir="ltr" href="https://l.facebook.com/l.php?u=https%3A%2F%2Fgoo.gl%2FBVQ94d&h=ATNofD-zdJYHJ6uNkPi3-UEGgE7zTcBfo0XegWQrzP6wReGVnlrY-dk85yGLXYhslzM_8Fskr7UrYcuFmrc7ECcZvuzY5tK_mMPf-1Cneg3KsPIxA7BGClhuGgl4BQBMV3QdTQDEfA" rel="nofollow noopener" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;" target="_blank">https://goo.gl/BVQ94d</a></span></span></span></span></span><br>
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</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/groups/1617128385183698/permalink/2033492456880620/?comment_id=2034099046819961&reply_comment_id=2034101146819751&comment_tracking=%7B%22tn%22%3A%22R9%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;"><abbr class="livetimestamp" data-shorten="true" data-utime="1509209345" style="border-bottom: none; text-decoration-line: none; text-decoration-style: initial;" title="Saturday, October 28, 2017 at 8:49am">October 28 at 8:49am</abbr></a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a ajaxify="/ajax/edits/browser/comment?comment_token=2033492456880620_2034101146819751" class="uiLinkSubtle" data-hover="tooltip" data-tooltip-content="Show edit history" href="https://www.facebook.com/groups/1617128385183698/?ref=bookmarks#" rel="dialog" role="button" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;" title="Show edit history">Edited</a></span></div>
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</span><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a class="UFIReplyLink _460i" href="https://www.facebook.com/groups/1617128385183698/?ref=bookmarks#" role="button" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;">Reply</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/groups/1617128385183698/permalink/2033492456880620/?comment_id=2034099046819961&reply_comment_id=2034101350153064&comment_tracking=%7B%22tn%22%3A%22R8%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;">October 27 at 7:22pm</a></span></div>
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</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/groups/1617128385183698/permalink/2033492456880620/?comment_id=2034099046819961&reply_comment_id=2034374986792367&comment_tracking=%7B%22tn%22%3A%22R7%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;">October 28 at 8:35am</a></span></div>
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<span class=" UFICommentActorAndBody" style="font-family: inherit;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1509049959&extragetparams=%7B%22is_public%22%3Afalse%2C%22hc_location%22%3A%22group%22%2C%22directed_target_id%22%3A%221617128385183698%22%7D" dir="ltr" href="https://www.facebook.com/daniel.mcdonald.9659?fref=gc&dti=1617128385183698" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: bold; text-decoration-line: none; white-space: nowrap;">Daniel McDonald</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody" style="font-family: inherit;"><span style="font-family: inherit;">It’s not as difficult as you’d think it would be to join the dreaded top 20% of earners in Alaska. A married couple, each individually earning $58k per year, would qualify. The average elementary school teacher is currently making about $70k.</span></span></span></span></span></span><span style="font-family: inherit;"></span><br>
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</span><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a class="UFIReplyLink _460i" href="https://www.facebook.com/groups/1617128385183698/?ref=bookmarks#" role="button" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;">Reply</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/groups/1617128385183698/permalink/2033492456880620/?comment_id=2034099046819961&reply_comment_id=2034375416792324&comment_tracking=%7B%22tn%22%3A%22R6%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;"><abbr class="livetimestamp" data-shorten="true" data-utime="1509208821" style="border-bottom: none; text-decoration-line: none; text-decoration-style: initial;" title="Saturday, October 28, 2017 at 8:40am">October 28 at 8:40am</abbr></a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a ajaxify="/ajax/edits/browser/comment?comment_token=2033492456880620_2034375416792324" class="uiLinkSubtle" data-hover="tooltip" data-tooltip-content="Show edit history" href="https://www.facebook.com/groups/1617128385183698/?ref=bookmarks#" rel="dialog" role="button" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;" title="Show edit history">Edited</a></span></div>
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<span class=" UFICommentActorAndBody" style="font-family: inherit;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1509049959&extragetparams=%7B%22is_public%22%3Afalse%2C%22hc_location%22%3A%22group%22%2C%22directed_target_id%22%3A%221617128385183698%22%7D" dir="ltr" href="https://www.facebook.com/daniel.mcdonald.9659?fref=gc&dti=1617128385183698" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: bold; text-decoration-line: none; white-space: nowrap;">Daniel McDonald</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody" style="font-family: inherit;"><span style="font-family: inherit;">Basically, if you’re married, and both you and your spouse earn a typical wage in Alaska, then you’re in the top 20%.</span></span></span></span></span></span><span style="font-family: inherit;"></span><br>
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</span><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a class="UFIReplyLink _460i" href="https://www.facebook.com/groups/1617128385183698/?ref=bookmarks#" role="button" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;">Reply</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/groups/1617128385183698/permalink/2033492456880620/?comment_id=2034099046819961&reply_comment_id=2034377703458762&comment_tracking=%7B%22tn%22%3A%22R5%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;">October 28 at 8:43am</a></span></div>
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<span class=" UFICommentActorAndBody" style="font-family: inherit;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1244735424&extragetparams=%7B%22is_public%22%3Afalse%2C%22hc_location%22%3A%22group%22%2C%22directed_target_id%22%3A%221617128385183698%22%7D" dir="ltr" href="https://www.facebook.com/bgkeithley?fref=gc&dti=1617128385183698" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: bold; text-decoration-line: none; white-space: nowrap;">Brad Keithley</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody _1n4g" style="font-family: inherit;"><span style="font-family: inherit;"><a class="profileLink" data-hovercard="/ajax/hovercard/hovercard.php?id=1509049959&extragetparams=%7B%22hc_location%22%3A%22group%22%2C%22directed_target_id%22%3A%221617128385183698%22%7D" dir="ltr" href="https://www.facebook.com/daniel.mcdonald.9659?fref=gc&dti=1617128385183698&hc_location=ufi" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;" target="_blank">Daniel</a><span style="font-family: inherit;"> ... OK, now that we have corrected for that we can move on to the substance. What that tells you is that the households covering 80% of Alaska income are below that level. </span><br><br><span style="font-family: inherit;">That should be a significant concern in developing fiscal policy, espec</span></span><span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">ially with respect to those parts of the economy driven by consumer spending. As ISER makes clear, "Lower-income Alaskans typically spend a higher share of their income than higher-income Alaskans do, so more regressive measures will have a larger adverse effect on expenditures." That is why cutting the PFD has the "largest adverse impact on the economy" of all the so-called new revenue options.</span></span></span></span></span></span></span></span><span style="font-family: inherit;"></span><br>
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</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/groups/1617128385183698/permalink/2033492456880620/?comment_id=2034099046819961&reply_comment_id=2034378106792055&comment_tracking=%7B%22tn%22%3A%22R4%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;"><abbr class="livetimestamp" data-shorten="true" data-utime="1509209874" style="border-bottom: none; text-decoration-line: none; text-decoration-style: initial;" title="Saturday, October 28, 2017 at 8:57am">October 28 at 8:57am</abbr></a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a ajaxify="/ajax/edits/browser/comment?comment_token=2033492456880620_2034378106792055" class="uiLinkSubtle" data-hover="tooltip" data-tooltip-content="Show edit history" href="https://www.facebook.com/groups/1617128385183698/?ref=bookmarks#" rel="dialog" role="button" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;" title="Show edit history">Edited</a></span></div>
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<span class=" UFICommentActorAndBody" style="font-family: inherit;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1509049959&extragetparams=%7B%22is_public%22%3Afalse%2C%22hc_location%22%3A%22group%22%2C%22directed_target_id%22%3A%221617128385183698%22%7D" dir="ltr" href="https://www.facebook.com/daniel.mcdonald.9659?fref=gc&dti=1617128385183698" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: bold; text-decoration-line: none; white-space: nowrap;">Daniel McDonald</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody" style="font-family: inherit;"><span style="font-family: inherit;">Short-term consumer spending shouldn’t be the highest priority for a state’s tax policy. Other taxes, like an income tax, have a detrimental effect on saving and investing, things you need if you want economic life in this state. And taxes on earned wages also have the additional problem of acting as a disincentive to work.</span></span></span></span></span></span><span style="font-family: inherit;"></span><br>
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</span><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a class="UFIReplyLink _460i" href="https://www.facebook.com/groups/1617128385183698/?ref=bookmarks#" role="button" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;">Reply</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/groups/1617128385183698/permalink/2033492456880620/?comment_id=2034099046819961&reply_comment_id=2034383900124809&comment_tracking=%7B%22tn%22%3A%22R3%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;">October 28 at 8:58am</a></span></div>
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<span class=" UFICommentActorAndBody" style="font-family: inherit;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1244735424&extragetparams=%7B%22is_public%22%3Afalse%2C%22hc_location%22%3A%22group%22%2C%22directed_target_id%22%3A%221617128385183698%22%7D" dir="ltr" href="https://www.facebook.com/bgkeithley?fref=gc&dti=1617128385183698" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: bold; text-decoration-line: none; white-space: nowrap;">Brad Keithley</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody _1n4g" style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">Hmmm .. most of our large-scale investment comes from out of state sources in the oil industry. So, while I agree that taxes on oil and corporate taxes could significantly affect investment levels, I am highly skeptical of the argument that individual</span></span><span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;"> income taxes would have the same effect. Further to that point, it would be interesting to see a study that identifies how much of the savings and investment done by Alaskans actually stays in Alaska. I have some reason to think its relatively small, which would further detract from an already weakened argument.</span><br><br><span style="font-family: inherit;">And most studies I have looked at show that the 'taxes serve as a disincentive to work' argument is significantly, to the point of being hugely overblown at low tax levels. It had some validity in the days of 90% marginal tax rates (which is why they were changed), but have a very low, approaching trivial effect at low tax rates (such as a 2.5% flat tax, where 97.5% of the next dollar stays in the pocket of the earner).</span><br><br><span style="font-family: inherit;">We have a study on the short term effects. We don't on the long term effects. If we did it might help the analysis; but grounding policy on speculation about what it might show is pretty darned foolish, especially when we do have a concrete study that shows significant adverse effects in the short term.</span></span></span></span></span></span></span></span><span style="font-family: inherit;"></span><br>
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</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/groups/1617128385183698/permalink/2033492456880620/?comment_id=2034099046819961&reply_comment_id=2034391116790754&comment_tracking=%7B%22tn%22%3A%22R2%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;"><abbr class="livetimestamp" data-shorten="true" data-utime="1509211223" style="border-bottom: none; text-decoration-line: none; text-decoration-style: initial;" title="Saturday, October 28, 2017 at 9:20am">October 28 at 9:20am</abbr></a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a ajaxify="/ajax/edits/browser/comment?comment_token=2033492456880620_2034391116790754" class="uiLinkSubtle" data-hover="tooltip" data-tooltip-content="Show edit history" href="https://www.facebook.com/groups/1617128385183698/?ref=bookmarks#" id="js_21q" rel="dialog" role="button" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;" title="Show edit history">Edited</a></span></div>
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<span class=" UFICommentActorAndBody" style="font-family: inherit;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1509049959&extragetparams=%7B%22is_public%22%3Afalse%2C%22hc_location%22%3A%22group%22%2C%22directed_target_id%22%3A%221617128385183698%22%7D" dir="ltr" href="https://www.facebook.com/daniel.mcdonald.9659?fref=gc&dti=1617128385183698" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: bold; text-decoration-line: none; white-space: nowrap;">Daniel McDonald</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody _1n4g" style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">All things being equal, income taxes are a disincentive to work. That’s a simple logical principle accepted in the field of economics. You may be correct in your observation that it doesn’t amount to much at low rates, but it stands nonetheless.</span><br><br><span style="font-family: inherit;">The e</span></span><span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">conomy is extremely complex, which is why your faith in economic studies is misguided. Economic studies take what we think we know about economic history and try to use that information as a guide for the future. Of course, we might be wrong about the past (economists still vigorously disagree about events 100 years ago) and it’s impossible to account for all the variables that affect economic measurements. In other words, there’s nothing “concrete” about economic studies.</span></span></span></span></span></span></span></span><span style="font-family: inherit;"></span><br>
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<span class=" UFICommentActorAndBody" style="font-family: inherit;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1509049959&extragetparams=%7B%22is_public%22%3Afalse%2C%22hc_location%22%3A%22group%22%2C%22directed_target_id%22%3A%221617128385183698%22%7D" dir="ltr" href="https://www.facebook.com/daniel.mcdonald.9659?fref=gc&dti=1617128385183698" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: bold; text-decoration-line: none; white-space: nowrap;">Daniel McDonald</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody" style="font-family: inherit;"><span style="font-family: inherit;">Policy makers have more in their decision making toolbox than economic studies, however. They have philosophy and common sense. It doesn’t intuitively make sense — in terms of fairness and common sense — to many wage earning Alaskans to first go for someone’s hard-earned cash before you reduce the annual dividend payout when times are tough.</span></span></span></span></span></span><span style="font-family: inherit;"></span><br>
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</span><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a class="UFIReplyLink _460i" href="https://www.facebook.com/groups/1617128385183698/?ref=bookmarks#" role="button" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;">Reply</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/groups/1617128385183698/permalink/2033492456880620/?comment_id=2034099046819961&reply_comment_id=2034406016789264&comment_tracking=%7B%22tn%22%3A%22R%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;">October 28 at 9:51am</a></span></div>
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<span class=" UFICommentActorAndBody" style="font-family: inherit;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1244735424&extragetparams=%7B%22is_public%22%3Afalse%2C%22hc_location%22%3A%22group%22%2C%22directed_target_id%22%3A%221617128385183698%22%7D" dir="ltr" href="https://www.facebook.com/bgkeithley?fref=gc&dti=1617128385183698" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: bold; text-decoration-line: none; white-space: nowrap;">Brad Keithley</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody" style="font-family: inherit;"><a class="profileLink" data-hovercard="/ajax/hovercard/hovercard.php?id=1509049959&extragetparams=%7B%22hc_location%22%3A%22group%22%2C%22directed_target_id%22%3A%221617128385183698%22%7D" dir="ltr" href="https://www.facebook.com/daniel.mcdonald.9659?fref=gc&dti=1617128385183698&hc_location=ufi" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;" target="_blank">Daniel</a><span style="font-family: inherit;"> ... Ahh yes, the classic 'we are comfortable flying blind based on highly generalized concepts that may or may not apply to Alaska, even if we are in the middle of a recession and the analysis we do have shows that we are making it worse" defense. I have heard it from some of your members before and have been similarly unimpressed.</span></span></span></span></span></span><span style="font-family: inherit;"></span><br>
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</span><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a class="UFIReplyLink _460i" href="https://www.facebook.com/groups/1617128385183698/?ref=bookmarks#" role="button" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;">Reply</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/groups/1617128385183698/permalink/2033492456880620/?comment_id=2034099046819961&reply_comment_id=2034408960122303&comment_tracking=%7B%22tn%22%3A%22R%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;">October 28 at 10:00am</a></span></div>
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<span class=" UFICommentActorAndBody" style="font-family: inherit;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1509049959&extragetparams=%7B%22is_public%22%3Afalse%2C%22hc_location%22%3A%22group%22%2C%22directed_target_id%22%3A%221617128385183698%22%7D" dir="ltr" href="https://www.facebook.com/daniel.mcdonald.9659?fref=gc&dti=1617128385183698" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: bold; text-decoration-line: none; white-space: nowrap;">Daniel McDonald</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody" style="font-family: inherit;"><span style="font-family: inherit;">I would imagine your straw men are unimpressive.</span></span></span></span></span></span><span style="font-family: inherit;"></span><br>
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</span><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a class="UFIReplyLink _460i" href="https://www.facebook.com/groups/1617128385183698/?ref=bookmarks#" role="button" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;">Reply</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/groups/1617128385183698/permalink/2033492456880620/?comment_id=2034099046819961&reply_comment_id=2034410986788767&comment_tracking=%7B%22tn%22%3A%22R%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;">October 28 at 10:06am</a></span></div>
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<span class=" UFICommentActorAndBody" style="font-family: inherit;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1244735424&extragetparams=%7B%22is_public%22%3Afalse%2C%22hc_location%22%3A%22group%22%2C%22directed_target_id%22%3A%221617128385183698%22%7D" dir="ltr" href="https://www.facebook.com/bgkeithley?fref=gc&dti=1617128385183698" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: bold; text-decoration-line: none; white-space: nowrap;">Brad Keithley</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody" style="font-family: inherit;"><a class="profileLink" data-hovercard="/ajax/hovercard/hovercard.php?id=1509049959&extragetparams=%7B%22hc_location%22%3A%22group%22%2C%22directed_target_id%22%3A%221617128385183698%22%7D" dir="ltr" href="https://www.facebook.com/daniel.mcdonald.9659?fref=gc&dti=1617128385183698&hc_location=ufi" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;" target="_blank">Daniel</a><span style="font-family: inherit;"> .. Hmmm, I have heard it directly from your Majority Leader's mouth while sitting in his office being lectured. Is he ... made of straw??</span></span></span></span></span></span><span style="font-family: inherit;"></span><br>
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</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/groups/1617128385183698/permalink/2033492456880620/?comment_id=2034099046819961&reply_comment_id=2034411346788731&comment_tracking=%7B%22tn%22%3A%22R%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;"><abbr class="livetimestamp" data-shorten="true" data-utime="1509214123" style="border-bottom: none; text-decoration-line: none; text-decoration-style: initial;" title="Saturday, October 28, 2017 at 10:08am">October 28 at 10:08am</abbr></a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a ajaxify="/ajax/edits/browser/comment?comment_token=2033492456880620_2034411346788731" class="uiLinkSubtle" data-hover="tooltip" data-tooltip-content="Show edit history" href="https://www.facebook.com/groups/1617128385183698/?ref=bookmarks#" rel="dialog" role="button" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;" title="Show edit history">Edited</a></span></div>
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</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/groups/1617128385183698/permalink/2033492456880620/?comment_id=2034099046819961&reply_comment_id=2034424590120740&comment_tracking=%7B%22tn%22%3A%22R%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;">October 28 at 10:38am</a></span></div>
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<span class=" UFICommentActorAndBody" style="font-family: inherit;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1509049959&extragetparams=%7B%22is_public%22%3Afalse%2C%22hc_location%22%3A%22group%22%2C%22directed_target_id%22%3A%221617128385183698%22%7D" dir="ltr" href="https://www.facebook.com/daniel.mcdonald.9659?fref=gc&dti=1617128385183698" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: bold; text-decoration-line: none; white-space: nowrap;">Daniel McDonald</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody _1n4g" style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">Yours is not the dispassionate, technocratic perspective you style it to be. You too are very much guilty of what you accuse policy makers of. That is, your analysis is colored by certain general political principles, specifically, your commitment to s</span></span><span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">tate-directed income equality. You believe the state ought to take from higher income earners and redistribute their resources to those at the bottom, as a matter of good policy. </span><br><br><span style="font-family: inherit;">By the way, all the economic studies used in Alaska are based on historical data taken from outside Alaska with certain speculative assumptions about human behavior plugged in. And so your criticism about generalized concepts that “may or may not apply to Alaska” is built into the models you take as gospel truth.</span></span></span></span></span></span></span></span><span style="font-family: inherit;"></span><br>
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</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/groups/1617128385183698/permalink/2033492456880620/?comment_id=2034099046819961&reply_comment_id=2034432636786602&comment_tracking=%7B%22tn%22%3A%22R%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;"><abbr class="livetimestamp" data-shorten="true" data-utime="1509218117" style="border-bottom: none; text-decoration-line: none; text-decoration-style: initial;" title="Saturday, October 28, 2017 at 11:15am">October 28 at 11:15am</abbr></a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a ajaxify="/ajax/edits/browser/comment?comment_token=2033492456880620_2034432636786602" class="uiLinkSubtle" data-hover="tooltip" data-tooltip-content="Show edit history" href="https://www.facebook.com/groups/1617128385183698/?ref=bookmarks#" rel="dialog" role="button" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;" title="Show edit history">Edited</a></span></div>
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<span class=" UFICommentActorAndBody" style="font-family: inherit;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1509049959&extragetparams=%7B%22is_public%22%3Afalse%2C%22hc_location%22%3A%22group%22%2C%22directed_target_id%22%3A%221617128385183698%22%7D" dir="ltr" href="https://www.facebook.com/daniel.mcdonald.9659?fref=gc&dti=1617128385183698" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: bold; text-decoration-line: none; white-space: nowrap;">Daniel McDonald</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody" style="font-family: inherit;"><span style="font-family: inherit;">For example, the 2016 ISER study relied on the IMPLAN input-output modeling system. The model itself maintains certain speculative assumptions about human behavior and the multiplier effect. If those assumptions are wrong, then so are the conclusions. And those assumptions are based on data compiled largely outside of Alaska.</span></span></span></span></span></span><span style="font-family: inherit;"></span><br>
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</span><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a class="UFIReplyLink _460i" href="https://www.facebook.com/groups/1617128385183698/?ref=bookmarks#" role="button" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;">Reply</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/groups/1617128385183698/permalink/2033492456880620/?comment_id=2034099046819961&reply_comment_id=2034436110119588&comment_tracking=%7B%22tn%22%3A%22R%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;">October 28 at 11:19am</a></span></div>
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<span class=" UFICommentActorAndBody" style="font-family: inherit;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1509049959&extragetparams=%7B%22is_public%22%3Afalse%2C%22hc_location%22%3A%22group%22%2C%22directed_target_id%22%3A%221617128385183698%22%7D" dir="ltr" href="https://www.facebook.com/daniel.mcdonald.9659?fref=gc&dti=1617128385183698" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: bold; text-decoration-line: none; white-space: nowrap;">Daniel McDonald</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody" style="font-family: inherit;"><span style="font-family: inherit;">Oh and, of course, there’s no way to verify the accuracy of the IMPLAN model after the fact, because its advocates can always say, “the variables changed.”</span></span></span></span></span></span><span style="font-family: inherit;"></span><br>
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</span><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a class="UFIReplyLink _460i" href="https://www.facebook.com/groups/1617128385183698/?ref=bookmarks#" role="button" style="color: #365899; cursor: pointer; font-family: inherit; text-decoration-line: none;">Reply</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/groups/1617128385183698/permalink/2033492456880620/?comment_id=2034099046819961&reply_comment_id=2034436716786194&comment_tracking=%7B%22tn%22%3A%22R%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;"><abbr class="livetimestamp" data-shorten="true" data-utime="1509218521" style="border-bottom: none; text-decoration-line: none; text-decoration-style: initial;" title="Saturday, October 28, 2017 at 11:22am">October 28 at 11:22am</abbr></a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a ajaxify="/ajax/edits/browser/comment?comment_token=2033492456880620_2034436716786194" class="uiLinkSubtle" data-hover="tooltip" data-tooltip-content="Show edit history" href="https://www.facebook.com/groups/1617128385183698/?ref=bookmarks#" id="js_2en" rel="dialog" role="button" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;" title="Show edit history">Edited</a></span></div>
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<span class=" UFICommentActorAndBody" style="font-family: inherit;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1244735424&extragetparams=%7B%22is_public%22%3Afalse%2C%22hc_location%22%3A%22group%22%2C%22directed_target_id%22%3A%221617128385183698%22%7D" dir="ltr" href="https://www.facebook.com/bgkeithley?fref=gc&dti=1617128385183698" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: bold; text-decoration-line: none; white-space: nowrap;">Brad Keithley</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody _1n4g" style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">Sigh. One of your members must have thought you hadn't gone far enough. I am glad you have the spare time on a Saturday to satisfy them. As for me, I am headed off to other things after I finish this.</span><br><br><span style="font-family: inherit;">For whatever it's worth to whoever is bothering t</span></span><span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">o read down this far my analysis is colored by two things. First, a significant amount of respect for the thought process of those who came before (e.g., Governor Hammond, Former Senate Presidents Clem Tillion & Rick Halford, Nobel Economic Laureates Vernon Smith & Milton Friedman) and the solutions they put -- and which still remain -- in place. They thought deeply about the issues we are confronting today, had a great deal of foresight about how to deal with them in the Alaska context and, fortunately for us, wrote about them extensively. Their solutions are well thought out and persuasive. My posts are to explain why.</span><br><br><span style="font-family: inherit;">Second, a desire to AVOID government action making income disparity -- and the substantial economic consequences that flow from it, such as an overall loss in jobs and incomes -- worse (in other words, the exact opposite of your claim). Unlike the PFD cut on the one hand, and a progressive income tax on the other, my suggestion of a flat tax to raise any needed "new revenue" beyond Hammond's 50/50 plan treats all Alaskans equally and, by using the broadest possible tax base, as minimally as possible. In my view, using government power to benefit one income class over another, as the PFD cut or progressive income tax would do, just leads to greater and greater distortions in the overall economy. It also leads to pushback in other areas (e.g., oil taxes) as those adversely affected look for other ways to balance out the effect. In my view government, particularly local and regional governments, should not be involved in picking economic winners and losers. Those favoring PFD cuts to raise new revenues are as guilty of that to one extreme as those advocating a progressive income tax are to the other. My posts are to explain why that is wrong.</span><br><br><span style="font-family: inherit;">As for your analysis of the flaws in the ISER studies, I have a short answer. Produce something else. If the Senate R's really believe the ISER analyses are misleading, sponsor another. It's not like you haven't had the time and resources to do it. Criticizing it while not producing anything other than unanalyzed generalities in response reminds me often of the mantra of the old "Know Nothing" movement. I use the analyses because they enable us to look at these issues with some rigor. If your members believe they are inaccurate, produce something that they believe is and then we can compare and analyze the results. Until then, at least to me, data driven analysis trumps "know nothing-ism".</span><br><br><span style="font-family: inherit;">In the meantime, have a great day. It's a Saturday; use it.</span></span></span></span></span></span></span></span><span style="font-family: inherit;"></span><br>
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<span class=" UFICommentActorAndBody" style="font-family: inherit;"><span class="" style="font-family: inherit;"><a class=" UFICommentActorName" data-ft="{"tn":";"}" data-hovercard="/ajax/hovercard/hovercard.php?id=1509049959&extragetparams=%7B%22is_public%22%3Afalse%2C%22hc_location%22%3A%22group%22%2C%22directed_target_id%22%3A%221617128385183698%22%7D" dir="ltr" href="https://www.facebook.com/daniel.mcdonald.9659?fref=gc&dti=1617128385183698" style="color: #365899; cursor: pointer; font-family: inherit; font-weight: bold; text-decoration-line: none; white-space: nowrap;">Daniel McDonald</a></span> <span style="font-family: inherit;"><span style="font-family: inherit;"><span data-ft="{"tn":"K"}" style="font-family: inherit;"><span class="UFICommentBody _1n4g" style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;">These opinions are my own, which is why I don’t comment during work hours. I have a personal interest in public policy. </span><br><br><span style="font-family: inherit;">On economic studies, the fact that your response to my skepticism of the efficacy of speculative economic studies is that we ought</span></span><span style="font-family: inherit;"><span style="font-family: inherit;"><span style="font-family: inherit;"> to produce more speculative economic studies shows that you didn’t bother to read or don’t understand my critique, which is rooted in the ‘fatal conceit’ idea developed by economist Friedrich Hayek about the distribution of knowledge and the complexity of the economy. </span><br><br><span style="font-family: inherit;">You’re drawing upon speculative models dressed up as science — which they are not — and mischaracterizing anyone who finds that method inherently flawed as peddling “know nothing-ism.” It’s circular reasoning in defense of a technocratic philosophy, hermetically sealed off from any outside criticism. </span><br><br><span style="font-family: inherit;">Example:</span><br><br><span style="font-family: inherit;">Person A: “How can we know if that method of knowing is reliable if it’s based on assumptions that may not be true, with results we can’t even verify?” </span><br><br><span style="font-family: inherit;">Person B: “Well if you don’t like it then produce your own study based on assumptions that may not be true with unverifiable results!”</span></span></span></span></span></span></span></span><span style="font-family: inherit;"></span><br>
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</a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><span style="font-family: inherit;"><a class="uiLinkSubtle" data-ft="{"tn":"N"}" data-testid="ufi_comment_timestamp" href="https://www.facebook.com/groups/1617128385183698/permalink/2033492456880620/?comment_id=2034099046819961&reply_comment_id=2034461300117069&comment_tracking=%7B%22tn%22%3A%22R%22%7D" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;"><abbr class="livetimestamp" data-shorten="true" data-utime="1509225385" style="border-bottom: none; text-decoration-line: none; text-decoration-style: initial;" title="Saturday, October 28, 2017 at 1:16pm">October 28 at 1:16pm</abbr></a><span aria-hidden="true" role="presentation" style="font-family: inherit;"> · </span><a ajaxify="/ajax/edits/browser/comment?comment_token=2033492456880620_2034461300117069" class="uiLinkSubtle" data-hover="tooltip" data-tooltip-content="Show edit history" href="https://www.facebook.com/groups/1617128385183698/?ref=bookmarks#" id="js_2sc" rel="dialog" role="button" style="color: #90949c; cursor: pointer; font-family: inherit; text-decoration-line: none;" title="Show edit history">Edited</a></span></div>
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Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0tag:blogger.com,1999:blog-4049746277843090578.post-78969261193252157842017-10-29T14:39:00.001-08:002017-10-30T11:17:38.600-08:00Notes from the Alaska Fiscal Cliff: What the heck is going on with Permanent Fund earnings<div class="separator" style="clear: both; text-align: center;">
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<span style="font-size: large;">Last Wednesday the Department of Revenue published a "Preliminary Fall 2017 Revenue Forecast," <a href="http://bit.ly/2z2Chbt">http://bit.ly/2z2Chbt</a> ("<i>Forecast</i>") </span><span style="font-size: large;">in conjunction with the start of this year's fifth Special Legislative Session</span><span style="font-size: large;">. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">The </span><span style="font-size: large;"><i>Forecast </i></span><span style="font-size: large;">is a ten-year forward look at the state's revenue picture.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Most news outlets reporting on the <i>Forecast</i> focused on the increase in oil production -- and associated revenue -- levels reflected in the analysis.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">But as we discussed briefly the day following the release during a stint as guest host on the <i>Tom Anderson Show</i> there appears to be a much more important change buried in the detail. <i>See </i>"<i>Why the Administration’s revised 2017 Revenue Forecast calls into question the need for PFD cuts (or any other so-called “new revenue”), </i><a href="http://bit.ly/2iJ0yNW">http://bit.ly/2iJ0yNW</a>.</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">The change is in the level of annual projected earnings from the Permanent Fund. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">While the <i>Forecast </i>projects a small net increase of $38 million (or 3%) in unrestricted general fund ("UGF") FY 2018 oil revenues from the earlier Spring forecast, </span><span style="font-size: large;"><a href="http://bit.ly/2zPvlM4">http://bit.ly/2zPvlM4</a>, <i><b>it projects a whopping $1.1 billion (or 33%) increase in realized Permanent Fund earnings from the earlier Spring book</b></i>. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">To be clear, that's not a year on year increase. That's an increase merely between what was projected for FY 2018 for that category of revenue in the Spring book and is now included in the Preliminary Fall <i>Forecast.</i><br /><br />As we said during our <i>Tom Anderson Show </i>segment and later when we posted the podcast, we believe that update is a potential game changer in the way that the Administration and Legislature should be looking at the need for <i>any </i>new revenue sources during the current (FY 2018) year.<br /><br />Moreover, we believe that potential game changer applies to future years as well. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Over the last couple of days we have had the opportunity to take a deeper dive into the <i>Forecast, </i>and to compare it with both the earlier Spring book and previous Permanent Fund Corporation projections. The results are in the chart below. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">It is clear that something significant changed between the forecast published by the Permanent Fund Corporation for August of this year and that published for September. We have circled the numbers reported respectively in the earlier Fall 2016, Spring 2017 and most recent Preliminary Fall 2017 <i>Forecast </i>below.<br /><br />And whatever it is that has caused the change in outlook has changed the Corporation's -- and with that, the Administration's -- outlook for earnings beyond FY 2018 as well.</span><br />
<span style="font-size: large;"><br /></span>
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://2.bp.blogspot.com/-obdyH_vmtgM/WfY9s_iA1wI/AAAAAAAAPGI/-kEHETNS-Ak6HDcihAH3vS1EHCJyhLXegCLcBGAs/s1600/Analysis%2Bof%2BPreliminary%2BFall%2B2017%2BRevenue%2BForecast.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="764" data-original-width="1600" height="304" src="https://2.bp.blogspot.com/-obdyH_vmtgM/WfY9s_iA1wI/AAAAAAAAPGI/-kEHETNS-Ak6HDcihAH3vS1EHCJyhLXegCLcBGAs/s640/Analysis%2Bof%2BPreliminary%2BFall%2B2017%2BRevenue%2BForecast.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Right click on chart to increase size in a separate tab.</td></tr>
</tbody></table>
<span style="font-size: large;">The Permanent Fund is now projected not only to generate an <i>additional</i> $1.1 billion in earnings in the current fiscal year, but also a fairly consistent $500 million more in subsequent fiscal years over the levels supplied to the Legislature during the previous sessions this year.<br /><br />Simply put, if the Permanent Fund is projected to generate those, significantly higher earnings levels both currently and going forward, we believe the already weak rationale for cutting the PFD both currently and going forward is substantially diminished further, if not eliminated entirely. </span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">We will have more to say about this in the coming week, including during our weekly segment on <i>The Michael Dukes Show </i>this coming Tuesday. <br /><br />For now, we just want those who think about these issues to start focusing on the level and potential significance of the changed projections.</span>Brad Keithleyhttp://www.blogger.com/profile/06726982340371142762noreply@blogger.com0