Notes from the Alaska Fiscal Cliff: The Lt. Governor is misleading Alaskans

(Note: With this commentary we are beginning a new series about Alaska's current fiscal situation on national website, Medium. Titled "Notes from the Alaska Fiscal Cliff" the series intended to reach a broader, national audience about Alaska's evolving fiscal condition. The commentaries will be published on our Medium page, here. For those that follow this page, we intend to continue publishing the pieces here as well.)

Let’s be clear. The Lt. Governor of this state is misleading Alaskans.

In his speech to last week’s annual convention of the Alaska Federation of Natives and subsequent op-ed in the Alaska Dispatch News the Lt. Governor claimed that the reduction in state spending has caused Alaska’s current recession (“state spending is so minimal that we are now in a recession”). See “Do-nothing legislative leaders threaten to make Alaska no more than a colony,” https://goo.gl/c2wzLX

That is simply not true. The decline in oil prices and relatively low production levels (compared to the last 4 decades) is what has caused Alaska’s current recession.

One of the consequences of that has been reduced government spending levels (actually, a pop in the bubble of unsustainable spending which characterized the early part of the decade). That, in turn, has affected some parts of the economy tied to government spending, but that isn’t the cause of the recession, at most it’s a consequence.

What is true, but went unsaid in both the Lt. Governor’s speech and op-ed, is that Alaska’s government has made the overall recession worse than it otherwise needs to be.

According to the unrefuted 2016 analyses by the University of Alaska-Anchorage’s Institute of Social and Economic Research (ISER), cutting Alaska’s Permanent Fund Dividend (PFD) has the “largest adverse impact on the economy” (both on jobs and income) and is “by far the costliest measure for Alaska families” of all the various “new revenue” options. See “Short-Run Economic Impacts of Alaska Fiscal Options,” https://goo.gl/ZxR1Hw, and “How Much Might Closing the State Budget Gap Cost Alaska Families?,” https://goo.gl/ivf9D2.

Those are the direct quotes: “largest” and “costliest.”

There are no contrary analyses; none. There hasn’t even been a substantive rebuttal of the point.

Yet, despite the fact that the state is already in a recession, that (cutting the PFD in order to maintain continued government spending) is precisely the fiscal policy that, to varying degrees, the Governor, Senate and House all have pursued.

There are some beneficiaries of that policy. Some parts of the economy tied closely to government spending levels have been maintained, and the Top 20% of Alaskans by income have dodged paying a significant share of the resulting costs.

But those have come at the disproportionate expense of the Remaining 80% of Alaskans and, even more importantly, at the cost of imposing a larger adverse impact on the overall economy and Alaska families.

Put simply, the Governor, Senate & House have prioritized the government sector over the overall economy, and the Top 20% of Alaskans over the Remaining 80%.

The Administration’s proposed payroll tax, its latest proposed “solution,” would only make that situation worse. See “Why the Governor’s newest proposal is still bad,” https://goo.gl/RFdBEX.

If we need to go there, there is a way to raise “new revenues” that treat both all Alaska families fairly and, by spreading the revenue base broadly, the overall economy gently. See “Finding the Alaska fiscal ‘center’,” https://goo.gl/AxBaHK.

But to reach that point requires that Alaska’s leaders to be open & honest about the causes of the state’s condition and the effect of their proposed cures.

The Lt. Governor’s remarks are anything but.