Dealing with the Alaska budget ...

Some conversations are more interesting than others. For those interested in a conversation about the Alaska budget process with someone very knowledgeable about how it works, click on the comment box at the bottom of the following -- the icon that looks like a cartoon dialogue cutout -- and follow along.

Post by Brad Keithley.

Things worth repeating ...

Despite all of the social media tools available on the market these days, I haven't been able to figure out whether people who read these pages -- here or the main blog -- also read the others where I post shorter pieces -- the Facebook pages (here, here or here) or the Linked-in pages (here and here).  For those that do, you probably can skip over this.

For those that don't, however, I want to emphasize something I think is significant on the Alaska political scene.

Each year since 2010 following the end of a given Legislature's two-year term (and in the run-up to the next election) a group of three business trade associations and one advocacy group have published a "report card" on the Legislature and in the last two editions, the Governor.  This year's edition is here.

Understandably given the focus of the groups, the Report Card usually has a Republican bias, grading most R's significantly higher than most D's and in most year's giving the leadership of the R-wing of each legislative body relatively high marks.

But that has changed this year in a significant way.  In an effort to drive home a point that many legislators are ignoring, this year the Report Card has dropped the individual grades of both Senate and House leadership for failing to come to grips with the state's increasingly difficult fiscal outlook.

House.  The ... blemish on 28th Legislature’s House Majority was unsustainable unrestricted general fund spending. The positive trend in reversing the growth of spending is acknowledged, as is the difficulty of reducing spending, however the State’s fiscal cliff looms large. As a result, the House Majority leadership’s grades (Speaker, Majority Leader, co-chairs of Finance and Rules chair) were downgraded.

Senate.   ... as with the House Majority and the Governor, the Senate Majority allowed unsustainable unrestricted general fund spending. The positive trend in reversing the growth of spending is acknowledged, as is the difficulty of reducing spending, however the State’s fiscal cliff looms large. As a result, the grades of the members of the Senate leadership team (President, Majority Leader, and the co-chairs of Finance and Rules chair) were downgraded.

The marks given the Governor are similarly reduced.

... Governor Parnell has been far less successful in trimming the size of state government and reducing its unsustainable unrestricted general fund spending. The positive trend in reversing the growth of spending is acknowledged, as is the difficulty of reducing spending, however the State’s fiscal cliff looms large. Alaska needs more leadership from the Governor on this very important strategic issue. We hope he will step up to that need with some significant vetoes in the FY2015 operating and capital budgets, together with a clear message explaining the need for them. Last year, the Governor allowed a bloated FY 2014 budget to go into effect with no vetoes.

The warning lights clearly are flashing from those in the private sector who see these things coming first.  The legislature and Governor should be paying attention.  At least in one race, those words are going to be repeated often, and my guess is, with effect.

Two things unsaid, one that was during my debate on SB 21 with Vic Fischer ...

Two Saturdays ago (May 3) I had the privilege of debating Vote Yes on 1 Chairman -- and Alaska senior statesman -- Vic Fischer before this year's Leadership Anchorage cohort about the upcoming referendum on SB 21.  It was an honor to share the podium with Vic.

The debate was notable from my perspective because of two things that weren't said, and one that was while Vic was making the case for repealing SB 21.  

The first thing left unsaid, for the first time in any debate about SB 21 in which I have participated or listened, was any reference to a so-called "$2 billion giveaway" which supposedly has resulted from the passage of SB 21.  While a central theme in previous debates -- including my previous debate with Dr. Stephen Haycox -- it simply didn't come up in this one.

As most of readers of these pages will know, the supposed "$2 billion giveaway" is taken from the drop in forecasted state oil revenues for FY 2014 between the revenue outlooks published in the fall of 2012 and 2013, the ones immediately prior to and following the passage of SB 21.  However, on  May 1, two days before Saturday's debate, Dr. Scott Goldsmith of the University of Alaska - Anchorage's Institute of Social and Economic Research (ISER) released a report that concluded after detailed analysis only "[a]bout 4% of the $2.1 billion drop in the fall oil revenue forecast for 2014 is due to the new tax."  Four percent of $2 billion is $80 million, not $2 billion.  

And as Dr. Goldsmith's report goes on to explain, that essentially is a down payment on achieving a larger payday for the state.  Another conclusion of the report,

The tax change, combined with a modest increase in new production, would produce higher revenues under a reasonable range of assumptions about oil prices and production costs. New investment would drive up tax deductible costs in the short run—reducing production taxes—but that loss would be more than offset in later years by additional production tax and royalty revenues from new production, even at a lower average tax rate.

 In short, Dr. Goldsmith's report effectively busts the myth of the supposed "$2 billion [or even $80 million, as some subsequently tried to argue] giveaway."  Hopefully the absence of the discussion at the Leadership Anchorage debate is a sign that we have moved on from that point and can focus on the future, not the past.

The second thing left unsaid at the debate was any mention of a "guarantee."  Again as most readers of these pages will know, that has been a major talking point in the past among those urging the repeal of SB 21.  The argument has been the state should agree to lower the tax rates provided under ACES only if the producers provide "guarantees" about future levels of investment.

The problem with that argument, however, is that the state is unwilling -- and some even argue unable -- to make the same guarantee regarding future tax rates.  As a result, investors rightfully are concerned about the potential for a bait and switch, where they make the significant front end investments required to expand their development efforts, and then the state changes the tax structure again to capture the resulting benefits just as the investors are expecting to realize the profits on which those investments were based.

Demanding "guarantees" in such a one-sided circumstance doesn't work.  As they do in the remainder of the world where the government reserves the right to change policy midstream, investors understandably expect to reserve the right to factor the potential for future changes in government take into their ongoing investment decisions and pursue alternative options if they offer better potential returns.  Demanding one-sided "guarantees" about investment decisions simply means no investment.

It was good to learn that perhaps we have moved on from that issue as well.

The thing that was said that I had not expected was Vic's statement that the proponents of the referendum are not seeking to return the state's tax structure to ACES.  Instead, Vic's vision is that the repeal will result in returning the issue to the legislature, which will then readdress the issue and come up with a "better, more fair" tax plan.

I am more than a little perplexed by this argument.  If the goal is simply to change the tax law to a third option -- something that is not ACES and not SB 21 -- then why are we going through the referendum?

Like any tax code, SB 21 is not set in stone and can be changed by a subsequent legislature.  If the proponents are dissatisfied with the law as it is -- and also as it would be if the referendum succeeded -- why not simply focus on changing the law in the next session to what they want it to be rather than going through the intervening step of reverting back to ACES, an approach that apparently, now, no one favors.

Vic's answer basically is that the referendum is still important as a means of "sending a message" and hitting a reset button on tax reform that, hopefully in his view, will produce a "better" result next time.  (I must admit for a moment while he spoke to having a vision dancing through my head of a roulette wheel, producing an infinite number of different -- and unpredictable -- results.)

But doing so runs several risks.

First, starting over creates the potential that the state will be unable to reach consensus on a replacement, as happened during the 27th (2010-2012) Legislature, with the effect that ACES, which apparently both proponents and opponents of the referendum now agree doesn't work, will remain in effect indefinitely, leading to a renewed stagnation in productive investment for yet another series of years.

Second, it creates the risk to proponents that the state will be no better off from their perspective at the conclusion of their efforts than it was at the beginning.  Unlike initiatives -- the passage of positive law by public vote -- there is no prohibition in the Constitution on a subsequent legislature immediately reenacting most, or even all, of a law repealed by referendum.  If the proponents truly want to move to a third option, then the appropriate way to do that would be to put that third option on the ballot as an initiative.  Under the Constitution (Art. 11, Sec. 6), the resulting law would stay on the books for at least two years.

Third, in an increasingly dynamic investment world, starting over creates the potential that at least some investors will just give up on Alaska, concluding that the political risks of achieving long term stability in the state are just too great and that, given the divide that exists -- and much more importantly, the fiscal cliff that is fast approaching -- any tax regime is likely to be short-lived and unlikely to survive long enough to justify the type of long-term investments Alaska requires to develop its already economically-challenged resource base.

In short, I simply don't understand why we are going down this road if even the proponents no longer believe in the law that would result from their success.

But, as I said at the outset, it was an honor to share the podium with Vic.  Unlike in some debates there was no vote taken at the end, so there is no way of measuring the impact on the audience.  Jack Roderick, a Yes on 1 proponent and someone, though we disagree about this effort, I hugely respect and who was at both, said at the end I was "more slick" this time than during the debate Steve Haycox.  But maybe he simply meant that this time, unlike last, I avoided spilling water over all my papers mid-debate.

For those that follow these things, as in the previous debate I used a one-page handout to help illustrate my points as we talked.  The handout is available here.

UAA descending ...

Two college roommates -- who happen to be on the women's basketball team -- develop hard feelings toward each other.  In a massive invasion of privacy, one inappropriately reads the other's phone, finds a text message she can twist, and tells another on the team in an effort to damage her roommate as part of their fight.  It happens that the message she decides to twist is from a coach, and it happens also that the teammate she tells has an ax to grind against the coach.

The teammate starts her own rumors, in this version emphasizing the coach (of course, by this time the actual twisted text message has long since disappeared).  The University hears about it, investigates, finds nothing, case closed.  Variations on the theme happen twenty, maybe thirty times a season in the college basketball world.

Except at UAA.  Fired, former Athletic Director Steve Cobb has an ax to grind against UAA.  He badly wants to restore a tattered reputation (and in a make believe world, sue UAA), but is having trouble getting anyone -- anyone -- to believe that he was wrongly treated, or coming up with a theory where UAA is at fault.  So, like the "disgruntled player" he now relies upon -- and attempting to ride on the coattails of news coverage from a recently completed NCAA investigation which he had hoped would somehow restore his reputation (by proving everyone else is wrong), but doesn't -- Cobb picks up the same story and turns it into a fairy tale, two years after the fact, where he tried to stand up to UAA and "do the right thing," but was thwarted by a conspiracy that included "statewide legal."

In a world where timing is everything, Cobb takes his story to the local newspaper, which just this week has been acquired by an entity and publisher seeking to establish a reputation for "hard-hitting" investigative journalism, and makes his pitch.  Despite not having any corroboration of Cobb's allegations -- none, other than Cobb's own self-congratulatory statements where, as Gomer Pyle used to say "surprise, surprise, surprise," he comes out the hero -- the paper publishes the story, complete initially with a false, misleading but sensationalizing headline.

(The original headline, which headed the story throughout most of the critical, first 24-hour news cycle and part of which remains as the url for the online version, was "Former UAA athletic director says ousted coach ..."  Of course, it was the athletic director that was ousted; the coach resigned to get away from a department that even then was descending from one of Dante's levels to the next.  So the truthful headline -- "Ousted and discredited athletic director (with an ax to grind) says former coach ..." -- ends up on the cutting room floor.)

And where is UAA, the one that conducted the investigation and the one that allowed Cobb to stay on even as his department descended into hell, until, of course, he finally completely broke down and called the University President "mentally ill"?  Well UAA, hiding behind a professed desire to protect students -- but really seeking to protect disclosure of how truly dysfunctional it has become -- offers some lame excuse about why it doesn't want to get involved, other than, of course, selectively to deny any allegations made directly against it.  (That seems to be the only time UAA acts these days.  Who cares what happens to anyone else.)

So, in a real, deadly version of the "telephone game," a fight that started between two, then teen-age girls in a rented apartment in East Anchorage, ends up two years later splashing across the headlines of the newly acquired Anchorage Daily News as something else entirely.

With all due respect, this never would have happened when Fran Ulmer was Chancellor of UAA.  She would have sat down, bashed heads, held people accountable -- and Steve Cobb would have been long gone before it ever got this far.  But she wasn't there, Cobb was, the Daily News is now in sensationalized headline mode and ... well, there you have it.  The current state of life in the 49th state.

UAA| Two words reveal a lot to potential donors, and the message is run away ...

Friday was an interesting day.  The NCAA finally released its report on the investigation of UAA's women's basketball program that began nearly two years ago.  I was familiar with one aspect; the second less so.

The results of the investigation?  First, as reported by the Anchorage Daily News, the NCAA found that a former coach at one point "used his own money to help cover housing costs for two players" when he discovered that financial support he had promised to the players and their families would not be forthcoming from the University.  A violation, yes; but the honorable thing to do under the circumstances, absolutely yes.

The second, again quoting the ADN, was that a booster -- that would be me -- committed a "minor, or secondary, violation [by providing] ... transportation, meals and entertainment to players during an East Coast road trip in 2011."

I have previously described the "transportation [and] meals."  The "entertainment" apparently refers to the tour of Thomas Jefferson's home, Monticello, I arranged during the time the team was in Charlottesville to play the University of Virginia.  I have been to Monticello often and the word "entertainment" has never come to mind -- "educational," "inspiring" and "uplifting" are the words I most often associate with the experience and the reason I took the occasion to provide the same opportunity to the team and coaches while they were in town -- but I suppose the NCAA prefers its own classifications.

I have written extensively on this experience with the NCAA and the University elsewhere on these pages -- for example, here ("UAA, the NCAA and me ..."), here ("UAA Athletics remain badly broken, and why fixing it is important ...") and here (" UAA, its Kangaroo Court and the Board of Regents ...") -- and I don't intend to rehash that ground again.

But the NCAA's final report contains two key words that the NCAA itself thought important to add and which reveal a lot about UAA to potential donors.

The report is available here.  The description of my involvement is at p. 5 (Section V.); the penalty assessed for that involvement is discussed at p. 8-9 (Section VI.8).  The two key words appear at the end of the first sentence in the penalty section.  I have included them in bold here:

The institution has disassociated the [booster], stating that it will 'decline all assistance and prohibit all athletics benefits and privileges.' (Institution imposed)

By inserting the words "Institution imposed," the NCAA made clear it is distancing itself from the penalty, intentionally hi-liting that it is entirely UAA's doing, not its.  Under NCAA precedent, such a "secondary" violation (Section I., p. 1) does not carry such a penalty.  The NCAA is making clear that this case is not changing that precedent.

Instead, as I discussed in a previous note, this is a "punishment" that UAA has made up entirely on its own.

But why.  That's the important story, and why it resonates beyond just this situation.

At some point during the investigation I came to understand that Steve Cobb, the Athletic Director at the time the investigation began and someone with whom I always had a rocky relationship, described me to the NCAA as a "high maintenance" booster.  I chuckled.  That appeared to be a good thing when everything was going fine -- and when Cobb asked me, and I agreed, to contribute $50,000 to the University's Legacy Fund.

In a feature article on UAA's website which appeared, ironically enough, six months after the now-offending Virginia trip and which mentions that trip repeatedly in glowing terms, UAA had this to say:

Keithley is a champion-level supporter of Seawolf athletics and you can find his name on the Seawolf Legacy Wall, which honors donors in the Wells Fargo Sports Complex. Better still, you can find the man himself at as many home and away games as his busy work schedule will allow. ... He was excited to meet up with UAA’s women’s basketball team on his other home turf in Washington, D.C. early in their season [during which] the team met Alaska’s congressional delegation and received a personal tour of the State Capitol from Sen. Lisa Murkowski.

But that "high maintenance" thing evidently took a turn for the worse when I, as people who make significant investments in things regularly do, expressed concerns early in the summer of 2012 as the UAA program -- in which I was heavily invested and actively promoting to others -- started seriously going off the rails.

First, UAA announced what I and others came to call the "Great Alaska Ticket Spree," then, much more darkly, hired without outside involvement a person with a very troubling past to become the women's basketball coach, and then to make matters even worse, refused to provide releases to the women in the program as they sought to flee the resulting chaos after the new coach imploded, severely (and unfairly) altering the trajectory of some of their careers.

By heavily investing in and promoting a program to others, most investors anticipate that they have earned the right, and indeed accepted the responsibility, to offer thoughts on how to get a program back on track when it starts going wrong.  The University of Alaska's own Donor's Bill of Rights appears to contemplate the same thing.  At least that's the way other institutions interpret their versions of the document.

Potential future investors in UAA should understand, however, that UAA appears strongly to disagree.

UAA's version of acceptable conduct appears to be to give them money and allow yourself to be promoted as an example to others, period.  Once you start expressing differing opinions from theirs about the program, they will feel free to start making up their own, "Institution imposed" rules  in response.  In short, UAA wants only passive investors, willing to go along quietly with whatever misadventures its programs pursue.  Donors shouldn't worry about exercising any rights ... because they don't have any.

Those who follow basketball will know what I mean when I say that sort of approach doesn't work well for Mark Cuban.  It also doesn't work well for me, and I anticipate, numerous others.

For me, I'm done dealing with this.  After reading the NCAA report, which confirmed my worst suspicions about what UAA had been up to behind closed doors, I advised UAA on Friday afternoon that I was terminating any further support to the University -- whether related to the Athletics Department or otherwise -- and asked them to terminate any further charges to the credit card I had on file with them.

For the first time during their "investigation" UAA complied with its "Donor's Bill of Rights."  In a three sentence reply which left out the part about thanking me for past donations and support, they said they would.  While they struggle at attracting and maintaining investors, apparently at least they become efficient when terminating those relationships.

So, I'm done, but what does this mean going forward to potential future investors.  As I said in the statement I prepared in response to questions I received about the NCAA report:

I would strongly warn current and future donors against contributing to the University until some significant changes are made at the top of the University and in the Athletic Department ... including a firm commitment by the leadership actually to observe the principles of their own Donor's Bill of Rights. ... In all of the years that I have contributed to higher education, which now spans four decades, I have never before regretted the financial and other support I have given to an institution, but today I do. "

In short, want to expose yourself to having your name dragged through the mud and being associated with a program going badly wrong without the right to comment on it, give to UAA.  Want to invest someplace which actually values its donors and doesn't make up new ("Institution imposed") rules as it goes along, look elsewhere.

Read more here: http://www.adn.com/2014/05/02/3452930/former-uaa-womens-coach-made-payments.html?sp=/99/474/480/3530/#storylink=cpy

#AKbudget| SMH ... Governor, Governor

Having a group of Generation Y friends pays off in many ways, including keeping me current on the latest in urban slang.  I have long since bookmarked the "Urban Dictionary" to use as a translator when emailing (so old school), instant messaging (more Generation X, except when on Facebook and then acceptable to Generation Y) or texting (now we are in Generation Y's wheelhouse) with my friends in that group.

Amazingly, it appears, I have even started to think in those terms.  Thus it is when I saw the latest tweet (also a Generation Y thing) from Governor Parnell claiming "Reducing Debt and Controlling Spending" as part of his "2014 Legislative Accomplishments," that my immediate reaction was to think "SMH."  For those of you that don't have your Urban Dictionary (UD) cued up, "SMH" stands for "shaking my head" and, according to the UD, is "[u]sually used when someone finds something so stupid, no words can do it justice."

Actually as it turns out, not even the Governor is willing to back up the claim.  When you click on the link in the tweet to the underlying press release and start parsing through the words, "Reducing Debt" turns into "paying down Alaska's unfunded pension liability," which is not actually debt but more an accounting classification, and "Controlling Spending," turns into "reducing spending by $1.1 billion," true-ish on the surface (this year's spending level is $6.19 billion compared with last year's $7.2 billion), but a level which, because of declining revenues, still leaves the state budget this coming year in deficit to the tune of $1.65 billion, the second highest in the state's history. 

In other words, put into proper context the results of this legislative session are to "controlling spending" as killing one mosquito (I was outside in Anchorage yesterday, "they're back") is to dealing with an oncoming swarm.  Yep, you are going to have one less bite -- out of the hundred or so you are about to endure.  But do any of us really claim victory for having stopped the one?  Exactly, SMH.

This is going to be a long, long ... excruciatingly long coming campaign if the Governor isn't even starting it off by telling Alaskans the truth.

The truth?  Properly accounting for what went on with the PERS/TRS payment, the 28th Legislature this session reduced (spent away, blew another hole in) Alaska's fiscal reserves -- those this generation effectively is holding in trust for Generations X, Y, Z and all those that follow -- by another 10% and combined with its actions the previous session, has now spent away fully 35% (or more than $6 billion) of the fiscal reserves that existed on the state's books at the time they walked in the door.

The truth?  Effectively what is going on is this generation of Alaskans is spending away money it holds in trust for future generations in order to make this generation's life a little more comfortable (and the contractors benefitting from the continually high capital budgets a little more profitable), but at the expense of leaving future generations with a substantially reduced standard of living.

Oddly enough, back in the day I came to my political awareness at the same time as the so-called "Children's Crusade" led by then 52-year old Minnesota Senator Eugene McCarthy (he seemed older than that at the time).  In a different way, that battle was about one generation writing checks that the following generations were having to cash.  And, in a different way, that battle started largely because the older generation failed to tell the truth about what was going on so that everyone could confront it together.

Sadly enough, that is now what is going on here -- this generation of Alaska leaders are writing checks that future generations are going to be required to cash, and then are lying about what they are doing.

This generation of Alaskans easily could enjoy life on what the University of Alaska-Anchorage's Institute of Social and Economic Research (ISER) has calculated to be a "sustainable budget" level.  If they did, future generations would enjoy the same.

But this generation apparently isn't satisfied with what economists refer to as "intergenerational equity" -- instead it is taking more than its fair share, leaving future generations of Alaskans with less and less.

So, as with the Children's Crusade of the 1968 Presidential Campaign, increasingly it appears that it may be becoming time for a Fiscal Crusade in Alaska.  If those currently in the lead are unwilling to confront reality, it may be time for new leadership to emerge.

As I said at the start ... SMH.

#AKbudget| Now I know how Joe Wilson felt ...

Click here for video.

Let me make very clear at the outset of this short piece, I don't condone what Rep. Joe Wilson did on that evening in September 2009. Wilson, as you will recall, is the South Carolina Republican who shouted "you lie" as President Obama talked about immigration reform before an assembled Joint Congress. It was disrespectful, inappropriate and ill-conceived.

But this morning I realized what must have come over Joe Wilson when he did what he did, and why there is a chance I might have done the same thing this morning if I had heard the following statement being uttered on the Alaska Senate floor while I was in the gallery.  This is from Senator Lesil McGuire's end-of-session newsletter circulated earlier today:

It is with great pleasure that I write to fill you in about all the accomplishments of the 28th Legislature. We set out with four major goals: improving education; making energy more affordable; getting a handle on our budget; and pushing back federal overreach. I am pleased to report that we crossed the finish line with big wins on every one by passing legislation providing comprehensive funding for Education, creating an Alaska LNG Pipeline, a comprehensive corrections reform bill, and a sustainable and responsible budget.

The urge would have been great -- and given how deeply I feel about this issue, probably uncontrollable -- to do a "Joe Wilson" and shout, "you lie."  At the very least, what would have emerged would have been a very audible whisper to the same effect, a head shake and then my face buried in my hands.

As I have explained in great -- some say excruciating -- detail elsewhere, this Governor and the 28th Legislature not only have failed in achieving a sustainable -- and responsible -- budget, in fact they have taken a huge, giant, unthinkably large leap backwards.

During their two year term, this Legislature has passed -- and the Governor signed last year and is likely to sign again this -- spending bills producing the two single largest budget deficits in Alaska's history. In doing so, this Governor and Legislature in one short, two-year term, will have wiped off the books fully 35% of the state's financial reserves that existed the day they came into office.

And cumulatively, they have so badly damaged the "nest egg" that the current generation of Alaskans holds in trust for future generations that the state's future sustainable spending levels now likely have fallen to somewhere in the $4 billion-ish per year range, rather than the mid-$5 billion range that existed when they came into office.

This Governor and Legislature came into office with high expectations and lofty rhetoric about exercising "fiscal responsibility".  They have failed miserably -- let me repeat and be clear, failed miserably -- at the task.

Joe Wilson's words came out of my mouth as I read Sen. McGuire's laughable summation of this Legislature's accomplishments.  I am just glad that I wasn't in the Senate gallery and she wasn't on the Senate floor when she said them.