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Legislature Week One: Hard Work Ahead;
Waterlogged Clothes All Week.
The Legislative Session started Tuesday. As far as I can tell, I have two major jobs right now. They are to:
I don’t want to be a downer at the outset. But we are facing the biggest budget deficit in state history. It’s easy to say we have to cut government waste, and Alaska does. A governor is in the unique position of telling his commissioners (who are under his command--not the legislature’s) that they need to cut waste, cut programs that provide little benefit, and leave non-priority megaprojects either off the table or for a day when we can afford them.
Though you should realize that today, on a per capita basis, Alaska’s budget is lower in inflation-adjusted dollars than it was three decades ago. Still, we have to act.
Today’s deficit is in large part due to a freefall in oil prices and continued production decline--despite advertising claims that production declines stopped under the Governor’s oil tax rollback, SB 21. There’s also the aspect of the new oil tax law that allows all post 2002-oil fields to pay a negative tax (companies like Exxon at Pt. Thomson can deduct and take state-paid tax credits that exceed the amount they pay in production taxes) Another part says that those fields, even if prices are high, get Alaska a negative or near zero Net Present Value. I personally think these provisions are irresponsible.
We tried to solve the latter with proposed legislation that we thought was smarter than SB 21 [link to sponsor statement to HB 338], but for now that is water under the bridge and an oil production tax that produced NEGATIVE state revenue last year is what we have.
I believe this situation needs to be fixed or we are destined to remain on a pathway to state poverty – and a self-imposed inability to provide quality education, opportunity, and a well-trained workforce to build this economy.
It’s not an option to cut off your nose to spite your face. And it’s not an option to fail to treat our seniors, and those with severe difficulties with dignity.
So, how do we deal the state’s challenges without speeding through what was, two years ago $17 billion in savings built under our former oil tax law, and high oil prices?
It’s not easy. Anyone who says it is either doesn’t understand the gravity of a deficit that is 60% the size of our $6.2 billion operating budget to run schools, public safety, child abuse prevention, job training and the university, and the health care for Alaskans with severe health conditions.
You could cut the operating budget by 60%, but wiping out $3.5 billion of a $6.2 billion state budget would result in the decimation of these core functions, and thousands of fired government and private sector workers, who’d stop shopping at local businesses, and begin an exodus from Alaska that would also likely cause a housing crash. Oh, and if you fired every state employee – every social worker who helps foster youth, every Alaska State Trooper, you’d save…only $1.4 billion in General Funds. That is, cutting the budget requires more rocket science than I think they’re using at the state-owned rocket launch business that’s been draining state funds since 2011.
Here’s what I hope is a better solution – or the beginnings of one as we work with the Governor.
Apart from looking for waste, duplicative services and programs that are no longer needed, there’s more to consider.
Not too many people believe the drop in oil prices, from $110 a barrel a year ago to less than $50 today – the major driver in our deficit – will last – but it may.
Maybe most importantly – we HAVE TO put unnecessary, duplicative, and perhaps unwise half-billion and multi-billion dollar MEGAPROJECTS to the side so we can afford our most important one – a large diameter gas pipeline that can bring us needed jobs, natural gas that we can create a manufacturing industry with, affordable energy, and export revenue.
What About Those $17 billion in Duplicative Rail belt Power Projects?
Alaska has, in my view, unwisely spent over $300 million studying a massive dam project on the Susitna River, which is estimated to ultimately cost you over $5.7 billion. It would serve the same exact people as the large diameter Gas Pipeline we are working to begin, which will produce enough power for Alaskans and revenue from natural gas that we export.
Then there’s the $9.5 to $11.5 billion “small gasline” that is so inefficiently sized that it will produce expensive natural gas, and so small it will produce almost no export revenue for Alaska. We don’t need two gaslines, or to spend on planning on two gaslines when a larger one will produce cheaper natural gas and revenue for Alaskans. So let’s stop spending on that duo of projects and save the hundreds of millions in planning money for this $17 billion worth of non-priority projects.
Money-Losing State Rocket Business; $1.7 - $2 Billion Knik Bridge?
When you’re in a hole, stop digging. Alaska has lost $60 million in the last 5 years on running the state-owned Kodiak rocket launch facility. In the last five years, they have only launched two rockets- the second of which caught fire and significantly damaged the facility. It may be time to sell the facility if it really has worth, and it is time to stop buying into the annual promises that the rocket launch has figured out a new way to make the business work. Five years of hollow promises are too many for me.
The Legislature passed $900 million in financing for a $1.7 - $2 billion Knik Bridge that folks don’t realize will increase, not decrease the commute time to Palmer and Wasilla. No one has said where we will get the next $800 million to $1 billion to pay for the roads to connect the bridge to Big Lake, improve the road to Wasilla, and pay for an approach from Ingra and Gambell Streets, which are part of the plan. Or the uncalculated funds needed to ease traffic in Anchorage where these cars would offload. Whether you support this bridge or not, we can’t afford it today. The first $900 million in financing would be a $300 million federal loan we’d have to pay off, with $300 million more in federal highway funds we receive, and normally put towards other road projects. And then another $300 million in state funds- more if the state wants the road and maintenance work done that we’d use the diverted $300 in federal funds for.
That’s a start.
We have work to do.
And I am not naïve enough to dismiss that in an unprecedented budget atmosphere, you might have some great ideas to help. So, share thoughts you’d like us to consider!
As always, let us know if we can help.