Brad Keithley

GUEST COMMENTARY: How Alaska can make the most of one more round of federal relief

Congress, over the course of two administrations, has passed relief measures totaling $6 trillion. The most recent, the American Rescue Plan, or ARP, accounts for a third. Individuals, businesses, state and local governments, schools, hospitals, and many others will see benefits from this effort in the months to come. For each tranche of federal relief, there were – and remain – strong arguments for more targeted spending, or at least not financing it only with debt. Ultimately, however, those gave way to political considerations. Because Congress can always add to national debt, the easiest way to address competing claims for need at the federal level is by increasing the size of an aid package. The same flexibility isn’t available at the state level, however, and decisions must become more fine-tuned when the aid reaches state and local governments. Here, let’s focus on what this means for Alaska. First, what’s headed to the state. Overall, Alaska state and local governments already have or will receive roughly $2 billion from prior Congressional action. The ARP directs just over an additional $1 billion directly to state government, plus another $112 million for specified capital projects (broadband, water/sewer, energy). More is headed directly to Alaska’s schools, the University, local governments, businesses, families, and other recipients. Alaska’s 165 cities and boroughs will see $230 million distributed amongst them, over two years. Before we get too excited, the distribution will mean roughly 76 will receive less than they do from Community Assistance. The total is about equal to vetoes these last two years of school bond and port/harbor debt reimbursement, Community Assistance recapitalization, and other important funding. It’s by no means a windfall, but it does help to offset some of the costs of COVID-19 and lost revenues experienced this last year. It hopefully stabilizes the majority of, but not all, local budgets. It does the same, potentially, for the state. Facing a roughly $2 billion revenue shortfall, the aid gives lawmakers options. Now is not the time to come up with a wish list of funding priorities, but Legislative Finance presented a pretty clear picture that the state had reduced its budget about as far as can be done without making significant statutory changes. The Alaska Municipal League has argued that for some things it has gone too far. A first step to consider is to sort through the categories of state spending that are receiving direct federal aid. Schools, the university, local governments, and others are receiving direct aid for specific purposes. There also will be direct appropriations from federal agencies into Alaska’s agencies. Together, those funds can help fill gaps in the amount the state needs to provide, but shouldn’t replace current spending levels or requirements. Most middle and lower income Alaska families, beneficiaries of the PFD, will directly receive $1,400-per-person stimulus checks. After that assessment, and consideration of fund source changes, if any are possible, the next step is to look at this current “base” budget and use the federal funds received by the state to true up what’s remaining to be spent this year at the statutory funding formulas. That means to fully fund the State’s statutory obligations. Essentially, a review of the budget should include filling gaps or targeting programs that need it. Then, if there are funds remaining — and there may not be much — the third step we would recommend is to address the state’s infrastructure deficit, and more specifically the maintenance backlog. These needs fall into three buckets: school construction and major maintenance, university and state deferred maintenance, and transportation projects (road maintenance, rural airports, and coastal infrastructure). In light of the federal aid, lawmakers should reconsider the need for the Alaska Housing Finance Corp., Alaska Industrial Development and Export Authority, and general obligation bond proposals. These don’t necessarily have to be taken off the table permanently, but the better course may be to defer them to a later date in order to better spread out and sustain Alaska’s economic recovery. Totaled up, the scale of federal relief is such that Alaskans can breathe something of a sigh of relief, but we can’t take our eye off the end goal. This federal aid doesn’t solve the challenges that lie ahead. During this legislative session we still need action on new, equitable revenues; a fix to the PFD formula that avoids continued, deep cuts, the most harmful approach to most Alaskans; and other package items that may include a reasonable spending cap. Relief doesn’t come with reduced responsibilities to fix these things now; instead, we should view it as providing a bridge from where we have been to where we are headed. Nils Andreassen is the Executive Director of the Alaska Municipal League. Brad Keithley is the Managing Director of Alaskans for Sustainable Budgets.

GUEST COMMENTARY: Alaskans should be honest with each other

As Alaskans, let’s be honest with each other this election cycle. Under current law, we face a state budget deficit of about $2.3 billion this next fiscal year — the one legislators we elect this November will face when they head to Juneau next January. That’s roughly half of projected spending. Let that sink in. Under current law, next year we are projected to receive only half the revenue we need to cover projected spending. That’s not a temporary situation. According to the Department of Revenue’s Spring 2020 Forecast, it doesn’t get any better the remainder of the decade. And we are facing it without savings. After continuously siphoning from various savings accounts to maintain spending this past decade, the remaining available to the 2021 legislature won’t cover even one-quarter of next year’s deficit. Some suggest we can balance the budget entirely with spending cuts. But again, let’s be honest with each other. Due to the intervening drop in oil prices, even immediately enacting the $600 million in spending cuts Gov. Mike Dunleavy proposed at the beginning of his term in 2019 would cover less than a third of next year’s deficit. Diverting $400 million in local property taxes to the state — another proposal made by the governor in 2019 — would increase that to about 40 percent. Even after enacting both, the state would still face an annual deficit of around $1.3 billion. The legislature wouldn’t pass the governor’s combined $1 billion proposal in 2019. While additional cuts, changes in formula-driven programs and a tightened spending cap are inevitable, it is not being honest with each other to claim that the next legislature will adopt a cuts-led approach nearly two-and-a-half times that amount. Others suggest we balance the budget largely through PFD cuts. Using that approach, however, would effectively eliminate the PFD, at great cost to both most Alaska families and the Alaska economy. Next year’s PFD is projected at $1.9 billion. The deficit is $2.3 billion. Even entirely eliminating the PFD would not cover the deficit. More importantly, relying largely on PFD cuts would cause substantial harm to the 80 percent of Alaska families falling in the state’s middle &lower income income brackets, who would bear a hugely disproportionate share of the burden as a percent of family income. Those in the top 20 percent income bracket would experience a trivial impact and non-residents, nothing. In 2016, the University of Alaska-Anchorage’s Institute of Social &Economic Research warned relying on such a massively imbalanced approach among Alaska families would have the “largest adverse impact on the economy” of the revenue options it considered. In 2017, another ISER report concluded “a cut in PFDs would be by far the costliest measure for Alaska families.” While the top 20 percent push PFD cuts relentlessly and some PFD restructuring is inevitable, especially in these times Alaskans should avoid the very alternative that hurts Alaska families and the Alaska economy most. So, being honest with each other, the reality is the time has come to adopt some additional revenue approaches that are more equitable and have a lower impact on the overall economy — in short, are more balanced — to help close the gap. One such approach is Ballot Measure 1, the oil tax initiative. At current and projected oil prices, however, that only raises about $250 million annually. While that’s a contribution, it only covers a tenth of the deficit. Additional, more personal, broader based revenue measures will be required. Being honest with each other, it will take a significant contribution from all three pieces: spending cuts (along with a tightened spending cap), PFD restructuring and additional sources of revenue to meet the state’s yawning fiscal challenge. In the Office of Management and Budget’s 2019 10-Year Plan, the Dunleavy Administration appropriately referred to that as the “balanced approach.” Listen closely. Those candidates that are being honest with Alaskans this coming cycle will talk about that approach most. Brad Keithley is Managing Director of Alaskans for Sustainable Budgets, a project focused on increasing awareness of key fiscal challenges facing Alaskans at both the state and federal levels, and developing and offering reasoned approaches in response. For more information, go to AKforSB.com.

GUEST COMMENTARY: U.S. needs a plan to address the debt, now

Earlier this month in testimony before the U.S. Senate Intelligence Committee outlining the major national security threats facing the country, former Sen. Dan Coats, currently President Trump’s Director of National Intelligence, said: The failure to address our long-term fiscal situation has increased the national debt to over $20 trillion and growing. This situation is unsustainable … and represents a dire threat to our economic and national security. Last fall in an op-ed piece current U.S. Senator David Perdue, R-Ga., a member of the Armed Services Committee, wrote “The single greatest threat to our national security is our national debt.” Despite these and similar warnings from other current and former government officials, over the last two months Congress has passed, and the President has signed, two bills that substantially increase the national debt even further. Indeed, the federal Office of Management and Budget recently admitted that even with the spending cuts reflected in the President’s most recent budget proposal, national debt is projected to rise from the current year an additional $8.7 Trillion over the next decade and the annual budget will not be back balance even by the end of that period. The nonpartisan Congressional Budget Office is expected to provide an even more dire assessment in the next few weeks. Our national debt as a share of the economy is already almost twice the historic average over the past 50 years, higher than any time in history except World War II. If not brought under control it will stunt investment, slow wage growth, increase interest rates, and pass a massive financial burden onto future generations. To be sure, tackling the national debt requires tough decisions, but it only gets more difficult the longer we wait. As the debt becomes more uncontrollable, it will eventually require both higher tax increases and more severe cuts to spending — both non-military and military — than would have been needed if lawmakers had acted in a timely manner. Letting the current situation fester also reduces the federal government’s capacity to respond to unexpected crises. Before the last recession, debt was only half of what it is today as a share of the economy. The United States was able to endure and ultimately, climb out of that recession by strategically using our debt capacity. But unless we replenish that capacity now, by reducing debt back to prudent levels in the midst of a strong economy, we will not have sufficient capacity remaining to respond to the next, inevitable difficulty without significant adverse consequences. Our aging population, rising health care costs, growing interest costs, and lack of revenue are considerable challenges, but as the nonpartisan and highly regarded Committee for a Responsible Federal Budget has outlined, they are surmountable. The first step involves responsibly addressing our spending levels, at a minimum making sure that we offset any needed increases in some defense and nondefense spending areas with real cuts and reforms elsewhere, necessarily including our current, so-called mandatory spending programs. The second step, efforts to slow the growth of healthcare spending, should follow, making sure that Medicare and Medicaid focus more on value rather than quantity of care. The third step should aim to keep Social Security solvent for future generations through a mix of benefit formula adjustments, new revenues, and other changes such as increasing the retirement age. Any changes made today can be gradual and targeted, giving workers time to plan and adjust while protecting lower-earning seniors. And finally, but inevitably given the size of the task, in the not too distant future we need to revisit the tax code. We must do far more to cut the $1.5 trillion of annual tax breaks in the code — almost none were eliminated in the legislation that just passed. And, to be blunt, fixing the debt will require some new revenues. This country needs a more stable fiscal foundation, not more debt. To address both the nation’s long-term security and our children’s long-term financial well being, lawmakers need to start filling the hole, not digging it deeper. Brad Keithley is Managing Director for Alaskans for Sustainable Budgets.
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