Senate Finance Committee takes on Alaska's fiscal gap

GRAPHIC/Courtesy Peratrovich, Nottingham & Drage Inc.

Most Alaskans agree that development of a long-range fiscal plan is one of the greatest challenges facing our state. Before considering major new taxes on Alaskans, state government should first be as well run as possible. This means continuing our work for a smaller, smarter state government and government reform to achieve maximum efficiency and fairer spending.

The Senate Finance Committee has developed a package of fiscal reform legislation. This package presents the first step of a new long-range fiscal plan that has the potential of reducing the fiscal gap by more than $12.5 million the first year with reductions increasing to more than $100 million a year within 10 years.

The basis of government in Alaska is our constitution. When we start to create a new financial plan we need to make sure our state constitution is functioning properly. Two parts of our state constitution that deal with fiscal policy are not: the constitutional appropriation limit and the Constitutional Budget Reserve provision.

Ensuring state fiscal discipline

The first step to the Senate Finance Committee’s fiscal plan limits the expansion of government spending through the adoption of Senate Joint Resolution 23, which revises the existing constitutional appropriation limit.

Government spending is limited to about $6 billion; however we only currently spend about $3 billion. The enormous size of the current appropriation limit occurred because the constitutional provision has a built-in escalator clause for inflation and population. To correct this, our most recent version of SJR 23 proposes to base any allowable increases on previous year’s budgets and to limit those increases to 2 percent.

Amending the Constitutional Budget Reserve

The Constitutional Budget Reserve language of the constitution is not working as intended to control spending. The reserve was established in 1990 and has been used to help fill the gap between state revenues and expenditures. The original idea of the CBR was that funds could be withdrawn with a simple majority vote to cover a budget deficit as long as current spending did not exceed the previous year’s spending. However, a three-quarters vote of the Legislature would be necessary to withdraw any funds in excess of the previous year’s spending.

In 1994, the Alaska Supreme Court misinterpreted this provision to require the three-quarters vote to withdraw any funds from the CBR. This creates a situation in which small groups of legislators can "blackmail" the majority and hold the budget hostage. These legislators can trade their votes, which are crucial to withdraw CBR funds and balance the state’s budget, in exchange for additional spending. We estimate the cost this year to access the CBR with the three-quarters majority vote to balance the budget was nearly $150 million.

Senate Joint Resolution 24 corrects this bizarre imbalance of spending power by proposing a constitutional amendment that makes it clear a three-quarters vote is not necessary when spending does not exceed the previous year’s. This would encourage fiscal discipline and make it more difficult to increase state spending.

Pending legislation

In addition to these two measures, there are a number of other proposed bills that further the promise of fiscal discipline. They include:

Senate Bill 180, which would adjust the geographic differential, equalizing state employee salaries across the state. This could potentially save $183,600 per year for the first six years and $312,000 per year thereafter. Senate Bill 181 could provide savings to the state of $500,000 per year by eliminating discriminatory below-market rates from the Alaska Housing Finance Corp.’s Housing Assistance Loan Fund. This fund provides loans to only certain areas of the state and was recommended for elimination by a recent audit because of misuse and the discriminatory nature of the program. Senate Bill 182 encourages accuracy and accountability in the budget process by requiring proration of program benefits, such as welfare, to be paid based on actual funding levels rather than prescribed levels.

Annual savings depend on program funding levels in the budget. Senate Bill 183 adopts a uniform standard for the payment of attorney’s fees for litigants, including public interest litigants. It will bar litigants from collecting huge attorney’s fees for unsuccessful claims. Savings could average $117,100 annually based on current fees paid out annually. Senate Bill 184 provides an opportunity for, but does not require, local governments to contribute to the Village Safe Water Program. If local governments chose to contribute 5 percent of the cost of projects benefiting their area, the state could save as much as $2.7 million per year. Senate Bill 185 revises the formula under which power cost equalization is paid. State expenditures could be reduced by as much as $9 million per year.

Senate Bill 186 would limit a municipality’s allowable bonded indebtedness, or acceptable debt, to $15,000 per municipal resident. This will potentially increase state revenues by more than $100 million per year within 10 years.The response to this package has been very positive. Both proposed constitutional amendments and three of the bills have passed the Senate and have begun hearings in the House. The remaining four bills are progressing through the Senate.These proposals are the first steps of a new multi-year fiscal plan. They are essential cornerstones to any new comprehensive plan and give Alaskans a guarantee of continued state fiscal discipline.

Sen. Dave Donley, R-Anchorage, is co-chairman of the Senate Finance Committee.

11/12/2016 - 11:46pm