With the Legislature in overtime, the budget challenge comes down to this: Will the state use earnings of the Permanent Fund to help pay its bills in an off-the-cuff fashion or create a plan?
Leave aside the arguments about getting someone else to pay more or take less — the oil companies, rich people, poor people, state employees, teachers, dividend recipients, etc. — the size of the budget gap has put us in this position.
Barring a miracle recovery in oil prices, the fiscal year that starts in July will be the last in which the Constitutional Budget Reserve contains enough money to cover our bills. That savings account is dwindling faster than anyone expected a couple of years ago, rapidly heading toward zero.
After that, Permanent Fund earnings will be next.
Without a doubling of oil prices, the Legislature will have no choice a year from now but to use a few billion dollars of Permanent Fund earnings to cover state expenses. Budget cuts alone will not solve our problem. Neither will new and/or higher taxes.
Many politicians are afraid to admit this, for fear of angering the electorate. The problem is that failing to develop a plan this year will mean more limited options a year from now and an angrier electorate.
It is a powerful political custom that Permanent Fund earnings are regarded as untouchable for general government expenses. This is a habit that the state cannot afford to continue, but it seems we need a 12-step program to admit that our situation is unmanageable.
The earnings of the Permanent Fund — not the oil companies and not the royalty oil owned by the state — are the largest source of state revenue. That is likely to be true over the long term.
Recognizing this reality will not end Alaska's reign as the low-tax champion of the nation, but it will create a more stable financial foundation for state and local government.
Too many of our elected officials have taken the approach that if they avoid directly addressing Permanent Fund earnings this year, they will be better able to survive the next election. They should try looking 12 months ahead.
Foresight has never been our strong suit in Alaska, but next year is not the far-off future. In 2017, the state will not have the luxury of ignoring Permanent Fund earnings.
The sensible course is to create a formula for using some of those earnings instead of waiting and withdrawing whatever is needed next year and every year thereafter to fill the budget gap.
Gov. Bill Walker and some Republican legislative leaders, including Sens. Anna MacKinnon and Lesil McGuire, Rep. Steve Thompson and others, have offered reasonable plans for an orderly withdrawal of Permanent Fund earnings and the continuation of a dividend at a reduced level.
The advantage of adopting a structure with rules is that it would prevent the earnings reserve from being used in the final hours of the legislative session as an all-purpose checking account.
Critics are fond of saying that rules adopted by one group of legislators can be overturned by those who follow. What they don't say is that the creation of a system would establish guiding principles that legislators of the future are more likely to follow than ignore.
Those who object to enacting a formal structure this year are increasing the chances that the earnings reserve will be emptied to pay for government services within a few years, which would end the dividend program by default.
The risk exists because the constitutional amendment that set up the Permanent Fund requires that the principal be placed in income-producing investments and cannot be appropriated for general government expenses.
Politicians who are not thinking beyond the 2016 elections may not see it, but delaying a decision until 2017 will increase the political and financial pressure on the Permanent Fund earnings reserve, putting its future at risk.
Voters have short memories about some things, but this won't be one of them. Wait until 2017 to deal with this question and incumbents will have to explain why they failed to adopt a plan in 2016.
Dermot Cole is a Fairbanks-based columnist for the Alaska Dispatch News. One of his daughters is a deputy press secretary to Gov. Bill Walker. The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com.