A fiscal foundation for Alaska’s future

I want to thank Gov. Mike Dunleavy for proposing a balanced budget and bringing the public focus to the importance of spending current revenues on current costs of government services, as opposed to using the state’s savings, which have largely been depleted over the last four-plus years.

I do have a number of concerns with the governor’s proposals that include the following: the magnitude of the cuts to education, health and human services and transportation; the job losses that are projected to flow from these cuts, which are estimated at between 7,000 and 17,000, as compared to the approximate 13,000 jobs lost during the past four years; the level of uncertainty injected into our economy as a result of these proposals that has had a chilling effect on investment; and the out-migration of working-age men and women from Alaska that will only increase with these proposals.

Despite the challenges of our current state budget issues, I believe in a brighter future for Alaska. An important part of that future is a long term sustainable fiscal plan for our state. A major component of that plan is consistent, predictable funding for government, which the Legislature put in place last year with the passage of Senate Bill 26. As a result, an earnings stream of $2.7 billion to $3 billion from the Permanent Fund is now available to fund government. The Permanent Fund is now managed like an endowment, where a set percentage of its principal is paid out each year from its earnings reserves. In the current case, that amount is 5.25% of the five-year average balance of the Permanent Fund, which results in that $2.7 billion to $3 billion amount that is available to fund dividend payments and government services.

The governor proposes to use $1.9 billion of the Permanent Fund’s earnings to pay a $3,000 dividend to all eligible Alaskans. In addition, the governor is proposing $1.6 billion in cuts to government services in order to provide for a balanced budget. As an alternative, I would offer the following. First, decrease the proposed dividend from $3,000 to approximately $1,000, which would provide room for more moderate decreases in the proposed budget of $300 to $400 million as opposed to $1.6 billion. Second, as a longer-term solution, enact a broad-based tax on individual Alaskans and non-residents working in our state. Previous proposals for a personal income tax have ranged from $300 to $700 million, with an average of around $500 million available for another consistent, long-term source of funding for government. Third, Alaska should have a more meaningful, impactful capital budget that is two to three times the current $150-$200 million level to address systemic deferred maintenance on aging buildings and infrastructure throughout our state. We need to be making investments in infrastructure and education that form the foundation for future economic growth. Fourth, we should enact a spending cap to ensure that we do not absorb our revenue sources with unsustainable increases in the cost of government services. We must live within our means and, just as importantly, provide a framework that welcomes investment and gives confidence to investors that we have the ability and the processes in place to sustain ourselves into the future.

[A love letter to Alaska]

We have a bright future ahead of us. We are blessed to live in a state of unmatched beauty with a clean environment that is the envy of many and a worldwide attraction. We have vast untapped natural resources that can provide future wealth for our state as they are developed in a prudent, environmentally sound manner. We have financial resources that give our state a unique economic foundation unmatched by any other state in our nation. By implementing a long-term sustainable plan to utilize these natural and financial resources, Alaska can continue to prosper into the future.

Joe Schierhorn is the chairman, president and CEO of Northrim Bank, an Alaska financial institution that has always advocated for a balanced, sustainable state budget.

The views expressed here are the writer’s and are not necessarily endorsed by the Anchorage Daily News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)adn.com. Send submissions shorter than 200 words to letters@adn.com or click here to submit via any web browser. Read our full guidelines for letters and commentaries here.