Governor’s budget gives the Legislature the fiscal reins

By any measure, Gov. Mike Dunleavy’s budget announcement was a surprise. A far cry from the last budget year’s shock-and-awe presentation of hundreds of millions of dollars in cuts to state services, this year the governor proposed what was essentially the status quo. No major cuts to departmental budgets, no talk of the two-year budget-balancing approach he championed only a few months ago. The sole remaining budget item that reflected Gov. Dunleavy’s campaign plan: a full Permanent Fund dividend under the 1982 formula, plus a $1,400 back payment intended to roughly equal the additional amount that would have been paid this year if the original PFD calculation had been followed. What a difference a year — or even a few months — makes.

Politically minded Alaskans have been quick to ascribe motives to the governor’s budget turnabout. Is Gov. Dunleavy throwing his hands up after last year’s backlash against his cuts and vetoes? Is he moderating his approach in an election year? Is he letting the Legislature play the “bad guy” by putting forth a deficit-heavy plan and letting legislators decide what level of spending is sustainable?

Whichever view is correct, one thing is clear: The mantle of budget leadership has been handed to the Legislature, and its members have a chance to show Alaskans they deserve to keep it. Legislators spent much of the 2019 regular session on their heels, seeking to understand the rationale behind the governor’s steep cuts and adding back funds as demanded by their constituents. Handed a flat budget this year, the Legislature can and should spend its time on longer-range plans for restoring Alaska’s fiscal stability.

When considering how best to deal with the budget, this year and for the years to come, one thing should be clear to the Legislature: Spending more than $2 billion per year out of Alaska’s fast-dwindling savings on the PFD is an unsustainable path. It’s more than the entirety of Alaska’s expected oil revenue for the coming year. And even if bullish predictions for North Slope oil fields under development bear out, that will remain true for the foreseeable future.

Like it or not, investment income — Permanent Fund earnings, in other words — are now Alaska’s largest, most stable revenue stream and will remain so if we budget wisely. That means making the hard decision to alter the PFD formula to allow for a smaller, more sustainable payment to Alaskans while also providing for core state services. There’s no question that this will be a difficult decision, particularly in an election year, as the governor, a minority of legislators and their constituents have said adherence to the 1982 PFD formula is non-negotiable. But leadership is about doing what’s necessary, not just what’s popular. And there’s no question about the necessity of a more modest, sustainable PFD: Only days ago, credit agency Fitch warned that Gov. Dunleavy’s proposal to enshrine the old PFD formula into the Alaska Constitution, "if enacted, could weaken the state’s budgetary operating flexibility and negatively affect Alaska’s (credit rating).”

However, Alaskans are likely to be suspicious of cuts to the PFD if there’s no guarantee that the government won’t simply soak up the excess money in times of plenty. And they’re right to be skeptical; for decades, the roller coaster price of oil has given Alaska a boom-and-bust economy, and lawmakers have been quick to spend windfalls. What’s more, even statutory language intended to control spending is no concrete legal barrier. As House Majority Leader Bryce Edgmon told the Alaska Chamber at its annual meeting on Oct. 29, “in the eyes of the Legislature, as we’ve seen, you can put things in state statute and the Legislature can just walk right past it, because the ultimate authority is the constitution.” The sensible move is a constitutional spending cap that will keep lawmakers from frittering away too much public money, with flexibility to provide for true disasters or emergencies but not run wild.

This two-pronged approach — a sustainable, smaller dividend that will provide a steady revenue source for services and a constitutional budget cap that will keep the Legislature and governor from spending too freely — is not only a good compromise between the governor’s plan and that of legislative leadership, it is also a pair of strong steps toward a sensible fiscal solution that lawmakers have not yet had the courage to enact. The Legislature must put the dysfunction of the last session behind them and quickly get to work; there’s no time to waste.