The Legislature is more than halfway into the special session and Alaska still lacks a fiscal plan. We are on the edge of an economic meltdown. The budget passed by the Legislature during its regular session would fund next year's spending solely out of our primary savings account, the Constitutional Budget Reserve.
This would consume more than half of our available savings and the amount remaining would be insufficient to cover the following year's deficit. If this happens the bond-rating agencies will significantly lower Alaska's credit rating making credit harder to get and much more expensive for borrowers all across Alaska, investment in the state will fall precipitously and the Permanent Fund dividend, which everyone defends so passionately, will be gone before 2020.
Alaska is in a recession. Employment is falling, home prices are decreasing, consumer confidence is diminishing and everyone is rightfully worried about the future. If the Legislature adopts a framework for a long term fiscal plan which preserves an adequate amount of savings to transition to our new economic reality, there will be reason to continue investing and the impact of a recession will be minimized.
Without a plan, investment dollars will flee the state, the number of jobs lost will increase by a factor of two or three and the effect of Alaskans all across the state acting to salvage what value they can from their homes and businesses will create an economic avalanche of deepening recession.
It doesn't have to be this way. There is a path forward that will minimize the damage and create an economic framework upon which Alaska can once again build a growing economy. The Senate last week passed Senate Bill 128 which implements an essential component of any comprehensive plan to address Alaska's fiscal challenge by using a portion of earnings from the Permanent Fund to help fill the budget gap. This step alone, without any further action, extends our savings past 2021 and also assures future dividends from the Permanent Fund.
(ICYMI: Senate OKs Permanent Fund bill, saying Alaska needs to reduce dividends to save them)
As Sen. Lyman Hoffman observed during the debate over the SB 128, "People say, 'Don't touch my dividend check,' but if we do nothing, it could be much lower or go away." He is right. If we do nothing now, we will drain our savings to cover our debt and the dividend will end. Under SB 128, the dividend will continue, and our savings will grow. Acting now protects the dividend for generations to come.
SB 128 is now before the House. There are lots of reasons not to like it. Some dislike it because they say we have not yet cut the budget enough. Others dislike it because they feel it is unfair to cut the dividend while we're still paying out cash to oil companies. A number argue it is unreasonable to cut the dividend without simultaneously implementing an income tax. The overwhelming consensus is that passing SB 128 in the absence of other measures is inequitable, but the Legislature cannot reach consensus on any of the "equitable" solutions. If SB 128 does not pass, it will unquestionably be worse for all Alaskans.
Delay compounds the loss of private-sector jobs, suppresses economic activity, and accelerates the decline in property values. These losses will be most immediately and acutely felt by the most economically vulnerable. Treating the dividend as untouchable is not a fair trade for watching the state's economic foundation crumble.
Delay does not kick the can down the road – it sends the economy off a cliff.
Some argue we would be better to wait until the next legislative session and then adopt a "fairer" version of the plan. Many have even outlined what that version should look like, but the costs of delay are enormous. Waiting till next year to adopt a "better" plan would, in the very best case, reduce our overall savings by almost $1.5 billion. Additionally, there is no way to avoid the massive loss of jobs that will arise from reduced investment without a plan this year.
Our Legislature has the opportunity to make one of the most significant decisions in state history. We are close to securing the state's future and providing a stable foundation for prosperity. There will unquestionably be much work left to do in the future. There will still be a $1.5 billion deficit to address and other measure on both the revenue and expense side will be required, but by acting now, we can all continue to enjoy the one thing we have in common, the great state of Alaska.
Ron Duncan, president and CEO of GCI and former Alaska Gov. Tony Knowles are co-chairs of Alaska's Future, a coalition of more than 150 businesses and organizations dedicated to resolving the state's budget deficit and ensuring a stable, growing economy. Other co-chairs are Sophie Mininch, president and CEO of CIRI; Helvi Sandvik, president of NANA Development Corp.; Steve Frank, Fairbanks businessman and former state legislator; and Eleanor Andrews, a longtime civic entrepreneur, owner of a management company and former state commissioner of administration.
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