My wife and I are about to have our second child and we’re very excited about welcoming our new bundle of joy to this great state of Alaska. However, her forthcoming arrival has caused us to have a lot of discussions lately about our future.
Things to consider: a new house; additional cost of day-care for a second child; funding college; her wedding; more diapers…I could go on. Before diving into anything, we’re planning. We’re looking at our income/savings and analyzing our expenses. We’re prioritizing what we need, and ultimately making hard choices on what we can afford, what we should save for, and what we just have to say “no” to.
The discussions have not always been easy. Even so, we both realize how important it is to have these talks now rather than wait until we’ve amassed piles of things we don’t need, lists of things we need but don’t have money or room for, and all the while accruing large credit card debt.
Has the state of Alaska had a similar conversation with itself? Is our fiscal house in order? Governor Palin’s revenue and budget chiefs recently indicated a budget deficit will likely materialize by 2010 under current oil projections. Let’s not wait until then to have these hard discussions.
We too need to analyze our income, our savings, and our expenses. RDC has had, as its top priority over the years, asked for our elected officials to develop a fiscal plan.
RDC has advocated for a three-pronged approach to the development of such a plan:
- Spending restraint
- Implement a broad-based tax
- Support establishment of Percent of Market Value (POMV) as a means of distribution from the Permanent Fund. A portion of these funds should be used to help fund state government.
Let’s take a look at the last year from an income perspective. We Alaskans will be getting over $1 billion more from the oil industry this year thanks to the new tax recently put in place. Even so, oil production in Alaska is declining by over 6% per year. Fortunately, higher oil prices have saved us while oil has declined from a peak of over 2 million barrels per day in 1989 to under 800,000 barrels today. Will the gasline be next to save us? Who knows.
We have implemented a $50 per person head tax on the cruise industry. Mining receipts to the state are at an all-time high thanks to increased commodity prices. And all the while, individual Alaskans are not paying a penny via a broad-based tax to help fund state government. We are the only state in the union that doesn’t have either a state income or state sales tax. It’s hard to hold your legislators accountable for what they spend when you are not personally impacted. It’s also hard to encourage new companies to invest in Alaska if they very well may be the next ones in line to pay increased taxes. Meanwhile, federal appropriations are declining as more money is dedicated to the war effort. This trend will likely continue.
And then there’s the Permanent Fund. Our savings account has just surpassed the $40 billion threshold. The dividends paid from this savings account to all Alaskans have become an entitlement and in fact, the first question people ask of someone running for office is, “Will you touch my Permanent Fund?” It’s a sad state of affairs. Despite revisionist historians who would like to tell you otherwise, the Permanent Fund was created as a rainy day account to help fund state government when oil revenues declined. That’s not to say I oppose the payment of dividends. I do, however, oppose the payment of huge dividends which are forthcoming given the recent run-up in the fund’s value. Perhaps if the state implemented an income tax, capped at the level of the previous year’s dividend, we’d have a win-win. Lower-income households would still get the shot in the arm the dividend provides and the rest of us would break even. Pretty hard to complain about that.
Now, how about our expenses? As a state, we definitely spend too much. We should not fund things just because they are existing state programs that need to be maintained. I applaud Governor Palin for exercising fiscal restraint with this year’s capital budget. However, I encourage her to take the same red pen to next year’s operating budget. With each state service, we need to ask ourselves, is this something we expect government to do? Does it pass the red face test?
Let’s put a plan in place this next legislative session. It takes courage to lead. Let’s get our house in order now so future generations, like my son and future daughter, don’t have to.