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Locking in spending limits state's ability to spend responsibly

Posted: January 26, 2012 - 1:09am

There are various bills before the Alaska Legislature this session that would force the state to save differing amounts of the $12 billion Constitutional Budget Reserve.

Saving for a rainy day (the reason the CBR exists to begin with) is wise, but many of the ideas about how to reallocate those funds are not. Instead, they ignore the state’s critical spending needs in favor of putting money in a politically popular place from which it will be impractical and painful to retrieve those funds when they are really needed.

Sen. Johnny Ellis, an Anchorage Democrat, has the balance half right in his Senate Bill 142, which would, if passed, move $2 billion from the CBR into a special fund designed to address Alaska’s unfunded pension liability. That unfunded amount now stands at $11 billion.

The Legislature must make plans to handle the 800-pound pension gorilla that — for now — is still gamboling through the trees, but will soon be in our collective living rooms asking us to pass the remote.

Ellis’ bill would only get us less than one-fifth of the way to where we need to be, but it’s a credible, measurable step towards addressing the problem and it deserves consideration.

Less impressive is Ellis’ plan to put an additional $2 billion into the Alaska Permanent Fund. This would make that money essentially forever inaccessible. Pulling funds from the CBR is difficult, requiring a supermajority of legislators to go along with the plan. Pulling money from the Permanent Fund and, eventually, lowering the annual check each Alaskan receives, even by a small amount, is political suicide, and requires a vote of the people that would almost certainly never come to pass.

It’s far better to leave the money where it is. That way, when times are tight or a consensus can be reached on how to use that money to move Alaska forward, those funds can be spent.

Imagine the alternative, where a cash-strapped government looks to take that money out of the Permanent Fund and decrease, even by a small amount, part of the income from financially struggling Alaskans. There’s no way a legislator worried about reelection would vote to do such a thing, nor would the folks likely to be hardest hit vote for such a plan.

That means the $2 billion potentially passed from the CBR to the Permanent Fund would stay there, limiting Alaska’s financial flexibility in a time of need.

At least Ellis isn’t pushing for $10 billion to move from the CBR to the Permanent Fund, as is Rep. Mike Doogan, D-Anchorage. That carries all the problems described above, multiplied by a factor of five.

Finally, there’s the proposed constitutional amendment by Sen. Bill Wielechowski, D-Anchorage, that would cap spending of unrestricted oil revenue at $6 billion a year, with adjustments for inflation and population growth. Any extra money would have to go into savings — though not the Permanent Fund. Such a plan seems a close cousin of Taxpayer Bill of Rights, or TABOR plans that seem great on the surface (sound bites accompanying such plans usually talk of “handcuffing” government spending or “putting government on a diet”). Colorado voted in such a plan, only to vote it out a few years later when ballooning higher education and health care costs began to force draconian cuts in services. If Alaska passes such a plan, not only will the state be unable to keep up with needs in those two categories that show no sign of slowing down at a national level, it will be unable to adjust nimbly if other areas of state spending see a huge spike that the state itself can do little to control.

The idea of keeping the decisions of how much to save and how much to spend where it is — with the Legislature and the governor — is the best course of action. The idea that our elected officials can make quality decisions with our money has somehow been twisted into a quaint notion. However, those elected officials have built a $12 billion CBR and managed to put $260 million into savings last year. The choices made by the Legislature and Gov. Sean Parnell, can be argued as incorrect by folks with differing mindsets, but not as unreasonable.

Alaska faces real challenges in the short- and long terms. The aforementioned unfunded pension liability. An education budget that, right now, has the Juneau School District looking at 66 job cuts. A woefully inadequate infrastructure that hurts our ability to attract and conduct business. It’s necessary that our state retain the financial flexibility to address these problems over time and as needed, instead of waiting until our collective hand is forced. Binding the hands of decision makers so they can’t reach into a virtually unlockable box does just the opposite.

• Charles Ward is deputy managing editor of the Juneau Empire. The opinions expressed here are his own, and do not necessarily reflect the views of the Empire’s editorial board.

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