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Aligning fiscal principles with rhetoric

Posted: February 12, 2012 - 1:10am

When asked in a press conference about supporting an increase to the base student allocation (BSA), Gov. Sean Parnell responded, “I really am not interested in changing formula programs of whatever kind, BSA increases or other kinds, because I think in these difficult economic times and very uncertain economic times the state needs to remain as liquid as we can.” He cites this same concern when looking at a cost neutral proposal to re-establish a retirement program for state employees. Evidently, Parnell is acting out of a concern to be fiscally conservative and prudent. But his notion of fiscal prudence goes flying out the window when it comes to doing the bidding of the oil companies.

How with a legitimate concern for liquidity in an uncertain economy can he justify giving up to $2 billion a year in tax credits to extremely profitable oil companies? How does a true fiscal conservative link these up? The problem is they don’t link up when you consider the oil companies’ history of new exploration under exceptionally low taxes. Under the old system, called “ELF,” 15 out of 19 oil fields on the North Slope paid no production tax at all. When asked by Rep. Les Gara in the House Finance Committee about the number of exploration wells Exxon Mobil has drilled within the last 10 years, Production Manager Dale Pittman answered “zero.” As a follow up, Gara asked, “why should we believe that reducing taxes is going to cause you all of a sudden to do your first exploration well since 1992?”

“I can’t promise you it would lead to increased exploration”, responded Pittman. Clearly, the governor’s $8.5 billion (over 5 years) tax giveaway is a high risk proposition that MIGHT (cross-my-fingers tight) lead to some unknown amount of new wells. Where is the governor’s concern for liquidity and uncertain economic times when it comes to oil? Fortunately, the fiscal conservatives in the Senate have closed the window on the governor’s bill.

Having rescued some sense of fiscal sanity, the challenge of finding the right balance between prudence and investment still remains. While it is imperative that we not squander fiscal year 2012’s $3.7 billion budget excess, neither should we squander the opportunity to invest in our children. Here I agree with the governor when he implored the Legislature in his State of the State Address to “stand together to develop our most valuable resource — our children.” Hearing this, I got to wondering how far would a single $2 billion investment in funding education go? How much of a sustained increase in the BSA could be covered if we were to take just one year’s worth of the potential oil tax credit and invest it in our schools instead? Would it be enough to keep those 66 positions within the Juneau School District from being lost?

Fortunately, Education Commissioner Mike Hanley recently asked district superintendents how much funding would be needed in FY ‘13 to maintain current programs. The answer given by the Alaska Council of School Administrators is that an increase of $320 to the BSA would enable school districts across the state to keep pace with expected cost increases such as energy and health insurance. The analysis presented to Hanley did not go further into determining how much might be needed to spur graduation rates or make any type of future investment in successful programs. So just to keep on top of higher costs, Alaska school districts currently need more than twice the amount being proposed in Senate Bill 171. Nonetheless, I wondered could we fund the $320 BSA increase instead of the $125 increase? Turns out that $2 billion could fund such a BSA increase for 25 years with an annual cost of $79.4 million. So just one year of retained tax revenues would allow for 25 years of bare bones maintenance funding for education. It would not be enough to avoid serious cuts to programs and in Juneau’s case, it would only get us about halfway in retaining those 66 positions.

Imagine what more BSA funding would do. Let’s see, $2 billion at a $500 increase level to the BSA would last 16 years. Sixteen years of increased funding for school districts would sure provide a lot of stability. Even if we didn’t want to commit the equivalent tax giveaway amount and sock a billion dollars more into the Constitutional Budget Reserve, we could afford the $500 BSA boost for eight years. In other words, we could sustain an increase while still keeping sizable savings accounts (currently at about $12 billion) separate from the “rainy day” Permanent Fund accounts. In other words, we could maintain liquidity and invest in our children. Isn’t this an intriguing idea for all who agree that we “should develop our most valuable resource — our children?”

At least the Senate agrees and is making that all important step of increasing the BSA. While it will not keep the school districts, including Juneau’s, from dealing with cuts to already strapped budgets, it is a much needed acknowledgement of the state’s role in helping school districts through difficult times. Hopefully, the state House of Representatives and the governor will agree.

• Troll is a longtime Alaska resident and resides in Douglas.

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