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My Turn: Morning in Alaska

Posted: September 9, 2013 - 10:14pm  |  Updated: September 10, 2013 - 12:00am

During the 1984 campaign, President Reagan’s team ran a 60-second ad that has become an all-time classic. Titled “Morning in America,” the spot focused on America’s sense of renewal during Reagan’s first term. It closed with the line, “Why would we ever want to return to where we were less than four short years ago?”

It is not yet “Morning in Alaska.” In fact, according to a study published earlier this year by the University of Alaska – Anchorage’s Institute of Social and Economic Research (ISER), the state’s best economic think tank, Alaska’s current outlook is pretty glum. Based on current state spending levels, the ISER report concludes “[r]easonable assumptions about potential new revenue sources suggest we do not have enough cash in reserves to avoid a severe fiscal crunch soon after 2023, and with that fiscal crisis will come an economic crash.”

For those of you immediately starting to spin that fact into something to do with SB 21, you can stop. The analysis was done based on revenue forecasts which assumed the continuation of ACES (Alaska’s Clear and Equitable Share).

And for those of you starting to develop arguments that SB 21 will pull the state out of the crash, you can stop as well. Even the rosiest of the forecasts offered during the last session by the proponents demonstrate that, at current spending levels, the state ends up in the same place.

But the future doesn’t have to be this way. A few years from now we can look back and proclaim, as Reagan did in 1984, that it is again Morning in Alaska.

How? Just as you and I would do if we saw the same crisis building in our personal budgets, by saving more and spending less, starting now.

The ISER report explains it this way: “What can the state do to avoid a major fiscal and economic crisis? The answer is to save more and restrict the rate of spending growth. All revenues above the sustainable spending level of $5.5 billion … would be channeled into savings.

“If Alaska had $117 billion in cash reserves and the Permanent Fund by 2023, the state would be on the path to sustainable spending far into the future. But … that’s twice what the state has in financial assets today. So the state needs to sharply step up its savings rate, starting now.”

This spending crisis has developed only recently. In Fiscal Year 2011, the state spent $5.48 billion, as with most years prior to that time a rate within sustainable levels. In the fiscal year just ended on June 30, however, the state spent a record $7.9 billion, almost 50 percent higher. This year the state is spending $6.8 billion, the second highest in the state’s history, and, in April, the Governor proposed to continue spending at the same rate for the next five years.

To be blunt, at these levels Alaska’s leaders are spending the state into the poorhouse.

Indeed, they are acting the same as a young family in their late 30’s, deciding between putting a portion of their income into a 401(k) to build an asset that will sustain them through the remainder of their life, or spending it all now on a new ATV, snowmachine, cabin, house and repeated vacations in Hawaii. Alaska state government currently is buying a lot of ATV’s, albeit in the form of indoor tennis courts and new baseball and football stadiums.

There is time remaining to sober up from the state’s binge spending spree and leave a significant legacy to our children and grandchildren, but we need to start now. If not, continued overspending will reduce future sustainable levels. The $5.5 billion will become $5.2, then $4.9 and less and less as we delay.

There is an opportunity for a “Morning in Alaska.” But we have to take it before it evaporates.

Brad Keithley is the President of Keithley Consulting, LLC, an Alaska-based and focused oil, gas and fiscal policy consultancy, and the founder of Alaskans for a Sustainable Budget.

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