If you, as a property owner, had $1,250,000 in the bank, would you borrow $4,000 to construct a building? That times 1,000 is what the Alaska Legislature is asking us to do this fall.
We have $12.5 billion in the state Constitutional Budget Reserve account. Yes, I said billions. We have a billion plus surplus in current-year revenue. We had a billion plus surplus in the last fiscal year. So, why go in debt $400 million? The state should either pay cash or figure out a different way to complete projects.
As Gov. Sean Parnell weighs his vetoes over the bloated capital budget of $3.1 billion, the first step is to veto $400 million in General Obligation bond debt.
Although conservatives normally favor the capital budget over the operating budget, in this instance I oppose the bond package portion of the capital budget. The remaining $2.7 Billion dollar capital budget contains plenty of jobs to boost economies around the state.
Compared to past capital budgets, this one is huge and the governor’s concerns over a bloated budget are worthy worries. We should be concerned about the decline of oil production, and what that will do to our long-term stability in the Alaska economy?
The state should have a policy of no increase in general obligation debt when we have more than $10 billion in the budget reserve. We simply do not need to borrow.
Revenue bonds are different from GO bonds. If a project pays for itself, it should be built. If it can be built using federal tax credit programs or by generating income of it’s own, it should be built.
Let me give you an example.
The Anchorage Municipal Landfill is out for bid on a means of converting current waste gas to generated electricity. The electricity will be sold to one of the utilities and therefore will generate funds needed to pay operating costs and debt service on the project, plus bring in a profit if it’s done right. That project can pay for itself and should. The state should not fund it and won’t. That’s good.
As Alaskans, we should not be so dependent upon state or federal dollars that our projects wait for decades for funding. Procurement rules of the State and the University of Alaska encourage innovative approaches to funding capital improvements. Utilizing tax credits available for projects from the feds help some projects pencil that otherwise might not. Leveraging our money is good.
Gov. Parnell mentioned participation certificates as an alternative to funding capital projects. I checked into it, and in California, a state so strapped they would kill for our surplus, schools are now built as leasebacks. The lease funds debt service. It’s an interesting approach. Local school area taxpayers pay the bill for the schools instead of sharing that expense with all other Californian taxpayers. Seems smart and equitable. Perhaps Alaskans can use that approach instead of GO bonds.
In Alaska, we have huge unmet infrastructure needs. There is no denying that fact. But let’s get the most cost effective solution for these public projects. My pet peeve, since my days as Deputy Director of the Alaska State Housing Authority with oversight of the state leased building programs, is designing buildings that do not have the funding to be built. That is a waste of time, talent and dollars. Design and build only those projects that have their funding committed.
Issuing General Obligation bonds in times of budget surplus makes no sense. We do not need to saddle our children and grandchildren with debts they have to pay. There is enough of that going on in Washington D. C. already.
• Jim Crawford is a third-generation Alaskan and the former deputy executive director of Alaska State Housing Authority, the predecessor to AHFC. He is an Anchorage real estate broker and developer and can be reached at C21jcrawford@aol.com.