As our state Legislature and local Assembly grapple with the budgetary challenges facing us, each of us will be rightly interested in the outcome. These challenges are not insurmountable, although the process to address them may seem so byzantine and complicated we wonder how we will resolve them. The battle is really about what our state and our community can afford. It is about what we need versus what we want.
Two years ago, Alaska’s oil was over $100 per barrel; one year ago, it was over $50 per barrel; this week, it is approaching $25 per barrel. The problem has been staring us in the face for some time. In fact, since 2012, Alaska’s oil revenues have dropped $7.8 billion, creating deficits over the last three years that required us to pay for much of our government services with savings. The projected FY 2016 deficit of $3.6 billion was based on $50 per barrel oil. Now, with even lower prices expected, we could be facing annual deficits exceeding $4 billion. Time is not on our side here. If we do not act fast enough, the measures we take later may be far more drastic and cause even greater turmoil in our economy.
What everyone seems to agree on is that a solution involves all available tools: further reductions in spending; use of the Permanent Fund; broad-based taxes; and ultimately, some diversification of our economy away from oil. While some still argue we cannot cut government further or that we must preserve the Permanent Fund dividend in its entirety, the time has long since passed when either are realistic outcomes.
But the devil is in the details. When and how these solutions are implemented will determine how well they are supported. There are no easy solutions because there is no consensus of what we really “need” versus what we “want.” Our elected officials are being bombarded by constituents and lobbyists from all directions demanding they take action — sometimes without regard to whether it actually decreases spending, creates revenue, or significantly helps or hurts the economy.
Consider this: The state’s Unrestricted General Fund budget is $5.2 billion this fiscal year. Almost half of that will be spent in only two areas. About $1.2 billion will be spent on education — 92 percent of it attributable to K-12 formula funding — and $1.3 billion will be spent on health and social services, with 55 percent attributable to pre-expansion Medicaid recipients.
Even though our test scores and graduation rates lag significantly, total education costs per pupil are approximately $18,000, among the highest in the nation. I know we “want” the best education system for our kids, but since higher funding isn’t getting results, do we “need” to spend even more money in exactly the same way?
Before Gov. Bill Walker expanded Medicaid, Alaska’s total direct state Medicaid costs were projected to balloon to $1.1 billion in 2020 – a 92 percent increase over 2012. Yet we have continued to provide Medicaid recipients with far superior health care coverage than state and federal employees and most private insurance carriers provide, including mental health services, dental, vision, orthodontia, podiatry, hearing services, long-term care and prescription drugs. I’m sure most everyone “wants” a free Cadillac healthcare plan, but do we “need” it?
I know there were many state union workers who “wanted” their scheduled salary increases, but given that other workers were laid off and cutbacks were experienced in many other public and private sectors, did we “need” to add to the deficit this way?
Likewise, I know many Alaskans “want” to keep their Permanent Fund dividend right where it is. But, as the lowest taxed state in the entire country, we can expect that to change and to see, at a minimum, reestablishment of a state personal income tax. And doesn’t it make sense for everyone to pay something, which is what a reduced dividend would accomplish?
On a local level, we are facing the end of state revenue sharing, possible reductions in tourism head taxes, and additional job losses. Do we really “need” three libraries, two swimming pools, two high schools and more city parks? Or do we just “want” them?
Yes, these are sensitive issues and there will be much discussion about the impacts, timing and those devilish little details. But these are just some of the questions each of us should begin asking ourselves if we want to be part of the solution instead of part of the problem.
• Win Gruening retired as the senior vice president in charge of business banking for Key Bank in 2012. He was born and raised in Juneau and is active in community and statewide organizations.
