OPINION: Alaska isn’t going to come up with a ‘fiscal plan.’ It’s time to move on.

I’ve given up on the idea of a state fiscal plan, or at least one that has any teeth.

Alaskans have been talking about this for decades. Time to move on.

Here’s the issue: We depend on volatile sources of revenue to support the state budget: crude oil revenues and, more recently, world financial markets that affect the Permanent Fund’s share of earnings paid to support the budget.

Meanwhile, inflation is driving up the cost of public services like schools. Alaskans pay no significant state taxes.

We also have an annual fight over the amount of the Permanent Fund Dividend, or PFD. That happens at the end of a legislative session and is a huge distraction for legislators from pressing issues.

Can we at least agree on a plan to fix an amount for a realistic dividend to get that issue off the table? How about new revenues through a modest broad-based tax?

Good ideas, both. Achieving them will be tough.

Both of these — the PFD and new revenues — are politically controversial. There are too many divisions in the Legislature, and the governor, of course, has his own ideas.

Now there’s talk again of a special legislative session in late fall to try again for a fiscal plan. We’ve heard this before, and I’m skeptical it will produce a solution.

Here’s what’s more realistic: We just muddle on. The Legislature will deal with rising costs and gaps in funding as best as it can and the PFD fight will go on and become muted over time.

Sounds depressing, but, in fact, we’re muddling along anyway.

However, I think we’re making progress toward a kind of informal fiscal plan, a consensus on the budget and possibly the PFD. It’s not a firm plan but it has elements of one that now seem agreed, at least informally.

Informal consensus can be productive because things set out formally will attract criticism. Informal consensus, like a social compact, is simply what people understand, an uncodified agreement.

Sound visionary? Not really, because we’re doing it now.

A written fiscal plan is still useful in some respects because it’s something the public can see but it has no binding effect. Our state Constitution does not stop future lawmakers from changing things, so any formal plan is just a piece of paper.

It’s still not a bad idea to do one, I think, because it sets out goals and furthers the discussion.

Here’s what legislators have informally agreed on in the last couple of years:

• Big spending cuts appear to be gone. We don’t hear much about this anymore. Most people seem to accept that current state programs shouldn’t be reduced and that some underfunded programs, like schools, could even be increased (the governor has yet to sign on to this).

• We are accepting an affordable PFD. There was a ferocious fight in the Legislature last spring over the PFD amount, but even then, the outcome – a modest dividend – was preordained because there just wasn’t enough money to pay a large one.

• No one wants an overdraw on Permanent Fund earnings. Through all the debate this spring on a large vs. modest dividend there were no proposals for increasing the Permanent Fund earnings that are paid for budget support. The governor proposed this a couple of years ago to pay a large PFD but there was a big pushback. We haven’t heard anything since.

• Similarly, there was no serious proposal to dip into the state’s main savings account, the Constitutional Budget Reserve, to pay a large PFD. A consensus has formed that several billion dollars should be kept in the CBR to meet state operating expenses and as an emergency reserve.

Informal consensus arrangements do work, and we’ve practiced these for many years.

Some examples: Our Constitution prohibits formally dedicating funds for specific purposes, so in practice the Legislature informally “designates” funds through appropriations. Ferry system passenger revenues help support vessel operations, and student tuition income reserves help support the university.

Legally, the Legislature is free to appropriate these revenues for any purpose, but it has almost always respected the informal consensus on this.

There’s one long-standing consensus that’s actually quite remarkable. It is Power Cost Equalization, a state program that subsidizes high residential electricity costs in small rural communities. Periodically, new legislators who don’t know the history of the PCE program question this but accept it when they understand the years-ago political bargain.

The bargain was this: Back in the day of big oil revenues, larger Alaska communities benefitted from massive state investments in hydroelectric projects that generate power at stable, usually low rates.

In small rural communities, there were — then and now — fewer opportunities for energy other than high-cost diesel, so the PCE program was developed to spread the benefits given years ago to large communities through a limited subsidy for rural residential power costs.

I do think we should continue to work on a fiscal plan, as a set of guiding principles, because it will move us closer toward consensus. There was good work on a set of guiding principles done a couple of years ago by a bipartisan legislative working group, but no further work has been done. We should dust off that plan.

Legislation is needed in two areas: We need a new formula for determining the amount of the PFD. The current formula is outdated, unaffordable and confuses the public. The alternative is the annual debate on the amount, which we could continue but it’s disruptive.

If there are to be new revenues from a broad-based tax, this also requires legislation. A state sales tax was discussed last spring, but there are strong opinions on this pro and con.

Both of these are hot-button topics. Can we achieve them?

We should try, but in the end, I think we’ll continue to muddle along. And that’s not all bad.

Tim Bradner is publisher of the Alaska Legislative Digest and Alaska Economic Report

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