• Art of the possible.
• A Day Dream?
• Republican 5-Year Plan A Success
• Post-Mortem: Majority's Five Year Plan
• Seldom do Economists agree but there is some consensus here.
• Testimony before the Senate Finance Committee

Testimony before the Senate Finance Committee Having attended Finance Committee meetings for both the Senate and the House, a couple of things become obvious. For those tasked with dealing with Alaska's social problems there is never enough money and accountability is tough, if not impossible. I heard testimony that the state provides services to between 1,000 and 10,000 people for alcohol related problems. The person testifying didn't have the actual numbers so guessed at that range. It was also determined that state, federal and private money being spent on this problem approaches $40 million. In spite of the current amount being spent, the per capita numbers are staggering and now some legislators want an alcohol tax that would generate an additional estimated $40 million. Even if double the money were spent on this problem, could anyone guarantee the results would be any better? Two, it is true that some of our legislators are trying to work on our budget problems. Our concerns are with the varied approaches. We believe that it is critical to get state spending under control before any new taxes are considered. Anything else is a waste of time. A smaller smarter state government is possible. All it takes is fiscally responsible elected officials and the support of you the citizens of Alaska. The "Art of the possible." is the positive nature of the legislative process, so let's think positive.

It is September 30, 2010. Headlines in the Anchorage Daily News report that the Alaska Plan has been announced as US Government policy in third world nations. Text of the article follows:

The Secretary of State announced that a new program with similarities to the WWII-era Marshall Plan will be implemented as US government foreign policy in so-called third world nations. The program resulted from an Alaska University course of study using the "Alaska Model" that was started in 2003 by virtue of legislative action. The program was created by an enlightened legislature in 2002 that passed a law requiring such a program at the University. This legislature also passed authorizing legislation for a ballot proposition that changed the Alaska Constitution to allow a rural preference for subsistence.

This unique model (the Alaska Model) for management of commercial assets by government entities came into effect in 2003. The new governor pushed through the legislature a concept of state management of assets under a state-owned corporation separate from the regulatory side of government. The charter for this new state corporation (The Alaska Corporation) specified that state resources and assets, including the return on the Permanent Fund be managed to maximize benefits to Alaska's people. In 2003, the new corporation undertook steps to build a gas pipeline with participation of the major gas owners on the North Slope on a partnership basis. Since that auspicious beginning, additional pipelines have been constructed from the Fairbanks hub to Valdez and Cook Inlet for utility use and as feedstock for LNG and GTL plants. In 2004, the Alaska Corporation declared a dividend to state government that has been continued since that date. During this period, the inspired leadership of the administration pressed the legislature to authorize not only a personal dividend, but also a community dividend that could only be used for education, health, public safety and transportation purposes. These dividends have continued to date.

The administration of 2002 - 10 also adopted a concept of planning, benchmarking and evaluating government and Alaska Corporation management effectiveness and objective achievement similar to that in place in Oregon and some other states. This novel method of facilitating meaningful communication among the state's populace and its government created a new level of governmental effectiveness that has resulted in substantially improved provision of government services. This program was implemented by the Legislature and executed and funded by the Alaska Corporation. This relatively small organization is wholly-owned by the Alaska Corporation and staffed by representatives of the larger stakeholder organizations (on a periodically rotating basis) who are recipients of government regulatory programs.

During this exciting period in Alaska the governor has been applauded for innovative leadership and enlightened management. When interviewed regarding these substantial accomplishments, the governor gave credit to legislative leadership that overcame partisan politics and truly took the best interests of Alaska's citizens to heart.

Such is the model that Alaska can give the country and the world. All we have to do is to do it. All else will follow.

Most Alaskans agree that development of a long-range fiscal plan is one of the greatest challenges facing our state. As we begin work on a new plan, it is important to recognize that the Republican Majority's five-year plan, which we completed last year, built an excellent foundation for Alaska's long term financial health. In dealing with the fiscal gap, the key is general fund spending versus revenue. We held the line against more than $800 million of Governor Knowles' proposed spending increases and actually reduced general fund spending. Today, real per capita spending of state general funds is $921 less than in 1979. Also under the Majority's 5-year plan, the Permanent Fund was protected and increased by over $5 billion, the Constitutional Budget Reserve (CBR) Fund actually increased to over $3 billion, and non-oil revenues were enhanced. Fiscal Discipline Continued This Year as Co-Chair of the Senate Finance Committee, I am proud of the way the Republican Majorities in the State Senate and House have reduced state spending. We have accomplished this while still providing increases for the constitutional priorities of education, public safety and public health, and without eliminating essential public services or programs. This year we continued results-based budgeting to ensure government fiscal accountability and used specific missions and measures to gauge the efficiency and effectiveness of state programs.

The outlook would not be nearly as good had Governor Knowles and Democratic legislators had their way. Between FY 97 and FY 02, Democrat legislators unsuccessfully attempted to increase general fund spending by more than $644 million. Had Democrats been in control and increased state spending by $644 million, the effects on the CBR would have been disastrous. Because general fund revenues were insufficient in some of these years, additional withdrawals would have been required from the CBR unless massive new taxes were adopted. Today, instead of enjoying a fund balance of over $2.8 billion, the fund balance would be approximately $1.7 billion. Such a reduction would seriously reduce available options in developing a new long-range fiscal plan.

Fiscal Responsibility Should Begin with State Government

The first step in any long-range fiscal plan should be continued government reform to create a more efficient state government. Statutory formulas or provisions guide the majority of state spending, so making significant efficiencies and reductions requires statutory changes.

To help develop proposals to continue our successful efforts toward a smaller, smarter state government, earlier this year I wrote the commissioner of every state department and asked for ideas for legislation to improve state government efficiency and reduce the state's fiscal gap that hadn't already been introduced. Not one made a single suggestion or request for such legislation. I repeat, Governor Knowles Commissioners did not have a single suggestion for new statutory changes to help reduce the fiscal gap. Even so, the Senate Finance Committee developed a package of fiscal reform legislation that continues the Republican Majority's commitment to fiscal responsibility and government reform before new taxes are adopted. This package presents the first step of a new long-range fiscal plan that has the potential of reducing the fiscal gap by over $12.5 million the first year with reductions increasing to over $100 million a year within 10 years.

We do not contend that this is a comprehensive long-range fiscal plan, but we do say it has the essential first ingredients that any new long-range fiscal plan must have to be successful.

The basis of government in America is our Constitutions. When we start to create a new financial plan we need to look and make sure that our State Constitution is functioning properly.

Repairing the Constitution: The First Step for a Successful Long-Range Fiscal Plan

It's clear that there are two parts of our State Constitution that deal with fiscal policy that are not functioning properly. They are the existing constitutional appropriation limit and the existing constitutional budget reserve provision.

One thing was clear from the overwhelming rejection in September 1999 of the last fiscal plan proposal: Alaskans do not want to give government a blank check. As that plan left the Senate, it included a constitutional spending limit and specific budget reductions. The House, working with the Governor and the Democratic Minority, removed those important fiscal restraints. That was one of the main reasons I strongly opposed the September 1999 proposal - because it lacked clear enforceable fiscal restraints. SJR 23: Increasing Government's Fiscal Responsibility Public opinion polling tells us that to be acceptable to the majority of Alaskans, any new plan must start with reasonable limits on government spending. The first step to the Senate Finance Committee's fiscal plan is exactly that: to limit the expansion of government spending through the adoption of Senate Joint Resolution 23, which revises the existing constitutional appropriation limit.

The existing appropriation limit was adopted by voters in 1982. This provision currently limits government spending to about $6 billion; however we only currently spend about $3 billion. The enormous size of the current appropriation limit occurred because the constitutional provision has a built-in escalator clause for inflation and population. To correct this, our most recent version of SJR 23 proposes to base any allowable increases on previous year's budgets and to limit those increases to only 2 percent. SJR 23 also clarifies what is and is not included in the appropriation limit. SJR 24: Embracing the American Principal of Majority Rule The constitutional budget reserve language of the Constitution is working well as a fiscal shock absorber, but it is not working as intended to control spending. The CBR Fund was established in 1990, and has been used to help fill the gap between state revenues and expenditures. When the CBR was created, the original intent was that funds could be withdrawn with a simple majority vote. These funds would help cover a budget deficit as long as current spending did not exceed the previous year's spending. However, a three-quarters vote of the legislature would be necessary to withdraw any funds in excess of the previous year's spending.

In 1994, the Alaska Supreme Court misinterpreted this provision to require the three-quarters vote to withdraw any funds from the CBR. This creates a situation in which a small group of legislators can "blackmail" the majority and hold the budget (hostage). These legislators can trade their votes, which are crucial to withdraw CBR Funds and balance the state's budget, in exchange for additional spending. We estimate the cost this year to access the CBR with the three-quarters majority vote to balance the budget was nearly $150 million.

Senate Joint Resolution 24 corrects this bizarre imbalance of spending power by proposing a Constitutional amendment that makes it clear a three- quarter vote is not necessary when spending does not exceed the previous year's.

If this resolution passes, the amendment will be placed on the next state general election ballot in Fall 2002 for approval by the people of Alaska.

Fiscal Responsibility is Key to Alaska's Future

Both these proposed Constitutional amendments have already passed the Senate and are scheduled for hearings in the House. Our plan also includes seven other fiscal gap reducing proposals, three of which have already passes the Senate.

All together, the savings associated with these reforms grow exponentially in the out years to far exceed their present day value of over $12 million the first year, growing to over $100 million a year within ten years. Since taking office, Governor Knowles has proposed massive new taxes, using the Permanent Fund to fund government, and reducing dividends. Though Democrats issue a non-ending barrage of complaints about budgetary problems, the only solutions they have offered is to raise taxes, drain the Permanent Fund, and reduce dividends. Only the fiscal discipline of the Republican Majorities has protected Alaska's fiscal future from the big spending desires of the Democratic Minority.

Check out the additional info here.

Upon session's adjournment, the Majority touted final payment in its five- year push to cut general fund spending by $250 million. While the Majority gets credit for sticking to its plan, a determination on whether it was a success depends on your understanding of its goal. If it was to spend $250 million less in general funds, then yes, the plan was a success. This success has a corresponding relationship to lessening the state's "fiscal gap" (the shortfall between general fund revenue and spending). Closing this gap was the impetus for the Majority's plan five years ago. If there had been no plan, general fund spending-and the gap-no doubt would be more than next year's $385 million.

But if you thought that the Majority achieving its goal meant there would be less government because of less spending, the answer is no, this was not what happened.

Spending down but government growth up?

The change in spending between Fiscal Year 2001 and Fiscal Year 1996, overall, increased $847 million: o General fund spending dropped $266 million, of which $116 million was "saved" in the operating budget and $97 million in debt service; o Federal funds increased $712 million; and o Spending of "other" state funds increased $401.1 million. Of this, $195 million helped cover some of the $116 million general fund program costs that were cut out of the operating budget.

While some may dismiss outright the Majority's budget cutting efforts, it's important to recognize the simultaneous pressure by the Spending Lobby to fund a growing list of needs and wants. This resulted in an incentive for budget writers in both the Executive and Legislative branches to find a win-win situation-how to achieve targeted general fund reductions and, at the same time, pay for these needs and wants.

A way to do this was to recategorize some spending from "general fund" to "other" state funds. "Other" funds tend to be revenues a program generates. For example, occupational license fees had been counted as general funds but now are considered "other." Excess student loan payments got set aside (instead of deposited in the general fund) so that spending counted as "other" and not "general funds." (Some incorrectly refer to these funds as "off-budget." They aren't. All spending is subject to the Legislature's annual budget process.)

Result: fewer dollars to meet traditional services

An even more overriding concern is this practice's impact on the state's ability to fund its traditional responsibilities. Each time general fund revenues are partitioned off, it means the funds available to pay for non- fee generating services shrink. Most traditional state services-such as K- 12 education, State Troopers, Court System, protecting public health-don't generate fee type revenue. As a result, they are left to compete for a dwindling amount of general funds, which have been targeted to absorb the cuts. Other less-than-traditional services may not get the same level of scrutiny because they are categorized as "other" and reductions in this category don't "count" toward achieving the overarching goal of less general fund spending.

This growing practice also undermines the Constitutional framers intent that Alaska not have dedicated funds so as to promote a competitive process in which public dollars are more likely go to the highest and best use - regardless of whether the program generates any revenue. What if there had been no plan?

The Majority's plan certainly gave bean-counters a target at which to guess if they hit or miss. But a bigger question is where would spending likely be today if there had been no reduction plan. What if the Legislature had spent the same amount the Governor requested in each of the last five years? (typically a Governor's proposed budget sets the ceiling for a session's spending.) If this had happened, the Fiscal Policy Council's estimate is that the FY 01 operating budget alone would be $370 million more in general funds. The Governor's requested operating budget averaged $74 million more than what the Legislature eventually approved. The cumulative effect of such increases would have had a significant impact on increasing the size of today's fiscal gap.

What next?

The end of the five year plan means Alaskans must ask elected policymakers "what's next?" While the state's fiscal gap is not what it could have been, the fact is that the gap continues to be a significant structural defect in Alaska's fiscal regime. Check out the additional info at: http://commonsenseforalaska.org/csa/docs/Fiscal_Plan_Packet.pdf

Seldom do Economists agree but there is some consensus here.

The following is excerpted from a speech to the Kenai Chamber of Commerce. The message is clear: Alaska has a problem. This state is running out of miraculous bailouts of our financial situation. We have to pay attention and reduce government spending and waste. "The next decade is really going to be a challenge for the Alaska economy, " said Scott Goldsmith, a professor of economics at the Institute of Social and Economic Research at UAA. "With North Slope oil production declining", Goldsmith said, "there is little that can take up the slack. And Alaskans aren't likely to continue to benefit from federal spending that's far greater per capita than in any other state." "Oil and government really dominate the economy and much more so than people realize."

Testimony before the Senate Finance Committee

My name is Chuck Achberger and I am with Common Sense for Alaska. First, I would like to go on the record in support of both SJR 23 and 24 as a positive step by this committee in addressing sound fiscal policy. I support SJR 24 because we have all witnessed that the current process is prone to extortion by a minority to get the needed 2/3 vote necessary to access the CBR. The state of Alaska pays millions of dollars needlessly to fund its budget as the law now stands.

I support SJR 23 because a spending limit in necessary. Like many Alaskans, I believe that any limit set is absolutely achievable. My preference would be to set the spending limit at what you spent in FY 2000.

As you address the fiscal planning process one of the primary things should be addressed is a state budget that is simplified to the point that it is understandable. There are currently so many pots of money and expenditures tucked away in different accounting cubby holes, that saying the budget is cut is meaningless.

To characterize the current process as a "Budget Process" is misleading. How can it be a budget when it continually exceeds income? What you have is a spending plan.

For the Republicans to take credit for adopting a budget substantially less than the one offered by the governor is also meaningless. The governor's approach to government spending is reminiscent of a teenager with his dad's VISA gold card. His budget is a simply a partisan play to paint the legislature into a corner.

We must as citizens demand that our legislators be fiscally responsible to the budget process. And before you jump on the bandwagon of random acts of taxation, consider the options that can actually reduce state spending. Take a hard look at our formula funding process and examine the inefficiencies that are allowed to continue unchecked in state government.

I believe a smaller, smarter state government is possible.