Our Alaska – Vision of a Sustainable Fiscal Future

February 2016

Vision for the Future of Alaska
We envision a future Alaska with stable, prosperous economic opportunity and minimal individual tax burdens over the long-term, combined with a sustainable state government that keeps Alaska a great place to live, raise a family, and have a rewarding career.

The Problem
Alaska’s current fiscal structure and political trajectory are threats to this vision. The state is hemorrhaging savings. Petroleum revenues, on which we have largely depended in the past, are unknowable, unstable, and ultimately unsustainable. This volatility has caused great swings in state spending when oil prices have gone up or down. We need to put Alaska on a path toward a sustainable fiscal plan.

Alaska is currently spending savings at a rate of $10 million/day. Without immediate actions, this will empty the Constitutional Budget Reserve in two years. The reality is that there are three options available for getting out of our current $3.5 billion budget deficit and back to a sustainable budget. We can 1) reduce spending, 2) use savings, and/or 3) increase revenue. No option alone is sufficient, and all together may not be enough.

The sooner Alaskans come to terms with this new reality, the greater our ability will be to transition to a more stable fiscal structure and to use Alaska’s savings in a more sustainable manner.

Articulating and implementing a predictable, stable, and sustainable fiscal strategy is not just a government concern. The health of the overall economy requires that Alaskans and the business community engage in a plan to stabilize our financial future.

Characteristics of our Ideal Sustainable Fiscal Structure
• Stable
• Flexible
• Fair
• Growth-oriented

Structural Foundations

  1. Fiscal Discipline. Over the next 4-5 years, state spending must be reduced to a sustainable level – one that can be maintained (accounting for population growth and inflation) after taking into account forecasts of future oil and gas revenue and earnings from financial assets.
  2. Sustainable Use of State Savings. This includes both the Permanent Fund (Principal and Earnings Reserve Account) and Constitutional Budget Reserve. Rather than spending these reserves, we should aspire to use only the earnings of these savings, while continuing to grow the asset base. We support establishing a mechanism for using a portion of Permanent Fund earnings for general fund spending.
  3. Make the Dividend Sustainable. We would support continued payouts of the Permanent Fund Dividend, but at a reduced and stable amount. Since the amount paid in dividends constitutes half of our current deficit, it is not sustainable at the current level. The exact amount of future dividends must be considered within the context of a sustainable use of the Permanent Fund.
  4. Broad-Based Tax. Spending our savings now reduces our ability to maintain a low tax burden or maintain quality services in the future. The sooner Alaskans start contributing to state services, the greater chance we have of being able to use our long-term assets in a sustainable manner. Taxation can have very different economic consequences, and affect different parts of the population. In this way, a combination of income taxes, sales taxes, and additional revenue from industry should be used to spread the burden of new revenues more fairly across the population.