By Zack Fields, who represents downtown Anchorage in the Alaska Legislature
It is certainly ironic: Republican primary voters ousted some of Alaska’s most effective fiscal conservatives on August 18, replacing them with candidates who pledge billions of dollars in new spending on…cash handouts. It is not clear whether James Kaufman, Roger Holland, Robert Myers, and Tom McKay actually understand that their promises are wildly unrealistic, or whether they were simply willing to lie to win an election. Regardless, let’s consider the implications of those promises.
These candidates ran on a simple platform: Drain the Permanent Fund to pay out massive bonus PFDs, and refuse to work with anyone from other political parties. Ok, let’s say they get the majority they want and don’t have to compromise. Alaska faces a $500-$600 million budget gap before paying any PFD this year. Paying extra PFDs adds billions in new expenses. Let’s put that in perspective: Modest sales or income taxes, structured to avoid extreme regressivity, each raise in the neighborhood of $600 million. The oil tax hike on the ballot would raise a billion or so, according to proponents. So even if Kaufman & crew implemented new income taxes, new sales taxes, and the state hiked oil taxes, they still couldn’t pay for 1982 formula super-sized dividends.
Unless, of course, they blow through the Earnings Reserve Account. Simpletons have advocated for this many times, treating the Permanent Fund like an ATM. People who can do math (like the real conservatives, many of whom just lost their primaries) understand that the Permanent Fund earns money in investments at a rate that far outpaces inflation, and that these earnings fund the majority of Constitutionally-mandated state services like public education. So yes, Kaufman & crew in theory could burn through the Earnings Reserve Account portion of the Permanent Fund. With lost revenue (each billion dollars overspent from the Fund equals $50 million in lost revenue for every single year after that), the state’s $500-600 million deficit would quickly balloon to a size that is unmanageable. Alaska simply doesn’t have enough private sector economic activity to drain the Permanent Fund and pay for the most basic services, in the event arsonists burn it down for a short-term payout of massive PFDs.
Thus, the choices that Kaufman & crew face are simple. Burning through the Permanent Fund necessitates massive tax hikes on individuals and industry. But the over-draw on the Permanent Fund would cripple the state’s finances forever. Guess what–Prudhoe is no longer a new basin cranking out millions of barrels per day, so we aren’t in a position to replenish the Permanent Fund, no matter how high oil taxes go. And that’s worth noting–since massive PFD payouts can’t be paid for with the relatively modest capacity Alaskans have to pay individual taxes–far-right arsonists’ plans most certainly end with draconian taxes on industry. But again, even that wouldn’t be sufficient to fill the gaping hole blown in the budget by draining the Earnings Reserve Account of the Permanent Fund.
The math is painfully simple. Paying out supersize PFDs will inexorably lead to massive cuts in services, massive tax increases on individuals and industry, but even those won’t be enough to provide core services if the Permanent Fund is decimated. I hope James Kaufman and others tossing lit matches into our house figure this out before they burn the whole thing down.