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OPINION: GOP strategy to avoid taxes regardless of the cost

May 13th | Dermot Cole, Alaska Dispatch News Print this article   Email this article  

Lowball estimates about future government expenses in Alaska are the foundation for claims by Alaska Republicans that the state needs no taxes and can solve all of its budget problems simply by cutting the dividend and withdrawing $2 billion a year from the Alaska Permanent Fund.

But new information shows future expenses are likely to be higher, not lower, and that this idea of limiting spending to a $500 million "modest" annual deficit is wishful thinking.

Unless, of course, the thinking is that wiping out the dividend and withdrawing additional billions from the Permanent Fund is the preferred alternative to taxes, which it is for some.

One unexamined issue with the no-tax-at-any-cost theory is how much momentum it will add to those in Alaska already talking about combating any reduction in the dividend with a repeal initiative, increasing the chances for continued chaos.

Looking ahead, one of the biggest looming increases in state expenses is the likelihood of a multibillion-dollar jump in the liability of the state pension systems.

Retirees are living longer and fewer people are paying into the systems, now valued at $17 billion. The biggest source of income to the funds is investment earnings. The state is likely to reduce its earnings expectations because the 8 percent target it still uses is higher than is now typical for many U.S. public pension systems. These changes could mean hundreds of millions a year in higher costs.

Other items missing from the GOP no-tax talking points are whether the state will ever have a capital budget again — which is of interest to Alaska contractors and residents of every community — and whether anything will be done about facilities already falling into disrepair because of the $1.8 billion backlog in deferred maintenance.

On those two points, the no-tax legislators say the state can borrow money to pay for construction projects and start selling buildings and other facilities so it doesn't have to maintain them anymore.

It makes no sense to ring up debts unless there is a plan to pay them off. And selling buildings is hardly a winning strategy, though it would be interesting to see what anyone would bid on the $110 million Anchorage basketball arena, a project championed by Alaska's leading fiscal conservatives not long ago.

As to the budgets from the House and the Senate this year, they are really not that far apart. That should tell you something about how elusive the hundreds of millions in imaginary future budget cuts will be.

The Republicans continue to talk about cutting government, but what they really mean is cutting education.

Republicans in the House keep saying they identified $300 million in budget cuts, though in more expansive moments they inflate that to $400 million, a discrepancy that is fully in keeping with the incoherent approach they took to the state budget.

The biggest budget differences between the House and Senate are that the Senate wants to spend about $100 million less on K-12 schools and the University of Alaska, and $100 million less on the dividend. The Senate backed a $1,000 dividend and the House a $1,250 dividend.

This was supposed to be the easy year of the Senate plan to cut $750 million from the budget by 2019, with a $300 million target this year. But after years of cuts, it has become far more difficult.

That the Senate fell more than $100 million short of its budget-cutting goal and did so with a wildly unpopular plan to curtail education is a telling sign.

Absent gimmicks, the real budget cuts proposed by the Senate are about $160 million, though the final number will be smaller because the House opposes the $100 million education cut and others.

On Thursday, Budget Director Pat Pitney said that a year from now, the situation will be far more difficult. Speaking to the House Finance Committee, she said the state will need a total cut of $300 million from the current Senate figures just to stay even.

This is mainly because designated accounts used this year for $58 million in pension costs, $17 million in education costs, and $44 million in ferry system costs will not be available. Plus, Medicaid is underfunded this year by $32 million and expected to rise next year by $30 million. In addition, pension costs are expected to climb by $114 million and debt service is expected to climb by $5 million.

The state could make up that gap by tripling the $100 million in education cuts next year, with no allowance for inflation and no accounting of the consequences and the damage to Alaska.

On top of that, a few hundred million more would have to be cut to stick with the Republican plan to avoid taxes at any cost, regardless of cost.

Columnist Dermot Cole can be reached at dermot@alaskadispatch.com. The views expressed here are the writer's and are not necessarily endorsed by Alaska Media, which welcomes a broad range of viewpoints. To submit a piece for consideration, email editor@reportalaska.com.

 


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