Time to Look as Some Serious Budget Cutting Here in Alaska

Photo courtesy Jay Galvin, Flickr, Aug. 31, 2010

Now that Governor Walker, his Backbone group, state democrats, greens and unions are busily chasing the Producers out of state, perhaps it is time to start taking a serious look at necessary budget cuts and revenue enhancements. Note to readers, my revenue enhancements are not the same ones that the democrats want.

If you want budget cuts, I would propose five immediate changes that will for the most part solve our outyear problems with budget growth. While they may create some discomfort initially, they will more than make up for it by putting a real choke hold on the growth of spending in the years to come.

First up would be a permanent freeze on all cost of living increases for anyone in PERS, TERS or working for the State of Alaska. Current retirees would be frozen at the level they drew when the law is passed. Future retirees will be frozen at the PERS / TERS levels on the day they retired. This instantly turns PERS / TERS into a fixed income operation, making it much more difficult for state and local government to raise taxes on them in future years. The legislature will only appropriate enough money to cover state salaries with no future cost of living increases figured in. What the unions and administration decide to do with that limit is up to them.

I asked the Legislature for an estimate of dollars saved if this was done. They reminded me that current COLAs (PRPAs for PERS / TERS) are locked in constitutionally so no estimate was done. The PRPAs are 75% of COLA for preceding year or 9%, whichever is less for retirees at least 65 or on PERS diability. That number falls to 50% for recipients at least 60 or have been receiving PERS for 5 years as of July 1.

For state employees, this would have saved nearly $30 million in FY 2016. AVTECTA is scheduled for a 1% raise in FY17 costing some $36 million. COLAs if granted to all employees would be about $15 million per year per percent of pay.

Second would be a permanent freeze on all increases in medical coverage for state employees and PERS / TERS retirees. I would strongly suggest converting PERS / TERS medical coverage into Medical Savings Accounts to allow the retirees to deal with the shortfall by themselves. A mixture of fully transferrable MSAs with catastrophic / long term care insurance will nicely address the long term problem of skyrocketing medical costs.

Third would be an immediate repeal of Governor Walker’s outrageous and illegal Medicaid Expansion. Putting some 20,000 – 60,000 new people into a system that is already careening toward insolvency is the height of financial irresponsibility.

Per the fiscal notes for the bill to expand Medicaid, rolling back expansion would cost the state $109 million over 5 years and lost $310 million in federal funds. Legislative Finance finds both estimates speculative and reflect a best case scenario.

Fourth, I would convert UAA into a land grant university and cut at least 50% from its future funding. That way they could start developing / selling lands it holds in trust to pay operating expenses. Their current practice of putting that land into trust or turning it into parks and recreation areas would no longer be financially feasible should they want a continuing budget. This would save $465 million and 2,426 positions on a yearly basis.

Finally, I would cut the overall state education budget by at least 50%, taking the remaining funding in the form of vouchers that go directly to the parents of students to use as they see fit. The surest way to control public education spending is to put the money in the hands of the recipients of the service. I expect the continuing growth of automation, artificial intelligence / learning systems, online courses, videos, and certificates will go a long way to change the current educational paradigm in both the public schools and the universities. This would save some $799 million yearly.

As to revenue enhancements, I have two thoughts. The first is that revenue is directly tied to the flow of product through the Trans-Alaskan Pipeline System (TAPS). If we are doing something that impedes the growth of flow through that system, we ought to stop it immediately. This means shutting down for all intents and purposes the self licking ice cream cone that is the publicly funded green lawsuit against development machine. Passing a loser pays revision to our lawsuit laws will help this a lot. So will the requirement for anti-development litigants to put up a bond equivalent to jobs and money lost for the first ten years of operation of any mine, logging camp, oil or natural gas field. The companies bond to cover environmental issues. Why should the opposition not play under similar rules?

Note that for the record, Bill Walker’s natural gas pipeline will not put more product into TAPS. As such, it should be scrapped in exchange for ANWR, NPR-A, Chukchi and Beaufort exploration and production. Gas to liquids with product shipped down TAPS and sold around the Pacific Rim is an excellent Plan B.

The second thing I would use for revenue enhancement would be to do everything possible to increase the number of full time, high paying jobs for all Alaskans. This means we once again embrace mining. We once again embrace logging. We once again embrace aquaculture (fish farming) for salmon and halibut. The more Alaskans working, the fewer Alaskans need government services. The aquaculture piece would require repeal of state ban against fish farming. The state could trade offshore area within state waters for existing commercial permits. This would simultaneously decrease the commercial fishing pressure on the resource while making more fish available for personal use and sport fishing (tourists).  Note that this would also make salmon / halibut available for commercial harvest and sale year round outside the normal fishing seasons.

An obvious attack would be to ask what skin I have in the game? I am a PERS kind of guy, so this would hit me directly. But it has to be done. I have grandkids in the public schools and soon in the universities. Both education establishments have over the years given themselves to politically correct, male-hating foolishness. In my mind they no longer earn or deserve the taxpayer funded largess they have been showered with.

Are these suggestions a start? Yes. A good one? Maybe. Estimated savings on all of these in my mind is on the order of $1 – 2 billion / year, with more savings coming as the effects of the COLA and medical coverage freezes kick in. We work the other part of the equation by putting more product through TAPS and putting more people to work. More employed Alaskans simply do not need government services or the current level of state spending. And the quicker we can shut down the taxpayer supported green litigation industry, the quicker we can get ourselves, our children and grandchildren to work.

Final thought: I think we can do all this without dipping into the Permanent Fund. Somewhere along the line, that fund should be converted into a support for state spending, much like what Roger Cremo proposed a couple decades ago. But to do it without severe cost and budget cutting would only serve to empty it out in a few years, as nothing is easier to spend than free money.

Listen close to the arguments in the upcoming political year. A few House democrats held the entire legislature hostage last session over a COLA increase for state employee union members. They think they can pick up a few seats to ensure they get to obstruct the next budget. Make sure they are not successful. Every single election is important. Your pocketbooks are counting on you and I to make the right choices.