It’s embarrassing that it took billions of dollars in losses for some legislators to acknowledge that the state’s fiscal house is leaking worse than a broken downspout on a Southeast Alaska roof.
It’s too bad Gov. Mike Dunleavy acts like he has barely noticed the growing pool of mud at his feet.
Start with the Permanent Fund, which generates investment earnings that have become the largest single source of revenue in the state budget. Last year was painful for most every investor, and Alaska was not immune to the downturn. The fund dropped almost $7 billion in market value between Dec. 31, 2021, and Feb. 28, 2023.
The Permanent Fund is still healthy, wealthy and wise, just less wealthy at $75.5 billion on Feb. 28, down from $82.4 billion at the end of 2021.
With wise investment policies, the fund will recover, in time, from the miserable year. But what the down year means is less money for state-funded public services and, yes, the exalted Permanent Fund dividend. State law limits annual withdrawals from the fund to 5% of its average market value of the past five years. Throwing a big loser into that mix drags down the withdrawal for years to come.
Based on the Permanent Fund’s own projections as of Feb. 28, the annual withdrawal for the state budget for the rest of this decade, through fiscal year 2030, will total almost $1.6 billion less than had been projected back on Dec. 31, 2021, before markets started to crash.
Yes, the fund could have some great years before 2030, driving up its returns and making more money available for state services and the dividend, but neither the Legislature nor the governor should bet on beating the projections — though the governor seems intent to bet heavily that all will be well.
Dunleavy continues to talk about paying historically large dividends to Alaskans; he continues to oppose any taxes; and he persists with dreams of making billions of dollars by getting companies to pay the state not to harvest trees and to lease public lands to store carbon emissions underground. Not totally outlandish ideas, but full of unproven technology, untested markets and years away from making any money.
Adding to the fiscal reminder that revenues can move down just as easily as up, falling oil prices have smacked legislators upside the head this year, too. And it hurts.
Alaska North Slope crude sold for almost $128 a barrel last June and $90 on Dec. 1. It was at about $73 to start this week.
The drop in oil prices means less tax and royalty revenue for the state — about $925 million less, in total, than had been projected in December for this fiscal year and the next year, according to the Alaska Department of Revenue’s latest forecast issued last week.
The reality of lower state revenues rang the proverbial wake-up call among many legislators, with the Senate Finance Committee scheduled to hear a bill this week that would collect hundreds of millions of dollars a year more from oil producers.
The House Ways and Means Committee this week opened consideration of a state sales tax bill.
And a growing number of lawmakers in the House and Senate are talking of rewriting the formula for calculating the Permanent Fund dividend to something affordable rather than the politically popular false pledge of the governor and his supporters.
Sometimes, bad news can be good news if it makes people smarter.
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