Think of the state’s Constitutional Budget Reserve Fund as the rich uncle or rich aunt you can go to when you’re short of cash to pay bills and need a loan. But even that wealthy relative has a bottom to their pocket. Take too much out and that pocket could be empty when you really need it.
It’s like that with Alaska’s budget reserve fund, the voter-approved, 34-year-old savings account that was created to hold excess oil and gas revenues for when the state needs readily available cash to balance the budget.
The budget reserve provides an infinitely more responsible option than pulling money out of Permanent Fund earnings in years when oil prices are too low to cover the cost of public services and the cherished Permanent Fund dividend. As long as Alaska is dependent on the oil industry as the largest source of earned income for the state general fund, we’ll be subject to the risk of a dry hole in oil revenues whenever prices take a dive.
Which means it’s absolutely essential that the state maintain a healthy balance in the budget reserve. For if that pocket comes up empty, the only option is to pull more from the Permanent Fund earnings account than it can afford. That would be like draining your retirement savings at middle age, leaving you short for a healthy senior citizen life.
Yet, that could be where Alaskans are headed. And it’s our own fault for electing the wrong leaders, ignoring the math, burying our heads in dreams of oil wells, and hoping that Taylor Swift will hold a benefit concert for the state treasury.
It takes a little more than $6 billion a year in general fund revenues to pay a dividend, fund schools, Medicaid, road maintenance and other state-supported public services for 736,000 Alaskans. Most of that money comes from a managed, annual draw on Permanent Fund earnings. And it all balances when oil prices are high enough.
But when prices are low, the Legislature, the governor and the public rely on the budget reserve to cover the gap — as it has done about half of the years since it was created.
As of Jan. 31, the budget reserve stood at $2.76 billion. That may seem like a really rich uncle, but draws on the account have exceeded $1 billion in several years of low prices — even more than that in really miserable low-price years.
Which is why it was so disturbing to hear Gov. Mike Dunleavy’s budget director tell the Senate Finance Committee on Feb. 2 that while it would be good to keep a healthier balance in the reserve, $400 million to $500 million may be all that Alaska can afford.
“While the desire would be to have a larger savings account, upwards of $2 billion or more,” Lacey Sanders told the committee, “the administration recognizes that we are needing to continue operations of the state and have a balanced budget, and that means going below.”
Sounds to me like emptying the pocket.
“We also recognize that the state is in a position right now where we do not have a fiscal plan,” the budget director said.
That pretty much sums it up. No plan to balance expenses with honest revenues. No political courage from the governor to propose a detailed, realistic plan. Nothing from too many legislators other than to win their next reelection.
Even worse, the governor’s proposed budget for next year, which includes an unaffordable PFD, is short about $1 billion in revenues, which he proposes — yes, you knew this was coming — to take out of the budget reserve.
Draining reserves is not a fiscal plan. It’s selfish, and it assumes the aunt or uncle exists only to help the current generation and no one else.
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