When You Boil It Down

From Sap to Syrup

This is the time of year for boiling things down, whether in the syrup industry or in the capital city.

“Sugarmakers” are busy collecting sap during this season and embarking on the arduous adventure of making syrup. This means time in the elements collecting buckets full of sap, reducing and evaporating  the sap down to syrup at a ratio of anywhere from 40:1 (maple sap) to 110: (birch sap), and final processing, bottling and packaging.  In Alaska, sans maple trees, the few dedicated sugarmakers in our state have to collect 110 gallons of birch sap to make just 1 gallon of syrup. That’s equivalent to two 55-gallon barrel drums of sap  to make a single 1-gallon jug of birch syrup! That’s dedication, folks. (A big shout out to all the sugarmakers, the syrup producers out there. Our waffles and pancakes and palates thank you! It’s a challenge, but the sugarmakers do it!)

Our challenge at this time of year in the state capital is to reduce down, like sap to syrup, all the talk, the new stories, the hearings, the slide presentations, the press conferences to what is the essence, the base concept, of what is being proposed.

I will give it a go.

Two Points You Can’t Dismiss

Before we discuss any particulars about the budget, I need to lay a foundation and clarify two fundamental points about our current situation:

1. Although there are some legislators (I am one) who very much would like to reduce the budget, there simply are not 21 out of 40 in the House nor 11 out of 20 in the Senate (based on who the voters sent to Juneau) who support reducing operating expenditures at this time. You can love or hate that fact, but it is our present reality.
2. Unlike our federal government that does not require Congress to pass a balanced budget and can print money and rack up debt, your state legislature cannot do that. We are constitutionally obligated to pass a balanced budget.

Together, numbers 1 and 2 above mean that if the incoming funds aren’t enough to cover expenses, other sources of funds will be tapped – in other words, we may have to figure out the best options of options we don’t like.

Where the House Stands

The House Majority supported an operating budget with a reduced PFD ($1300 less than original formula) but fair PFD, one with an even split (a 50/50 split of the draw, in other words half for government, half for the PFD), the use of some savings, and a $600 million shortfall.

The House Minority voted against this budget but has spoken repeatedly about the need for a comprehensive fiscal plan and in favor of considering new revenues, with some favoring a 50/50 PFD and others a PFD tipped toward government spending.

Overall, this signals the House’s willingness to work on putting our fiscal house in order with multiple components to close the gap in a broad fashion this year and in future years. They support doing this without targeting a single segment of the population or a single industry, with more in the House in favor of the following than not: a 50/50 PFD, some new revenue, and some savings.

Where the Senate Stands

The Senate Majority’s version of the budget has a reduced PFD ($2700 less than original formula) but unfair PFD, one with an uneven split (a 75/25 split of the draw, 75% for government, 25% for the PFD), uses no savings, and has no shortfall. Although this version was primarily crafted by one of the Senate Finance co-chairs, it appears based on statements made throughout the session that a majority of this caucus actually prefers increasing spending for schools and a pension system and supports consideration of taxes. Some also prefer a 50/50 split or at least an achievable stairstep to a 50/50 split over time.

The Senate Minority prefers the House’s version of the budget – a more balanced approach than just targeting the PFD to close the fiscal gap. Its members have consistently supported a comprehensive approach for both the budget and the fiscal plan which includes spending restraints, a fair and consistent 50/50 PFD, and if reductions are not politically achievable, the least economically disruptive revenue measures possible to avoid undermining and stifling the private sector and to instead encourage economic growth and ingenuity.

Overall, in the Senate, the varied views signal interest in looking beyond the PFD as the sole source for new revenues and indicate a lack of readiness to dismiss the 50/50 PFD split concept. But in the Senate Majority, interest does not yet equate to willingness. Until the Senate Majority is willing to take steps and does not just stand and wave the flag for the just-use-the-PFD position in the caucus, most ignoring their own preferred positions, the legislature will continue this short-sighted approach that creates annual budget chaos.

Sap to Syrup

So in summation, the Senate Majority is not philosophically united but for now has chosen the just-use-the-PFD route. The smaller segment – which is currently calling the shots – wants to spend and use the PFD to pay for spending (with zero protection for the PFD so eventually it would be used up altogether) without budget restraints for times when oil prices are high. A larger segment is mixed on the PFD but wants to spend and tax to pay for spending without budget restraints for times when oil prices are high and with the ability to turn up the tax spigots at will.

The Senate Minority is unified: its members support a fair, comprehensive, orderly fiscal house: true downward pressure on the budget (spending limit and reasonable reductions), fair and consistent 50/50 PFD, and least economically disruptive revenues.

The House Majority has views similar to the Senate Minority and the House Minority shares some of them too, but most importantly right now is that both House caucuses and the Senate Minority have openly stated they want a fiscal gap solution that encompasses more than PFD cuts.

For those who saw the news stories about the governor’s press conference last week with legislators on the topic of a fiscal plan, the reporters indicated everyone was all over the map. It certainly did appear that way but the truth is everyone in the legislature is not all over the map. Was there lack of forthrightness at the press conference? Perhaps. But when you distill down what members of the caucuses have been saying over time, how they’ve been voting, if you listen closely, there is agreement and crossover between three of the four caucuses on moving forward to craft a fiscal plan for certainty into the future: the House Majority, the House Minority, and the Senate Minority. The Senate Majority is missing from the mix.

Now Take All That and Distill It Down Even Further

Unless the Senate Majority moves off of high-center, there will be no comprehensive solution, and everything will rest on the inadequate and faulty resolution of solely reducing the PFD.

What does putting all the eggs in one “PFD reduction” basket mean?

• We lose out on the 5X multiplier effect of the PFD dollar in the private sector strengthening our economy
• The PFD will continue to be the go-to for spending so the PFD will continue to shrink over time
• Because there is no spending cap and no protection of the PFD, legislators will dip further into the PFD cookie jar until there is no PFD – and then high taxes will replace the PFD cookie jar
• Spending will spike whenever oil prices are high
• PFD cuts and taxes will spike whenever oil prices are low
• Low- and middle-income families will bear the brunt of paying for government because PFD cuts are the most regressive option of raising revenue for government
• Non-residents will not pay a penny to help close the gap
• Less private sector capital investment will occur in Alaska due to the fiscal uncertainty
• Fewer businesses will want to set up shop or expand in Alaska due to the fiscal uncertainty
• Fiscal uncertainty will mean a bleaker future: fewer jobs, weaker economy, poorer housing market, less state and local revenue, and inferior infrastructure The bottom line? Hard-pressed rather than thriving communities

Under just-use-the-PFD pseudo solution, the syrup bottle needs a warning label: “Leaves a bad taste in your mouth.”

Let’s hope the House can convince the Senate Majority to move off of high center. The House has levers it can pull to put pressure on the Senate Majority, and I welcome and support their efforts – even if it means rocking the boat. The governor, of course, has options too, and I would welcome and support his efforts to break this 8-year, 365-days per year, perpetual Groundhog Day where we wake up each morning without a solid fiscal plan, without sure footing, without clear parameters, and without certainty for our state budgeting or for our economy.

As Alaskans, you can help by urging the Senate Majority to work with their colleagues in the other three caucuses. Urge the Senate Majority to take a multi-pronged balanced plan approach that better takes into account all Alaskans and our economy rather than targeting the PFD to its death, providing no long-term fiscal certainty for our economy and businesses, and overburdening certain residents more than others.

You can help as well by letting the House Majority, the House Minority, and the Senate Minority know you stand with them in establishing a comprehensive fiscal plan.

To see which House members are in the Majority versus the Minority, and the same for the Senate, scroll to the very bottom right of this page to find links to the four caucuses. Here are email addresses for all sixty legislators, 40 House members and 20 Senate members.