Dunleavy has made a real mess of things, but at least there's a silver lining
The veto blunder protects Alaska Permanent Fund and forces legislators to get serious by taking away the easy money.
Good afternoon, Alaska! It’s been quite the week since I last sat down to write this newsletter, so let’s catch up on the “fun” that the governor has been getting up to in the last week.
In this edition: The veto blunder and its silver lining, and a break update.
One man’s error, is another state’s treasure
Gov. Mike Dunleavy kept everyone waiting on his budget vetoes with the spurious claim that he hardly had any time to review the document that was unchanged since it cleared the Legislature two weeks earlier. He apparently signed the budget on Wednesday, announced his vetoes—including his veto of the PFD—on Thursday and finally transmitted the budget to the Legislature on Friday, where eagle-eyed budget nerds noted that single biggest veto Dunleavy had promoted on Thursday was nowhere to be found in the official budget document. Dunleavy claimed that it was just a simple drafting error that left in place a $4 billion transfer from the Alaska Permanent Fund’s easily spent earnings reserve account (where he’d very much like to overspend about $4 billion on PFDs and “bridge” funding for his less-than-realistic budget plan) to the untouchable corpus of the fund. The Legislature should let it stand anyways, he argued, but the Legislature, which is a fan of the transfer and not much of a fan of Dunleavy, said he wouldn’t get a do-over and, today, Dunleavy relented on the issue, saying he wouldn’t fight the transfer.
“Someone screwed up,” Rep. Andy Josephson told the Anchorage Daily News when the error was discovered last week, “and I believe it’s for the benefit of Alaskans.”
Or, as columnist Dermot Cole put it so well, “Celebrate the reign of error: Dunleavy's $4 billion boo-boo creates a more financially secure future for Alaskans.”
For a week that has included plenty of troubling developments as the governor turned his veto pen on scores of social safety net programs such as public health nurses, Medicaid, Alaska Legal Services and pre-K grants as well as funding for public broadcasting, the Alaska Marine Highway, tourism marketing and the Alaska Long Trail project, there’s certainly some silver lining to be had in the governor’s failure to veto this transfer. This is $4 billion, a little less than half of the realized earnings in the Alaska Permanent Fund’s earnings reserve after the allocation for government, that will be locked away from legislators hands… forever. In basic terms, every billion dollars in the Alaska Permanent Fund equals about $50 million spendable investment revenue so this represents the state locking in $200 million of annual revenue… forever.
It’s impossible to overlook the fact that the governor’s fiscal plan calls for spending an extra $4 billion from the Alaska Permanent Fund between this year’s PFD and bridge funds to get to when he claims his detail-light long-term fiscal plan will balance. Paying bigger dividends and punting on the hard decisions would have (and still could, depending on how the fall special session goes) resulted in a deficit that’s $200 million larger, meaning whatever measures we use to close it have to be that much bigger.
There’s a price for overspending.
In the near-term, the impacts of the failure may be more nebulous, but it takes a significant chunk of the state’s easily spent savings off the table and with it one of politicians’ preferred ways of making ends meet: Money.
When this whole financial debacle descended on Alaska, I spent a lot of time talking with folks about what it’d take for the Legislature to finally act on a long-term solution to the state’s financial woes as we watched them burn through billions of dollars in the Constitutional Budget Reserve, claiming that next year will be different. One a former legislator told me that as long as there’s easy money out there that legislators will take the easy way out. The only way to really reach a long-term solution, this legislator argued, was to run out of money. This was specifically in context of them arguing in favor of a larger PFD, making the point that it’d have the knock-on effect of burning through the state’s savings that much faster, forcing legislators to make real decisions about the future of state government that much sooner. This, in effect, does just that.
Talking in very oversimplified terms, the transfer leaves about $5 billion of realized earnings left in the earnings reserve account and with several billion dollars more in unrealized earnings. It’s nearing a point where fund managers have warned might not be enough to weather down years (Even during the final days of session, some legislators who had supported the transfer conceded that they may have transferred too much).
So that’s all to say, whatever interest there may have been in overspending the fund in the name of buying votes has likely evaporated as a market correction or inflation or one of the many other boogeymen lurking around the state’s budget could erase billions of dollars in value and make things really difficult, really fast.
Not only does the failure sock away the money, but it also erases whatever buffer there may have been for legislators to hold their noses and vote to overspend on things like the PFD and punting on the hard decisions.
Congratulations, Mr. Dunleavy, you just played yourself.
The view from Arctic Valley
Thanks everyone for the very kind words and birthday wishes. I got to celebrate my birthday waking up at the Arctic Valley cabin (which is deluxe) and spent just about zero time worrying about politics. It was all so good, that it took me a while to knock off the rust and get caught up on everything (hence the lateness of today’s edition) but I’m feeling fresh and motivated. Thank you, Matt.