Rep. Lora Reinbold recently wrote an editorial taking on her colleagues in the Legislature for not cutting the budget enough. Her analysis reflects a fundamental misunderstanding of the state’s budget and omits critical data to make decisions on the budget deficit.
She criticizes them for focusing on “unrestricted general fund” cuts that have been fairly substantial, and not cutting “designated general funds” and “other state funds.”
What do these terms mean? “Unrestricted general funds” come from resource rents and corporate income taxes. They are used to provide services available to all Alaskans. Services like State Troopers, education funding, plowing the roads, the courts, prison systems and Pioneer homes.
“Designated general funds” are funds paid by Alaskans and Alaskan businesses for the specific services that they receive from government. When you buy a driver’s or business license, your fees pay for that employee working there. When a bank is audited for solvency to protect your deposits, the bank pays for that audit. When a fish plant is inspected to make sure it is not producing tainted food, they pay for that inspection.
The amount that Alaskans pay for these services is huge, amounting to $877 million in 2016. When you pay for these services, you expect them to be provided. If you quit providing the service, you would also lose the revenue so you wouldn’t have done anything to address the budget deficit.
The percentage of department budgets that are paid by these fees for services would surprise you.
Department of Commerce: 80 percent. Department of Environmental Conservation: 80 percent. Department of Labor: over 80 percent. Fish and Game: 90 percent. In fact, almost the entire regulatory structure of the state is paid for by fees from the regulated community.
Rep. Reinbold made a number of amendments on the floor attempting to reduce the fee for service budgets of these agencies, even though it would have done nothing to solve the budget crisis.
Every one of these amendments was voted down by a bipartisan vote of 37 to 1, which I guess shows you that at least the rest of the Legislature understands this.
“Other state funds” are contractual obligations of the state such as school bonds and other debt. The state can’t cut these without defaulting on our loans. These amount to $342 million per year which when combined with fee for service designated funds adds up to a whopping $1.3 billion per year.
This is why the Legislature has had to focus on cutting unrestricted general funds which will amount to about a 20 percent reduction for this year and last.
Rep. Reinbold asks: “When you talk about the budget for your household, wouldn’t you balance total expenditures against your total income?” Well not really. Consider this example:
You have a regular job that provides most of your family income but you also have a side business cleaning homes after work. You also have a house payment.
If you took Rep Reinbold’s approach you would say, “Well lets just cut all of our expenses for our house cleaning business.” Well… you could do that but you would also lose all the revenue. Likewise you could say “Well let’s just quit paying our house payment.” but your house would be foreclosed and you would be out on the street.
The reasonable approach would be to make your spending match your revenue from your job, keep the house cleaning business and make your house payment.
So yes, the state will have to make additional cuts and look for efficiencies, but we are down to core services with a few exceptions. If we only keep drawing from our savings accounts to fill the budget deficit and can’t draw from Permanent Fund earnings or institute general tax measures such as a sales or income tax, those savings accounts will be gone and we will really be up a creek without a paddle.
We can’t cut the services that people are paying for. A sales or income tax would only provide a small percentage of the budget shortfall. We must turn our savings into revenue generating assets to have any chance of maintaining the core functions of government: public safety, education, transportation and health. If we don’t, these will be the first to go.
Paul Fuhs is the former Mayor of Dutch Harbor and former Commissioner of Commerce and Economic Development for Gov. Wally Hickel.