A presentation to the Anchorage Hillside Rotary Club on October 24, 2019, on Alaska's current fiscal situation, how we got here, where we are and the options for where we go from here.

1. Alaska’s Fiscal Situation
Where We’ve Been …
… Where We’re Headed
Brad Keithley
Managing Director, Alaskans for Sustainable Budgets
October 24, 2019
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2. About Alaskans for Sustainable Budgets ...
Similar to the efforts of the Committee for a Responsible Federal Budget,
Concord Coalition and Peter G. Peterson Foundation at the federal level,
Alaskans for Sustainable Budgets is a project focused at the state level
on increasing awareness about the nature and urgency of key fiscal
challenges facing Alaskans, and developing and advocating for reasoned
approaches in response.
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3. Where Have We Been …
FY2013 - 20
2013: SBR Drawdowns
2015: CBR Borrowing
2017: PFD W/holding
Total
$20.72 B in deficit
financing
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4. Where Are We Headed …
FY2020 - 29
Average annual deficits =
● Traditional Revs: $2.5bn
(52% of spending)
● Current statutes: $1.3bn
(27%)
● POMV 50/50 PFD (Sen.
Shelley Hughes): $0.8bn
(20%)
Zeroing out through “cuts only”
would require -1.45% nominal
(-3.7% real) cuts annually
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5. But that is overly optimistic …
10-year revenue
projections are
based on $66 oil
and rising, but …
… current futures
markets are telling
a significantly
different story
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6. What Are The Options for Closing the Gap …
ISER (2016) ITEP (2017)
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7. What Are the Effects ...
Available at the
ISER/ITEP studies …
… using PFD cuts
as an example
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8. “Reductions in the PFD are steeply regressive,
having a far larger impact on families with lower
incomes. Figure 5 demonstrates that while a $784
cut to the PFD payout could free up approximately
$500 million for Alaska’s budget, that gain would
come at a high cost for Alaska’s most
vulnerable residents. Low-income families could
expect to see their incomes cut by 7.2 percent
under this change while the impact on
middle-income families would amount to 2.5
percent and high-income Alaskans would see
impacts well below 1 percent of their incomes.
“... the impact on the bottom 20 percent of
earners (at 7.2 percent of income) is nearly ten
times as large as the impact faced by the top 20
percent (at 0.8 percent of income).”
Comparing the Distributional Impact
of Revenue Options in Alaska
Institute of Taxation and Economic Policy
April, 2017
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9. ISER conclusions ...
“ The impact of the PFD cut falls almost
exclusively on residents, and it is highly
regressive, so it has the largest adverse
impact on the economy per dollar of
revenues raised.” -- Short-Run Economic
Impact of Alaska Fiscal Options (May 2016)
“ A cut in PFDs would be by far the costliest
measure for Alaska families.” -- How Much
Might Closing the State Budget Gap Cost
Alaska Families? (Feb 2017)
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10. What Do We Support and Why ...
Three pronged
● PFD based on POMV
50/50 (Sen. Shelley
Hughes)
● Limit overall spending
growth to no more
than inflation
● “Flat Tax” (based on
AGI) to close the
remaining gap (1% =
$250 million)
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11. What Do We Support and Why ...
Why a “Flat Tax”?
● Equitable
● Broad Based (low
rate, low
economic impact)
● Critically, ALL
Alaskans have a
financial incentive
to reduce costs
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12. A Very Quick Word on Oil Taxes ...
At forecasted oil prices,
production taxes are
projected to average
$517 million/year over
next 10 years
Initiative would add $1
billion/year (raise tax
levels 3x)
No “substantial analysis
of impact”
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13. Thank You
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Alaskans for Sustainable Budgets
… and Tuesday’s from 6:20 - 7:00 am on
The Michael Dukes Show
michaeldukesshow.com