With West Texas Intermediate (WTI), the U.S. benchmark oil
price, at $46.07 on January 12, 2015, lawmakers in Alaska were getting nervous
because the government was relying on oil-industry taxes to cover 89% of the
government’s operating revenue.[1]
At the time, the government had a $3.5 billion deficit in the $6.1 billion
budget. How the governor, Bill Walker,
planned to deal with the shortfall can give us a glimpse of what fiscal
responsibility might look like in government.
In spite of the huge deficit relative to the total budget,
Walker was asking government agencies to reduce their respective budgets by
only 5% to 8% for the coming fiscal year. To cover the rest, the governor
planned to “dip heavily” into Alaska’s $14 billion in reserves.[2]
Merely having reserves is itself fiscally responsible. In California, Gov.
Jerry Brown had contributions to a “rainy day” fund as part of his budget even
as the University of California clamored for $100 million more in funding—a
request the governor rejected as exorbitant.
The fiscal responsibility goes even further in Alaska. The
government was diverting only $300 million of the $6.76 billion in oil-tax
revenues it expected to collect over the two-year period ending June 30, 2015
toward operating costs—the rest of the revenue going to trust funds, capital
projects, and local governments.[3]
The continued contributions to the trust funds strike me as particularly
responsible, given the political temptation to skimp on them in order to
obviate budget cuts of even 5 percent.
In short, Alaskan fiscal responsibility can be characterized
as balanced, with budget cuts going along with tapping reserves and continued
contributions to trust funds. A return to higher oil prices would signal
attention to making up for the reserves’ depletions and adding still more to
increase the reserves. In the long term, the reserves could reach a level at
which the operating budget is funded entirely by the reserves’ investment revenue.
With enough self-discipline to forge ahead with a sustained fiscal responsible
policy, governing officials can make taxes obsolete.
[1]
Ana Campoy, Mark Peters, and Erica Phillips, “Energy-Heavy States Get a Crude
Awakening,” The Wall Street Journal,
January 13, 2015.
[2]
Ibid.
[3]
Ibid.
