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For a thriving economy, government spend must come down even more

By DONNA KAURANEN

One year ago, Gov. Mike Dunleavy submitted a budget representing the starting place for his budget challenge, a gap of $1.5 billion dollars on a $6.7 billion state funds budget, over a 20% difference between annual revenues and expenditures.

While Alaska’s budget gap had developed over time, the governor directed his Office of Management and Budget team to provide him options to close that gap in one year with no new revenues and no borrowing from reserves.

Alaska had borrowed from reserves for six years, drawing down rainy day funds and racking up a debt of over $10 billion to the Constitutional Budget Reserve (CBR). OMB worked with state agencies and brought options to the governor to meet his direction.

The Permanent Fund Dividend is not included in these numbers because, while the Alaska courts have ruled the Legislature can ignore statute and set a dividend amount through the budget, the governor has been, rightly, steadfast in his policy that dividends must be distributed according to decades-old law to Alaskans who are the owners of subsurface resources.

After the governor’s final budget submission in February, he made presentations around the state, some with Commissioner of Revenue Bruce Tangeman and me, laying out the case in numbers and graphs that Alaska had been spending beyond its means for years and needed to cut its budget, and that it was running out of time to do so, given the squandering of reserves that preceded his governorship.

He has more than one year to fulfill his policies, but seems to be taking budget reducing options off the table and is instead tilting toward additional taxes.

In addition to the mathematical reality, there was an economic reality to the governor’s policies. My former colleague and Alaska economist Ed King has been telling us consistently, Alaska is a high-taxed state. While this economic fact may not be obvious, as Milton Friedman said:

“Keep your eye on one thing and one thing only: how much government is spending, because that’s the true tax … If you’re not paying for it in the form of explicit taxes, you’re paying for it indirectly in the form of inflation or in the form of borrowing. The thing you should keep your eye on is what government spends, and the real problem is to hold down government spending as a fraction of our income, and if you do that, you can stop worrying about the debt.”

Every dollar government spends is a dollar not used for labor or investment in the private economy. If Alaska desires a diversified economy with a thriving private sector, it must reduce the amount of money government spends.

Alaska’s state government spends more than twice the amount on government than the national average of states on a per capita basis, or $13,000 per every man, woman and child in Alaska compared to $6,000 in other states.

While Alaska enjoys a strong GDP per capita, a significant portion of its GDP goes to government. In addition, Alaska’s private economy is significantly dependent upon government.

Compare Alaska to Florida, for example, a state whose existence was largely developed after the U.S. Army Corps of Engineers dredged the Everglades and when the availability of electrical air conditioning occurred not long before Alaska’s Statehood.

Florida’s state government spending per capita ($3,640) is only 27.6 percent of Alaska’s government spending per capita of $13,000.

State spending compared to state GDP in Alaska is over 18 percent while Florida’s is 7.5 percent.

Alaska’s government debt compared to state GDP is almost 20 percent, while Florida’s is just over 12 percent.

Alaska consistently loses population to other states, while Florida has had the second highest net domestic migration over the last decade.

The Fraser Institute measures the economic freedom of states based on taxes, spending, and labor market freedom. The Frazier Institute ranks Florida second best and Alaska third worst state on its economic freedom index.

I have learned through my vast experience that sticking with fiscal and economic policies that are politically difficult in the short run are economically beneficial for the long term. Washington D.C. has shown us this recently as the U.S. economy is enjoying the benefits of the Tax Cut and Jobs Act of 2017, including a 50-year low in the nation’s jobless rate.

Alaska is a beautiful state with tremendous opportunities if its leaders are willing to do what’s necessary to embrace them.

Donna Arduin Kauranen  is the former director of the Office of Management and Budget and is the president of Arduin, Laffer & Moore Econometrics .

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  • Great Post Donna!

    Alaska spends 2x+ what most states spend per capita, and as you point out 3X+ what states like Florida spend. We have developed the most expensive state government in America! Even states with our same size population like South Dakota spend half of what we do, and this is true even when you correct for state + local (city+borough) expenditures. All of the numbers are published on numerous sites. Our 23,000 state workforce should be about 11,000.

    Alaskans wake up! Support your governor and get this spending under control.

    https://ballotpedia.org/Alaska_state_budget_and_finances

  • Great article. Thank you so much, Donna, for staying engaged. You are still an observant proponent of Alaska’s fiscal needs (restraint) as well as our potential.

    I hope to get some moments with you again in the future. My thanks to you Suzanne for distributing Ms. Kauranen’s observations.

  • We have reached the turning point where the majority of those who vote do so because they derive a benefit from bloated government. These same special interest voters own the majority legislators through their extensive networking. There is a strange marriage between the Socialist Democrats and the Crony Republican Capitalists. Both groups have their hooves firmly planted in the government feeding trough. The end result will be the extermination of the PFD and a statewide taxing formula forced down the throats of citizens. This is our legacy going forward Alaska. I have the utmost respect and appreciation for Donna Arduin. I fear this letter is her swan song.

  • In a world where royalties count as taxes. Where the cost of living in the coldest Northernmost State is compared to FLORIDA without one shred of introspection.

  • A few questions:

    What is the snow removal budget for the State of Florida?

    How many schools in Florida are inaccessible by road?

    What is the average price of one kilowatt in Florida at the meter?

    What is the average price of diesel in Florida? Does anyone in Florida have diesel delivered by river barge?

    How many separate power grids operate in Florida?

    How many State maintained airports does Florida operate (in conjunction and under the mandate of FAA)?

    Do you have any proposals to address the realities of delivering government services at a lower cost per capita or do you want to maintain the pretense that there are not real world limitations that need to be addressed if we are to make good decisions about decreasing the budget?

    • Oh wow Art! Thank you so much for pointing out that Alaska is more expensive. I bet Donna did not realize that.

      Perhaps instead of crying about the obvious we should consider how many of those high cost services we really need?

      Just a crazy thought.

      • Yeah, funny thing is I’m not the one of the two of us who got paid 6 digits to do what you propose.

      • And frankly the Governor doesn’t have the guts to tell the villages that he needs to close shop so that we can provide welfare, education and Medicaid services in a location that doesn’t have an exorbitant overhead. Instead he chose to whistle past the graveyard and specifically NOT focus on the cost drivers that Donna generalized here.

    • These are good points, and I know from experience, living in the Bush, that these are uniquely Alaskan points. Still, we could still be the most spendy state, for those reasons, but more than half the people live in southcentral, where these factors are not present. It seems like we could cut at least a third more.

  • You make an interesting argument but there is a flip side to that argument. I live in Florida. We do have low government spending which is kept in place by an elderly population that lives here six months out of the year. Many of these people return to high tax states for the summer because their families live there and the quality of life is better. For those of us that live here full time- education, healthcare and the environment are severely and chronically underfunded. Quality of life for the large number of low income families that work in the vast service industry economic sector is difficult particularly with regard to housing and health. The environment, once Florida’s prime selling point (pun intended), is fast eroding particularly because of water contamination and sea level rise. Turns out that a rapidly increasing population is not good for the environment. So, when you are debating your tax situation in Alaska add this information to the discussion as well. There are some good things in high tax states and having a shrinking population may not work for certain economic sectors but I may be moving to Alaska in the future when Florida completely implodes from the fabulous economic prosperity.

    • Perhaps you could tell us something about Arduin’s time in your state? As I understand it your legislature got fed up with her for the same reasons ours did — she produces fantasy budgets that give us Friedman quotes and laisez faire dreams but no hard numbers.
      _
      For all of the assurances of austerity advocates there is very little evidence for their theories and plenty of counter examples. Like every single Nordic country. Why can’t we be doing as as well as, say, Finland

  • The trouble is most folks have limited understanding and little curiosity regarding economics much less the arguments made in the arcticle and who Milton Friedman is. The author was attacked viciously by her detractors over her many months and destroyed through invective. She was framed as being an ” outsider” and an evil destructive force. I applaud and appreciate her work. Sadly I fear our State will continue to deteriorate until all the cookies are gone from the jar.

    • OTA,
      I agree with you.
      Absolutely, Alaska will continue to deteriorate under leftist political domination and greed for other peoples’ money to support their “needs”, locally and statewide. Those disappearing “cookies” in the state jar are being used to accommodate, accelerate and perpetuate leftist demands for “more”, at the rest of Alaskans’ expense. This entire progression of deterioration can be stopped in it’s leftist tracks. It will take conservatives stepping up to the voting booth. Same old story, but true. If that doesn’t happen….wait a few years and take another look at Alaska’s overall condition, with political environment, private employment, taxation, education, representation and living expense in Alaska being foremost. Under continued conservative political loss, we don’t stand a chance. We must vote.

      • Do the cookies include non-renewable resources that are getting removed at no benefit to the State?

        • Which non-renewable resources are being removed at no benefit to the State?

          • Basically any metal mine. After remediation and cost recovery for services provided most are a net negative. Shareholders make money. (I own a bunch).

            I know you don’t believe it’s possible that multinational mining corporations are anything but goodness and light and that I have zero chances of dissuading you, but I still find it laughable how you think you’re a conservative and line up on the side of Murray Rothbard and Art Laffer (and his nutty associate here).

            Corporate piracy isn’t conservative or good for a nation (or State).

          • Mining puts money into state coffers. The state makes money off of mining. State management of mining costs the state less than the revenue generated in taxes and fees meaning that mining is a benefit to the state.

            You don’t know what you think you know and your response here proves it. Nowhere in anything that I’ve written would any reasonable person think that I believe “multinational mining corporations are anything but goodness and light”. Who is claiming that corporate piracy is conservative or good for a nation or state? And why do people like you continually and falsely attribute view points to others as a way to try and make a point, is it because you know you are wrong and cannot prove your point any other way?

          • Mining put a pittance into State coffers. Local hire is the bribe that gets simps to go along with letting the corporations get to raid the resources of their targets.

            .

            I read what you write and can tell you are proud of your pro-corporation libertarianism because here you are cheering on a Laffer associate.

          • The payout in PFDs to mine employees isn’t even covered by mineral royalties. You have no idea how to math.

          • Which Laffer associate am I cheering on? I simply questioned your claim about non-renewable resources being removed at no benefit to the State. You incorrectly said metal mining. If you are unable to name any non-renewable resources being removed from the state without benefit to the state then your statement is incorrect. I know you want to make this about me, but it’s not about me at all. It’s no big deal you made an incorrect statement, own it and move on, there is no reason to attack me because you were wrong.
            .
            While I may “have no idea how to math”, you have no idea how to English, you also have no idea how to correctly answer a question…Which non-renewable resources are being removed at no benefit to the State? Hint, it’s not metal mining.

          • It is metal mining. If I have to be so pedantic as to include NET benefit then it IS about you.

            .

            Also, if you can’t be troubled to educate yourself about the author of the piece and the name of their disaster capitalism business THAT is also about you.

          • From the footer:

            .

            “Donna Arduin Kauranen is the former director of the Office of Management and Budget and is the president of Arduin, Laffer & Moore Econometrics .”

            .

            Fun times. I’m here communicating with you. Do you care that vulture capitalists are parting out our nation to the highest bidder? Is your dedication to an economic model your religion? Libertarian ideals do nothing to preserve border, language or culture.

          • Got it, you will never admit you are wrong. Instead you will double down on your attacks, since you cannot back up your argument. You claim to be a shareholder, then you admit that mining puts money into the state coffers, then you talk about “NET” benefit and it somehow being about me??? You certainly are confused as this has nothing to do with me.
            .
            Which non-renewable resources are being removed at no benefit to the State?
            .
            Mining is a benefit to the state, no matter how you try and make it a personal issue and try to change the subject to borders, language, or culture. Try and stay on subject.

          • It really is a simple question, which non-renewable resources are being removed at no benefit to the State?
            .
            Metal mining provides a benefit to the state, so which non-renewable resources are you talking about.

          • Steve-O, you don’t understand what the concept of a balance sheet is. Mines and their employees place liabilities on the State. Paying PFDs, maintaining infrastructure, educating their families, monitoring and remediating the 30 mile long supefund sites that they create when they let lead ore blow all over the tundra. These liabilities are not recouped by the pitiable amount that the State receives in royalties.

            .

            Your willful ignorance means I’m done here now.

          • I Art,

            Besides your continued and baseless attacks on me, do you have any information to answer the question, which non-renewable resources are being removed at no benefit to the State? You obviously dislike mining, but you are bringing your emotions and false information and not bringing facts. Mining brings benefits to the state.
            .
            Superfund sites are not funded by the state they are in. Your willful ignorance is on display. Maybe instead attacking me you can inform yourself before spreading false information.

          • While you claim (with no proof or reason) that I don’t understand what the concept of a balance sheet is, superfund sites do not make the list. Your other examples are tenuous at best, PFD’s…really?
            It doesn’t look like you’re accounting for the out of state mine workers, would you put them in the benefit column of your spreadsheet since the state doesn’t have to pay them a PFD or their children’s schooling? You are grasping at straws to support your incorrect statement, all while you continue to insult me in an effort to deflect. It’s sad to see from you since you don’t typically resort to those flawed tactics.

          • Four-Flusher, it’s fun watching you scratching around for a foundation to stand on after you have lost an argument. Heheh!
            What even more pitiful is that you actually think you are holding your own.

          • What argument are you talking about Bill? A question was asked and I Art couldn’t answer it, instead of answering the question he repeatedly insulted me. Like you, when I Art is unable to defend what he writes he chooses to lash out and attack others who dare question statements that he cannot back up.
            .
            Maybe you would like to take a shot at answering the question, or just feel free to join in and insult me some more since you are also unable to answer the question.
            .
            Which non-renewable resources are being removed at no benefit to the State?

          • Four-Flusher, it is easy to see that if there is no “NET” benefit to the State there is no benefit. You apparently see it differently but we also know how far you are willing to go to keep from admitting when you are wrong. Heheh!
            Basically, if it costs the State more than it takes in from that industry then there is no benefit to the State. No brainer. Tough noogies!

          • Bill,

            Thanks for proving my point.

            You said “it is easy to see that if there is no “NET” benefit to the State there is no benefit.” There is a “NET” benefit to the State, thus there is a benefit.

            “Basically, if it costs the State more than it takes in from that industry then there is no benefit to the State.” Once again it does not cost the State more than it takes in, thus there is a benefit to the State.

            “No brainer. Tough noogies!” I agree completely, now that you’ve proven yourself wrong with your own words are you going to own up to it?

            Don’t believe me, the conservative think tank that is ISER has already done the research…
            “Mining brings in about six times more than the state spends to manage it.” https://iseralaska.org/2015/12/research-matters-no-96-commercial-fishing-mining-and-tourism-state-revenues-and-spending/

            No brainer indeed!

          • You don’t English well Steve-O. The management of these resources doesn’t account for total liabilities to the State. Got any articles you want to misconstrue?

          • The problem with your thinking here Four-Flusher is that you use only the costs of managing the industry.
            The costs to the State are much larger and I Art touched on several of them.
            Tough noogies indeed!

          • I Art,

            I am horrible at the English, and the math as you previously noted, plus I don’t even know what a spreadsheet is, like at all…I am basically an uneducated fool who doesn’t even understand how dumb I am.
            .
            And yet somehow you cannot answer my simple question. When I asked you which non-renewable resources are being removed at no benefit to the State and you said mining, I took that to mean that there was no benefit to the State, since that’s what you said…my mistake. I should have known that when you said no benefit you meant that there are benefits, but that you are opposed to mining. Thanks for the clarification.
            .
            Seriously, when Bill Yankee is in your corner you have to know you made a wrong turn somewhere along the line.

          • I Art,

            I would like to misconstrue this information…wait does misconstrue mean to share with people that are ignorant, I don’t know since I don’t English good.
            .
            Here’s a couple of the no benefits that you weren’t talking about.
            .
            the mining industry accounted for $34 million in local government revenue and $149 million in state government revenue in 2018. The industry also paid $358 million in payments to Alaska Native corporations.
            .
            Total direct and indirect jobs attributed to the mining industry in 2018 was 9,200 with a payroll of $715 million.
            .
            royalties and other fees paid to the State of Alaska was estimated at $149 million.
            .
            The industry paid $15.9 million to the state-owned Alaska Railroad Corporation for shipments of coal and gravel, and $28.2 million to the Alaska Industrial Development and Export Authority for use of state-owned facilities.
            .
            The industry also paid $1.6 million to the Alaska Mental Health Trust for rents and royalty payments in 2018.
            .
            Alaska’s mining industry provided $358 million in payments to Alaska Native corporations.
            .
            https://www.akrdc.org/mining

          • In your version of the English, what does “no benefit” mean exactly?

          • I Art said “The payout in PFDs to mine employees isn’t even covered by mineral royalties. You have no idea how to math.”

            I don’t know how to math at all, can you do this math for me please I Art. Mining royalties and other fees paid to the State of Alaska was estimated at $149 million, there were nearly 4,500 mining industry jobs in Alaska in 2018 and 9,200 direct or indirect mining jobs. Your pal Bill says that in Southeast about half of those jobs go to nonresidents, so how many millions in PFD’s are paid to mine employees or even those with indirectly related jobs? Is it more or less than $149,000,000? My math, which is obviously flawed since you don’t approve of it says it is no more than 10% of the $149,000,000 figure and likely much, much less than that and probably even less than $7,000,000.

          • I Art,

            Since you are way smarter than I am and you already know that the EPA pays for superfund sites, if they can’t get the party responsible for the pollution to clean up the superfund site, you probably already know that Alaska has only 6 out of the 1335 NPL sites and 5 of those are Federal Government Military Installation sites and have nothing to do with mining, right…I mean before you said “monitoring and remediating the 30 mile long supefund sites that they create when they let lead ore blow all over the tundra” you knew that there were no superfund sites that had done what you claimed they had done, right?

            https://www.epa.gov/superfund

            I think my English, math, and spreadsheet knowledge is improving, but if misconstruing this information still means sharing it with ignorant people like yourself, I just misconstrued some more information to you. Hopefully in the future you can educate yourself before you say such silly as you have done here in this thread.

          • Hey Steve-O?

            .

            What is 4500 x 3 x $3000?
            .

            That’s just the PFD, not the roads, airports, police, teachers, judges and prison guards.

            .

            Throw in the PFD for the minimum wage barista slinging their coffee too.

            .

            Next explain who is going to pay the price for the caribou having a lead based salad courtesy of the Red Dog mine. Especially if their haul route is not a Superfund site.

          • I Art,

            Who is getting $3000 PFD’s? We’ve already established, through your buddy Bill, that not all mine workers are residents. Saying that each mine worker equals 3 PFD’s is just another WAG on your part. The rest of the stuff you talk about is there with or without mine workers. Simply put your math don’t add up, at all.

            Merry Christmas

        • Art,
          Those “disappearing cookies” I was referring to is in reference to the continuing bleed off of reserves and other assets/cookies, like the PFD, to cover the state’s negative cash flow being foisted upon Alaskans by the left. Won’t be long and the tail will be wagging the dog in Alaska. As far as the multinational metal/mineral raiders, at least they provide some local/Alaskan hire to extract the products and ship them out. I don’t agree with the state being left out of the gravy train, but that’s not up to me. How about commercial fishermen? Huge majority of out of state permit holders. No state revenue there either. Alaska is being exploited in several sectors and, just as telling, held back in others by the left’s agenda and outside money.

          • Have you looked at how every hub village has a regional airport a mini-hospital, power plant, fuel and electric distribution system and a K-12 school? Those are all very expensive. Maintaining services in those locations is very expensive. Graft abounds. Look at the VPSO program.

            .

            If you want to address this your going to be labeled a racist and the recall hammer is going to come down swiftly if you happen to be the Governor. “Cookies” aren’t going to be held back from this corrupt system. Your taxes have a chance. These parasites live on fat, not lean muscle.

  • What a crock!

  • “He has more than one year to fulfill his policies, but seems to be taking budget reducing options off the table and is instead tilting toward additional taxes.”

    The budget the governor just proposed with flat spending and more borrowing from the CBR, we are either headed for serious taxes or tye cliff of no more money to borrow. Since we cannot print money the cliff is fast approaching.

    • Reality is hard, isn’t it? It’s almost like the fantasy world that you were promised can’t be done and the Governor you so recently loinized got a dose of that reality.

      .

      “Everybody has got a plan until they get punched in the mouth.” ~Mike Tyson

      .

      Here’s a concept, start paying taxes for the services you use. It works amazingly well and doesn’t have the discivic feature of one State dependent crying about other State dependents and how much it costs where they live.

      .

      Your dependency on the State isn’t any more legitimate than the next guy’s. You just get you welfare checks with a helping of airs. Soooooieeeeee!!!! Come on little piggy!

      • You’re losing it Art and your true colors are starting to show.

        • Yeah, funny thing is that I knew the Governor was full of it a full year before you did. Now you are shocked at his “betrayal”. He’s he showing his true colors now to or are you just that ignorant of reality? Nevermind.

        • Another interesting feature of your deep insight catches me as humorous. I was using this handle here before the OMB director was announced. For a full decade on the internet.

          .

          I’m not new to griping about Mr. Laffer and his crappy theory of economic destruction. But somehow you are just now discerning my “true colors”? Where do you hide that crystal ball?

          • I know that you are smart enough to figure out that I was talking about how you’ve morphed into an insult machine since you cannot answer a simple question and a simpleton like myself has dared to question you…you are smart enough to figure that out right?

          • You thought my ribbing you for your deliberate ignorance is me being an “insult machine”? If facts cannot persuade a person sometimes rhetoric can. Unfortunately, the brainwashing inflicted on you is impervious to correction.

            .

            When you watch Fox News make sure to take notes when Tucker Carlson is on. Maybe one day you’ll get it.

          • Haha,

            Yep, when in doubt blame Fox News!!! Your grab bag is empty already, come on man you have to have another insult or two in there before you go to the Fox News brainwashing garbage….no, nothing that is it?
            .
            So predictable.

          • You’re stone stupid. I tell you to take notes when you watch Tucker Carlson because I hate Fox News. Brilliant.

          • There it is, typical name calling from a self appointed internet genius. I know you fancy yourself as an intelligent person, next time try and make intelligent points instead of acting like a child and calling names.
            .
            Keep watching Tucker Carlson, and telling yourself how smart you are. Maybe reread my comments and try and learn a thing or two, like how to communicate.

  • I never could understand the argument against metal mines posted above. Some of the largest metal mines are not State claims, but are on federal land. Furthermore, many subsurface lodes are owned by Native corporations. It isn’t the royalties the State derives, but the hundreds of millions of dollars in good wages that these mines pay to Alaskans each and every year. I could care less whether these mines are owned by multinational corporations or a flock of Canadian geese. Real wealth spread throughout the community is what mineral development brings.

    • Do you care that so many of those mining employees are not Alaska residents? Along the lines of many Slope workers, many of them commute back and forth and are taking those “good wages” south. Recent study for mining employees in SE Alaska is that 47% of them live outside Alaska. Roughly half of their payroll leaves the State.
      You are fine with this? Whew!

      • I could make the same argument about the non-resident employees of the sainted Alaska Marine Highway System. The reality is that Alaska’s society of parasites, its lousy schools, and its trust-fund babies who can’t do without their marijuana are the biggest impediment to Alaska hire, and not just in the mining industry. The law enforcement unions like to caterwaul about retirement benefits and the like, but the real impediment to hiring and retaining LEOs is that there is a dearth of people in Alaska who can pee in a bottle and pass a background check.

    • Cat get your tongue, Older?
      All we are hearing is crickets!

  • But, but, but, jobbbsssss!!!!

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