Commentary: Spending cap is key to solving budget crisis

Senate Bill 26 imposes a statutory spending cap of $4.1 billion in general fund appropriations each year, which would grow with inflation. A statutory cap — which can ultimately be set aside during the budget process — would be less effective than a constitutional limit, but it is a start. Whatever form it takes, a revised spending cap is desperately needed to put our fiscal house in order over the coming years.

Alaskans have been supportive of the idea for more than three decades. When the state’s current constitutional spending cap was put before voters in 1982, 61 percent voted in support. When given the option to overturn the limitation four years later, the margin in favor of the spending cap was even greater: 71 percent to 29 percent. More recently, a 2015 poll by the Alaska State Chamber of Commerce found a majority of the state remains in favor of spending caps.

Regrettably, the constitutional spending limit that voters approved in the 80s has proven to be woefully insufficient to address the budgetary challenges of 2017. Simply put, it is set too high to be useful. Under the current provision, which excludes certain types of government funds, the limit for this year’s budget is $10.1 billion — more than double the budget of $4.7 billion.

In the last decade, state appropriations have only come close to the current cap twice — once in 2009 and again in 2013. That in itself is alarming, given how high the spending limits are set. The cap will need to be drastically reduced if it is to serve as an effective check on government spending.

With a tighter spending cap in place, we would not find ourselves scrambling to cover a $3 billion budget shortfall. Historically, the state budget explodes when oil fetches a high price, leaving us vulnerable to massive cuts when prices fall. For instance, state spending in the years between 2004 and 2013 more than doubled, from about $3 billion to $8.7 billion. Since then, falling oil prices have forced the state to gradually cut back. An effective spending limit would compel lawmakers to preserve a leaner government that is more sustainable over the long term.

As we look for ways to cover this year’s deficit, our focus should be on cutting wasteful and unnecessary expenditures. Legislators have done an admirable job of reducing spending over the last few years, but plenty of bloat remains to be cut. The facts speak for themselves. Alaska has one of the biggest public sectors in the country, second only to Wyoming. 24.2 percent of Alaska workers are employed by the public sector (federal, state and local), compared to a national rate of 15.5 percent. In 2015, the state government spent more than $18,000 per resident, far more than any other state in the country and more than triple the national average, which is below $6,000.

In addition to instituting a new spending cap, Senate Bill 26 would use about $2 billion in investment earnings from the Permanent Fund to cover the budget shortfall. It’s regrettable that using those funds has become necessary, but doing so is preferable to raising taxes, as some lawmakers have proposed. New taxes would burden hardworking families and make the state less attractive to new businesses and workers, leading to a decline in economic growth.

Rather than squeeze more revenue from taxpayers, state lawmakers should prove they are responsible stewards of public funds by enacting an effective state spending cap. If successful, they could ensure fiscally-responsible budgets for decades to come. That’s a win for all Alaskans.

 Jeremy Price is the Alaska State Director of Americans for Prosperity. Raised in Salcha, he now lives in Anchorage.