By TOM BOUTIN
Most of my working life has been spent in the private sector but I did work three or four stints in Alaska state government. Very early in the first stint I was talking with a newly appointed Revenue commissioner one Saturday afternoon who asked if I knew why a certain type of public employee so often traveled to the Philippines to bring back a 20 year-old wife right before he retired.
I had no answer and thought the question was rhetorical. He proceeded to tell me the actuarial/financial implications for the (mostly closed since then) defined benefit retirement programs, facts very new to me at the time. The public employee and teacher defined benefit plans may be now mostly closed to new hires but the payments will continue to almost the very end of this century, and the state costs are very high.
Years later, a long-time state accountant working in a unit assigned to me discovered another costly anomaly in these programs, this time a loss of accounting control for which state government threw in the towel and began absorbing the cost for all other employers.
Remarkably, a closer look revealed that another accountant in a different department had made the same discovery many years earlier when fixing the problem would have been a magnitude less expensive. That time the discovery occurred when one gubernatorial administration was transitioning to another and the discovery was put on a shelf. It’s impossible to say how many times this ongoing situation was discovered and shelved, but it was always much less tricky politically to have the state keep picking up the cost and it remains part of the annual spend today.
Some Alaskans may recall an instance almost a generation ago in which a municipality sold its utility enterprise to private investors. Those private investors understandably didn’t want to include any defined benefit pension liability in their purchase so the municipality retained that liability. The state picks up any unfunded liability, no matter the employer. Someone could speculate that the municipality received a higher price for its utility because the state assumed and paid that very real cost, still pays it.
Every part of state government has accumulated costly burdens, management mistakes, and derelictions over the decades. Paying for them remains a large but uncalculated part of the annual budget. For example, much more recent than the retirement costs is the design and construction of the two newest ferries. Those ferries were designed for routes that don’t exist so cannot be used much at all until costly refitting – mostly adding crew quarters – is completed, pretty much doubling the real cost of those vessels. Some say those two small ferries will have cost $500 million before it’s all said and done.
The earlier so-called fast ferries were a similar debacle, and those were sold at a huge loss earlier this year. A private sector enterprise might not survive such costly mistakes, one after the other, but a state government merely passes the cost along. Many people include the Interior Gas Utility, funded entirely with a state loan with no security and no interest, and the first payment not due until the current class of legislators are long gone, as another costly mistake that may require as much as $100 million more to avoid a costly walk-away.
According to Juneau Empire reports and legislative staffers at the time the Juneau school district has effectuated a scheme that turned an unnecessary second high school into a $300,000 windfall paid to the school district by the base student allocation. Juneau has fewer students in two high schools than it had in one before construction of the second (construction paid by reimbursed debt service in the bargain). A glitch in the BSA/Foundation allows Juneau to collect $300,000 over and above the costs of operating that second building. No one should bet that other school districts have not also found ways to game school funding.
Similar ongoing needs for money have been taken on by state government in wildland firefighting, satellite boosting, railroads, rural education, higher education, state airports, and uncounted other offices without anyone asking what happens if our economy cannot produce enough to meet the increasing annual costs.
Nowhere in the annual financial report – the CAFR – is there a tally of these liabilities, and only for that reason are they not balance sheet liabilities. (The hundreds of millions of dollars in unpaid oil tax credits only appear in an obscure footnote, not on the balance sheet.) I doubt there is anyone who has a handle on the full scope of these liabilities, but the ongoing payments are part of the annual state budget, now $13 billion for not many more than 700,000 people ($75,000 for a family of four).
An income tax is a desperate scheme to conceal these mistakes, and to put the private sector much more directly on the hook for this huge liability. Tax proponents want these real but unspecified costs to show up on your balance sheet going forward. Yes, state employees would also have to pay a state income tax but when state government needs to increase wages in order to remain competitive, or if income tax receipts dwindle as workers leave the state, it can merely increase tax rates. The private sector cannot increase its prices to keep pace.
I am sure that the total annual costs of unnecessary expenditures I have cited here plus the legislative inattention to state petroleum property tax receipts (which the Dunleavy 2020 budget proposed to remedy) exceed the $1 billion that the Walker people intended their state income tax would collect by year four or five. Taxes are always a zero sum game. Only the private sector creates wealth. Income taxes transfer that wealth right out of your pocket.
If you’re a small business owner you see that an income tax enacted and signed into law in 2022 would allow state government to keep pace with wage inflation for itself and its own employees at the expense of your employees, your business, and your family’s net worth. Government has become far too large for our economy, and our economy shrunk in part because government shoved it aside. Now our population is also shrinking, and people who want to get ahead are too likely to leave. Alaska doesn’t need a fiscal solution, it needs to be rebalanced with reality.
The specter of a state income tax is a crushing weight on the heart and lungs of our private sector. Every investment decision, every business expansion, every look at Alaska as a possible place to relocate a business is seriously retarded by the drive to put private businesses and their employees on the hook for decades of poor decisions by state government – legacy costs of the government we built with petroleum revenue.
Income tax proponents don’t even see a problem with having a state income tax at the same time we have the PFD program (despite how poor are the records of Cuba, the Soviet Union and other income redistribution schemes). Income tax supporters would penalize wage earners with an income tax to coincide with the huge inflation rate that private sector employees and employers already face. Tax supporters would give us an income tax at the same time the White House has given us inflation and undertaken steps to dismantle the remaining real economy Alaskans have.
Because $13 billion is a huge amount of state spending for 700,000 people, and because state government should take measures to clean up its own messes we should demand that each of the four or five men running for governor, and any men and women who may yet enter the race, pledge to veto any state income tax. That pledge would speak much louder than faithless rhetoric about finding new revenue and Alaska being open for business. The pledge requires no state appropriation.
As you see candidates at forums, knocking on your door, and speaking to interest groups please ask them to make this pledge.
Tom Boutin spent 17 years in state government, but also had a career spanning 30 years in the private sector, much of it in timber. He retired as president of the Alaska Industrial Development and Export Authority.