May 27, 2025 • 55 mins
Welcome to The Weekly Top 3 - our look at the top 3 things on our mind here at Alaskans for Sustainable Budgets - for the week of May 26, 2025.
This week, our top 3 issues are these: 1) we walk through the sources and uses of funds in the FY26 budget, and examine who is bearing the burden created by using PFD cuts to provide nearly a third of the revenues (2:14); 2) we explain how a recent op-ed from Anna MacKinnon on the Permanent Fund picks up from where she left off when she left the Senate: finding ways to fund spending while protecting the Top20% & #OilCos from paying for it (18:50); and 3) we discuss how we could avoid the Alaska budget being so impacted by swings in oil prices (36:39).
The Weekly Top 3 is a regular weekly segment on The Michael Dukes Show. The Show broadcasts on Facebook and YouTubeLive as well as via streaming audio from the Show’s website weekdays from 6–8am. We join Michael weekly in the first hour of Tuesday’s show, from 6:25–7am, for a discussion between the two of us about our three issues.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:10):
Hi, this is Brad Keithley, managing Director of
Alaskans for Sustainable Budgets.
Welcome to the weekly top threethe top three things on our
mind here at Alaskans forSustainable Budgets for the week
of May 26th 2025.
The weekly top three is aregular segment on the Michael
Duke Show.
The show broadcasts on bothFacebook Live and YouTube Live
(00:33):
as well as via streaming audiofrom the show's website.
Weekdays from 6 to 8 am.
I join Michael weekly in thefirst hour of Tuesday's show
from 6 10 to 7 am for adiscussion between the two of us
about our three issues.
We post the podcast of ourdiscussion following the show on
the Alaskans for SustainableBudgets Facebook, youtube,
(00:55):
soundcloud, spotify and Substackpages, also on the Alaskans for
Sustainable Budgets website, aswell as the projects page on
national blog site mediumcom.
You can find past episodes ofthe weekly top three also at the
same locations.
Keep in mind that, in additionto these podcasts during the
(01:16):
week, you can also follow andparticipate in the discussion
with us of these and otherissues affecting Alaska's fiscal
and economic condition byfollowing us on the Alaskans for
Sustainable Budgets Facebookpage and through our posts on
Twitter.
This week, our top three issuesare these First, we look at the
sources and uses of funds in theFY26 budget and look at who is
(01:41):
bearing the burden created byusing PFD cuts to provide nearly
a third of the revenues.
Second, we explain how a recentop-ed from Anna McKinnon on the
permanent fund picks up fromwhere she left off when she left
the Senate, funding spendingwhile protecting the top 20% and
(02:01):
oil companies the top 20% andoil companies.
And third, we discuss how wecould avoid the Alaska budget
being so impacted by swings inoil prices.
And now let's join Michael.
Speaker 2 (02:14):
So the session is over and we're in the interim
now, and your first topic is, ofcourse, going to be about the
PFD, because I fully expect thatthis will probably be the last
year that we see really any kindof.
Maybe next year we may see a$500 PFD, but it's going to be a
(02:35):
tough one.
And you tell us why.
We got a big chunk of thebudget being paid for this year
with the PFD paid for this yearwith the PFD.
Speaker 1 (02:47):
Well, and this is sort of my typical post-mortem,
post-session look at what thebudget was and I go back to
Finance 101, sources and uses ofcash or sources and uses of
revenue and try to chart thatout.
And I did that for the budgetthat the legislature passed last
(03:07):
year and to me even to me, whohad sort of seen this coming
along the way it was sort ofeye-opening.
Do you have that first chartthat we can pop up?
I do right here.
So this chart looks at thesources and uses for the budget.
The budget was $5.44 billion.
The sources, the revenues, areon the left-hand side, the
(03:32):
spending is on the right-handside, the uses of the revenue is
on the right-hand side and thething that pops out to me is the
red on the left-hand side therevenues, the sources of funds
on the left-hand side, from thebottom up, are oil revenues.
In the dark blue, existingtaxes and fees.
(03:57):
In the green the portion of thePOMV draw percent of market
value, draw from the permanentfund that is designated by
statute for government services.
In the yellow and then the redis the portion of revenue that
came from PFD cuts, came fromwithholding and diverting the
(04:18):
statutory portion of the PFD tothe general fund to support
government spending instead.
And you can see, hopefullygraphically, from that that the
red is about a third.
It's 32 some odd percent.
It's about a third of the totalrevenues being used to support
(04:41):
this year's budget.
I think I'm going to do this forthe Friday column, to be sure,
but I think that's the largestpercentage that they've ever
used the PFD cuts to supportrevenues.
It is, in fact.
The PFD cuts are, in fact, thelargest single source of revenue
(05:04):
for this year's budget.
They are at $1.77 billion,nearly $1.8 billion.
They are larger than oilrevenues, which are at $1.65
billion.
They're larger than the portionof the POMV draw designated,
statutorily designated forgovernment services at $1.34
billion.
The PFD cuts are the singlelargest source of revenue that
(05:29):
the budget depends on.
And for those I think this alsois useful to show, for those
who say, well, we'll just cutour way, we can just cut
spending, cut our way out ofthis.
Well, pfd to get back to justusing the traditional revenues
plus whatever share of the POMVdraw is designated for
government services, to get backthere, you'd have to cut the
(05:50):
budget by a third.
You'd have to cut the budgetdown to something in the
neighborhood of $3.7 billion andthat's just not going to happen
.
This chart is useful for anumber of reasons, but in
particular I think it's usefulto show how deeply the
legislature has become dependenton PFD cuts what I think are
(06:13):
personal taxes, pfd cuts to fundgovernment On the right for
those who are interested and canfollow it later, we build up
the spending.
The agency operations is $4.76billion, statewide it's $0.45,
$450 million.
Capital budget is $170 millionand then there's a surplus
(06:34):
so-called surplus in there toreally account for the fact that
oil prices are going down andthe revenues that we're showing
on the left-hand side may notadd up by the end of the year,
may not add up to the level ofthe revenues projected there.
There's a so-called surplus ofabout $60 million on the
(06:56):
spending side.
So we did that and then welooked at how does that
translate?
How does those PFD cutstranslate on an income bracket
basis?
And the second chart shows theimpact of using PFD cuts by
income bracket.
This is essentially the whopays chart.
(07:16):
We know that PFD cuts arepaying for a third of the
overall budget, providing athird of the overall revenues.
A third of the overall budget,providing a third of the overall
revenues.
Who is paying?
Who's taking the impact ofusing PFD cuts of that third?
Who's contributing?
That third and the second chartdoes that and it shows it by
(07:38):
using the IRS brackets, shows itby the low 25, the lower middle
, 25%, the upper middle, 25%,the top 25% and then the top 10,
top five, top one and thennon-residents out at the end.
And it shows that the bulk ofthe impact of using PFD cuts by
(08:02):
far is hitting middle and lowerincome Alaska families.
All of them are paying inexcess of the average rate.
We've got a line through thisgraph that shows what the
average impact is on Alaska.
On adjusted gross income, theaverage impact is about 5.2%.
(08:25):
We're diverting 5.2% throughPFD cuts.
We're diverting 5.2% of Alaskapersonal income what would be
Alaska personal income.
We're diverting 5.2%withholding and diverting that
over to support governmentspending.
That's the average tax rate, ifyou will, that those PFD cuts
(08:45):
represent.
But you can see thatdistributionally it falls by far
hardest on the lowest 25% ofAlaska families, significantly
hard on the lower middle, stillharder than the average on the
upper middle and then when youget to the upper 25% they're
paying significantly less.
They're contributingsignificantly less as a share of
(09:07):
income by using PFD cutsthrough, by using PFD cuts.
So the top 25% overall is justlosing 2.1% of their income.
Top 10% 1.4, the top 5% 0.9%.
The top 1% it's justcontributing of their income 1.4
.
The top 5% 0.9%.
(09:28):
The top 1% is just contributingof their income 0.4% toward
that cost of government.
The non-residents, of course,are contributing zero.
So you can see that between thetwo charts you can see that a
huge chunk now of the budget isbeing financed the third of the
budget's being financed by PFDcuts.
And then when you flip over tothe second chart, you can see
who is paying, who's bearing theburden of using those PFD cuts
(09:53):
as a revenue source.
Speaker 2 (09:57):
No, I mean, this is a huge chunk.
We're talking about almost 30%of the lower 25, 30% of their
income.
25% lower 25% lost out in PFDcuts 11% of the income of the
lower middle class.
And it's interesting becausethere's a new PFD doomsday clock
online.
I don't know if you saw that.
Phil Lizon put it together,mustard reported on it and it'll
(10:20):
actually do the math for youhow many people were in your
house and it'll tell you howmuch pfd you've lost um in the
last you know, since theystarted this nonsense.
Um and mine is like seventy sixthousand dollars in our, in our
household, over the last, uh,you know, seven years or
whatever, and it's a huge.
It's a huge chunk.
And when people realize this iswhere the money's coming from
(10:42):
and when you start showing thisto them, sometimes eyes are open
, sometimes they're not,sometimes you're like, oh, it's
just free money, go ahead and doit.
I mean it's madness.
Speaker 1 (10:51):
at this point, yeah, but what the second chart shows
the chart you still got up isyou're showing the subsidies
that are going on.
So the low 25 are paying theabove, the low 25, lower, middle
and upper middle quartiles arepaying above the average so that
the top 25%, top 10%, top 5%and top 1% can pay, can pay less
(11:13):
.
They're the the the 75% ofAlaska families are having more
taken out of their income.
That so that the top 25% andnon-residents can have zero,
essentially zero, taken out oftheir income.
And that's what economistsrefer to as a cross-subsidize.
You have the lower 75%, you havethe upper, lower and low 25%
(11:43):
income Alaska familiessubsidizing the top 25%,
subsidizing them by not havingas much income taken out of
their pockets.
And you can see the extent ofthe subsidy by the difference
between what's the share ofincome being taken out through
PFD cuts and the average shareof income, the share of income
(12:04):
being taken out through PFD cutsand the average share of income
.
So, yeah, people say, well, youknow, that's just what it is.
The people who say that tend tobe in the top 25% and
non-residents.
And you can see why they saythat because the system is
benefiting them.
They're not contributing theaverage cost toward the average
cost of government.
They're contributing much lessthan the average cost of
(12:27):
government.
They're contributing much lessthan the average cost of
government, while the remaining75% of Alaska families are
contributing significantly morethan the average toward the cost
of government.
Speaker 2 (12:36):
So what do you think?
Where does this take us here inthe future, Brad?
I mean, now that we've lookedat these two things, and
especially that second chart, orthe first chart with the huge
one-third number, what does thisspell for the coming years in
your mind before we go to?
Speaker 1 (12:55):
number two.
Well, it depends.
I mean it depends on oil.
I mean the way they've operatedthis.
I mean the way they've operatedthis.
Pfd cuts are being used as themakeup for oil bouncing around
in oil prices and as oil pricesgo low, pfd cuts are being used
to make up for that.
(13:15):
The problem is and we'lldiscuss this in the third
segment but the problem is, whenwe have a low year like this
and we use a huge amount of PFDcuts to subsidize the fact, to
make up for the fact that oil iscoming in low, when we have a
high oil year, we don't reducenecessarily reduce the share of
(13:37):
the PFD.
We just spend more.
We use the additional oilrevenues to spend more to what
some say make up for pastunderspending, um.
So I think this, I think whatthis is is saying, and when I do
the Friday chart, I suspectwhat I'm going to see is this
wedge of PFD cuts as a share ofthe budget growing over time, um
(13:58):
and to to this point where it'sgotten to be the biggest it's
been, uh, since we started usingPFD cuts a decade ago.
I think we're going to see justthat wedge continuing to grow
and sort of staying in place.
Once you get to a certain levelof revenues being used from PFD
cuts tends to stay in place andthen the next year, even if we
(14:21):
have higher oil revenues, theyjust spend that additional oil
revenues as opposed to reducethe share of PFD cuts.
Yep.
Speaker 2 (14:28):
Nope, I see it already.
It's the largest component,that big red bar, it's the
largest component of stategovernment right here in their
spending.
That's where it comes from, isfrom you and me.
So every time somebody says, oh, we don't pay taxes in this
state, just look at that big redbar right there, that'll do it
every time.
That'll get your attention.
It's.
(14:50):
I mean, what's crazy is that tothink that and I've been
reading all the stories thismorning, post-session stories
and columns about you know, theschooling and everything else
and I mean there's an article inthe ADN that basically just
says, with all thesuperintendents across Alaska
urging Governor Dunleavy to keepschool funding boost intact,
(15:11):
they've all said it.
They're all saying they're noteven being quiet about it.
Oh, this is just the beginning.
This is just a little bit.
This just ties us over tillnext year where we come back and
beat you down for more.
That's where it's going and Imean I don't, I don't even know
what to say at this point.
Brad.
Speaker 1 (15:27):
Well, michael, I mean what we have is the top 20%,
top 25% saying it's notaffecting us.
So let's just keep spending,let's keep doing more.
I mean you read the editorialsand or the op-eds in the in the
ADN.
You read the op-eds in theFairbanks News Minor.
I know a bunch of the peoplethat are writing those.
They're all in the top 20%.
It's not affecting them.
There's no break on theirdesire to spend because they
(15:54):
don't have to pay a portion ofit.
It's all being shoved down tomiddle and lower income Alaska
families.
So maybe the break kicks inonce the PFD is gone and we have
some sort of revenue regimethat takes a portion of their
income also to pay for it.
But until then it is free moneyto them.
(16:15):
I mean they're being subsidizedheavily by taking the money out
of middle and lower incomeAlaska families instead become
Alaska families instead.
There's one thing that reallysurprises me, given we do have a
fairly decent level of press,media, political reporters in
this state.
The Alaska Beacon had a headlinethis week that says CBO
(16:39):
analysis, talking about thefederal budget.
Cbo analysis shows US House GOPbudget measure tilted toward
upper income taxpayers and thatis a detailed.
That article is a detailedanalysis of the Congressional
Budget Office analysis of whatthe House GOP bill would do and
(16:59):
it is the House GOP bill wouldresult in reducing the tax
burden of upper-income familiesa lot more than the tax burden
of middle and lower-incomeAlaska families.
I'm not going to argue what'sgoing on at the federal level.
The point is we don't haveanything near an article like
that about what's going on inAlaska.
(17:20):
We don't have an article thatlooks at who's paying for this
third of the budget coming fromPFD cuts.
We have a lot of articles aboutwho's paying the oil taxes and
the impact of increased oiltaxes on the oil companies.
We don't have any articles.
It's a third of the budget.
(17:40):
We don't have any articlesfocusing on what using that
revenue source, how that revenuesource affects Alaska families
in the same way as the CBOanalysis.
We don't have any articles thatanalyzes that.
Nor do we have any articlesthat talk about what impact
using PFD cuts is having on thelong-term economy of the state.
(18:06):
Yet we have article afterarticle, op-ed after op-ed,
about the impact of oil taxes onthe state.
That's a lower revenue sourcein this budget.
That's a lower revenue sourcethan PFD cuts.
The ignorance of Alaskans, inpart resulting from the failure
(18:30):
of the media to follow throughon these stories in the same way
they do at the federal level.
The ignorance of Alaskans onthese issues, I think, is part
of the problem, and a biggerpart of the problem is it's just
the top 20% wanting to spendmore and more and more and more
because they don't have to payfor it.
Speaker 2 (18:47):
Right?
No, it's ultimately frustrating, that's for sure.
All right, Brad KeithleyAlaskans, for Sustainable
Budgets, is our guest.
The weekly top threepost-session edition of the
weekly top three.
We've got a lot of problems inthis state.
One of them could be an AnnaMcKenna problem.
She's got issues that just keepgoing on and on and on.
(19:09):
Brad, what are you talkingabout here?
What do you say?
When we've got an Anna McKenna,she picks up where she left off
.
What's going on?
Speaker 1 (19:17):
So, for those who don't recall, anna McKenna
previous to her married name,anna Faircloth uh, was in the
legislature from 2012.
Uh, no, she beat Pete Kotz.
So 2006, uh to 2018, a portionof the time in the house up
until 2012,.
(19:37):
I think, um, or maybe 2010, um,and a portion of the time in
the Senate.
What's important for thispurpose was during her time in
the Senate, anna was co-chair ofSenate Finance during the
period that Bill Walker beganPFD cuts.
So she was in the legislature,co-chair of finance in the
(20:00):
legislature at the time.
The legislature could have butdidn't respond to Walker's PFD
cuts.
And then she was co-chair ofSenate finance during the time
when the legislature, followingWalker's PFD cuts, the
legislature began its own set ofPFD cuts, and that's what's
(20:20):
continued on to today.
It's no longer the executivemaking the PFD cuts, it's the
legislature making the PFD cuts,and she was a critical part
during that period of time when,looking back, the precedent was
set to start using PFD cuts tosubsidize the budget, to help
pay, to generate revenues, topay for government.
(20:42):
She was part of the legislatureand at the time she talked
about.
You know we don't want toburden the oil companies for
additional taxes, and so we needto have another source of
revenue.
We don't want to burden, youknow.
We don't want to have taxes inthe state, which translated
means we don't want to burdenthe top 20% and non-residents.
(21:03):
We don't want to have taxes, sowe're going to use PFD cuts.
She was part of thatdecision-making process.
She left the Senate in 2018,frankly, because I think she
felt that she couldn't defeatLaura Reinbold, who had
announced for her seat in theSenate from Eagle River at the
(21:24):
time that she left.
She left the legislature in2018, went on, served in the
capacity of the Dunleavyadministration as director of
the Permanent Fund Division,ironically enough, and has since
retired from that, but she'sback.
She wrote an op-ed that's in theADN and the Alaska Beacon and
(21:46):
I'm sure we'll go through allthe other newspapers in the
state with an opinion piececalled A Permanent Fund
Endowment for All Alaskans, andit's a humorous title because
what it does, what that opinionpiece endorses, is the
consolidation of the permanentfund from the two account system
(22:08):
that we have under theConstitution currently to the
single account system that isbeing promoted by the Permanent
Fund Corporation and some in thelegislature, as we've talked on
the show before what thatreally is.
What that proposedconstitutional amendment really
is is a way of creating abackdoor into the permanent fund
(22:28):
corpus.
What's now in the permanentfund corpus is considered off
limits to being drawn.
What that constitutionalamendment does, by consolidating
the two accounts together, isallow the legislature to begin
taking the POMV draw, the fullPOMV draw, from the permanent
(22:48):
fund corpus.
In the event, the permanentfund isn't generating enough
earnings to cover that draw, andit hasn't, as we've talked
about, it hasn't in five of thelast six years.
So Anna is showing back up atthis particular point in time,
now that, now that you knowwe've almost drained the
entirety of the PFD, now thatwe're almost, you know, have cut
(23:10):
the PFD out entirely,terminated the PFD, drain the
PFD, and is showing back up atthis particular time to endorse
the proposal that would start,that would allow, open the back
door and allow the permanentfund corpus to start being
drained into the general fundwhen needed to be able to
(23:31):
support earnings and, with that,support spending.
The humorous part of this is thetitle a permanent fund
endowment for all Alaskans.
What this proposal really doesis it is a way of continuing to
(23:51):
put off the date on whichAlaskans would have to pay taxes
, which would fall on even aflat tax, would fall harder on
upper income Alaska familiesbecause they haven't been paying
taxes, as we saw in the lastchart.
They haven't been paying taxesand what the consolidation of
(24:11):
the permanent fund from the twoaccount system into the single
account and opening the backdoor into the permanent fund
corpus does is put off the dateof taxes a fairly long time down
the future.
So when she's talking about apermanent fund endowment for all
Alaskans, what's really goingon is the same thing as what
(24:33):
happened during her tenure asSenate Finance Co-Chair in the
mid 2000s, during thistransition period, when the door
to the permanent fund dividendwas opened.
What she's really trying to dois continue to protect the oil
companies and the top 20% andnon-resident industries from
having to pay taxes Becausewe've drained the permanent fund
(24:56):
dividend.
By then we will have shortlydrained the permanent fund
dividend.
We drained the SBR long ago.
We drained the constitutionalbudget reserve.
Now we're draining thepermanent fund dividend because
we will have drained thepermanent fund dividend.
The way to continue to protectthe oil companies and the top
20% is to open this back doorinto the permanent fund corpus
(25:18):
and start allowing the permanentfund corpus to be drained.
So the title I sent you for thesegment was Anna McKinnon Picks
Up From when she Left Off inthe Senate Spending, because all
this is to support spending, ofcourse, while protecting the
top 20% in oil companies frompaying.
And she did that when she wasin the Senate and now she's
(25:41):
resurfacing in time to try to doit again through endorsing the
constitutional amendment thatwould consolidate the two funds
into one.
Speaker 2 (25:51):
That she says that there's a growing concern with
the falling oil prices, thedwindling savings account and
few if any revenue options thatthe legislature will move to
withdraw more than the 5% tomeet current needs.
(26:13):
And so she says there's a realconcern about that.
And then she goes on to saythat's why we need to pull the
two funds together, becausethey'll need to draw and the
whole point was to protect thecorpus of the fund.
I mean it's dichotomous.
Even inside of her own articleshe's saying they're worrying
about this, but what we reallyneed to do is combine the funds
so they can get access to themain account.
(26:36):
I mean it's ludicrous.
Speaker 1 (26:38):
What's going on here, michael?
Is the public opinion polltested, what they think the best
arguments?
What will resonate the best?
Separate, apart from the merits, what arguments will resonate
best with Alaskans?
And the polls are coming backsaying look, protecting the
(27:00):
permanent fund, limiting thedraw to the 5%.
Those arguments and another oneis oh, we're going to drain the
earnings reserve down and thenwe won't have enough money.
We need to consolidate the twoaccounts because we're going to
drain the earnings reserveaccount down and we won't have
enough money to fund government.
Those arguments are what they'refinding resonate with Alaskans,
(27:21):
but they're disconnected fromwhat they're doing.
I mean, there are ways to limitthe permanent fund draw to 5%.
If that's what you're concernedabout, you could have a
constitutional amendment thatsays we will limit the permanent
fund draw to 5%.
We will still have the twoaccount system, but we will
limit the draw to 5%.
You could easily do that, butthat's not what they're doing.
(27:43):
What they're doing is justconsolidating the two accounts
together and the only reason youconsolidate the two accounts
together is to open thatbackdoor into the corpus.
So they are having disconnectedarguments, but they're using
arguments that they think willplay best with Alaskans, who
won't read the fine print, whowon't understand the economics
(28:06):
of what's going on.
They're using arguments thatthey think will play best with
Alaskans.
You know, shouting them outthere.
This is what we're trying to do, at the same time as they're
using those arguments to push aconstitutional amendment that
does something entirelydifferent arguments to push a
constitutional amendment thatdoes something entirely
different.
You know, it was sort of likethe same way when Anna was
(28:30):
co-chair of Senate Finances.
We needed to cut the permanentfund dividend because we had to
maintain spending and oil priceshad dropped, and we just had to
do this.
Well, when oil prices went backup, we didn't restore the
permanent fund dividend, wespent even more, and so the
arguments that they use at thetime are the arguments that they
think will sell the best withAlaskans, even though what
(28:53):
they're doing is somethingentirely different.
Speaker 2 (28:59):
The problem is, the inevitable destination is still
the same, the inevitabledestination of taking all of the
permanent fund dividend andeventually starting to draw into
the corpus and eating the seedcorn.
It all reaches the same spotone way or the other that we
(29:22):
have a spending problem in thisstate.
And until we find a way to curbthe spending problem and find
alternate revenues to pay for it, this is what we're going to
continue to get.
Speaker 1 (29:32):
Yeah, it is.
I mean, you can see this if youjust sort of step back and look
at the history of Alaska, thefiscal history of Alaska since
2010.
It's been spend, spend, spend.
Where do the revenues come from?
Well, first we'll drain the SBR,the statutory budget reserve,
then we'll drain the CBR, theconstitutional budget reserve,
(29:53):
then we'll drain the permanentfund dividend and now, as we're
hitting that end point where thepermanent fund dividend looks
like it's no longer sufficientto fund government itself, we're
going to find a way to open aback door into the corpus and
start draining down the corpus,regardless of the earnings being
produced by the permanent fund.
(30:15):
Anna's been there for largeparts of it.
I mean, she was either theHouse Finance Co-Chair or the
Senate Finance Co-Chair duringthe entire period that the SBR
and CBR were being drained down.
She was the Senate FinanceCo-Chair when they opened the
door into the permanent funddividend and started draining it
down.
And now she's coming back foran encore to write this op-ed
(30:39):
endorsing the next step in thisprocess of opening the corpus to
be able to start draining it tosupport spending.
Speaker 2 (30:51):
Which, again, I mean it all leads us to the same
place, which is total fiscaldestruction.
At this point I mean there's notwo ways about it.
Let me see there was a coupleof comments that I wanted to
take Brad's comments last hourabout the fact that there's not
(31:12):
enough.
Well, there's not any goodreporting in the state.
Kim says.
You're right, brad, they're notnews reporters, only
left-leaning political analysts.
That's in.
You know, how many times haveyou seen that?
Have you seen them rewrite apress release?
Essentially, you know, drop apress release into chat GPT and
come out with a news story withwith no alternate side, with no
(31:35):
analytic.
I mean this whole this, thispiece from the ADN and Sean
McGuire starts off with, youknow, after it talks about the
superintendents urging Dunleavyto keep the school funding and
it says almost after almost adecade of flat state funding,
the lawmakers on Tuesday votedto override Dunleavy's veto.
After a decade there has notbeen flat funding.
(31:57):
The BSA has remained relativelyflat, but the way that it's
written makes it sound likethey've had no extra funding at
all for a decade.
I mean there is no accuracy inwhat's being written out there,
brad.
Speaker 1 (32:12):
Yeah, and it's not consistently left, michael.
I mean the article that theBeacon published, rushed to
publish on the CBO analysis.
Cbo analysis shows US Housesupport GOP measure tilted
toward upper income Alaskataxpayers.
That some would consider wouldbe a left-leaning article.
And you could, if you wereleft-leaning in Alaska you could
(32:34):
see an article that said youknow, alaska analysis shows
Alaska budget measure tiltedtoward upper income taxpayers.
But they don't, they don't dothat.
So it's not, it's not evenconsistently left, it's just
consistently nothing.
I mean it's, it's, it's not,it's not an analysis of what's
(32:55):
going on in Alaska at the, atthe fiscal level, at the, at the
individual level.
It's just, you know, it's justsilence, without the type of
analysis that we're seeing themthemselves publish from a
national level.
So it's not consistently leftor right, it's just consistently
sort of nothing.
Speaker 2 (33:18):
It's just lazy, is what it is.
It's lazy reporting.
I mean we're not.
I mean we're not really seeingthe deeper analysis of any of
those things.
And, of course, it's the sameplayers, like you said, I mean
the highlight of bringing AnnaMcKinnon back after she was a
huge part of the problem.
I mean again, she was thereright in the teens when they
were entering out that hole,when they emptied out the CBR of
(33:42):
you know 15, $16 billion.
She was right there along withthem.
Like we can be, we can beresponsible.
I mean, we only spent all thismoney, but trust us, we can be
responsible with this money.
Yes, we need access to thecorpus of the fund because we
can be.
We can be and Randy is saying,well, I want to.
I want the two funds to becombined as well.
(34:03):
I want the consolidation of thecorpus.
How is that going to help them,randy?
They can't control theirspending now, so you're going to
give them access to a biggerpot of money, because that's
what's going to.
Well, I just want to put off anincome tax.
Yes, it's coming.
That's the thing.
It's inevitable.
(34:23):
At this point, nobody seems toreally want to address that, but
at the rate of spending that wehave right now.
It's coming.
Am I wrong, brad?
Speaker 1 (34:34):
No, but it may not be an income tax.
It may be a sales tax, becausethat tilts heavily.
Speaker 2 (34:38):
Well, it's income tax .
Yeah, I guess, yeah.
Speaker 1 (34:40):
That's regressive, and so it continues to protect
the top 20 percent and the oilcompanies.
It may be something other thana sales tax, but, michael, what
they're trying to do is they'retrying to put off even that, and
what and the effect is going tobe for future generations?
It's just going to.
It's just making it worse.
It's just piling it more andmore and more and more on future
(35:03):
generations by first drainingthe SBR, then draining the CBR,
which the CBR is intended to bemulti-generational.
It's intended to be sort ofthis emergency fund that each
generation gets when it hits thehard spots in the road.
What this generation has done isjust drained it out and they're
(35:23):
not restoring it for futuregenerations.
So they just drained it out.
So this generation is passingon to the future generations an
empty bank account when thosefuture generations hit their
hard spots in the road.
Permanent fund dividends,taking it from middle and lower
income Alaska families and theCBR will just pass it on to
(35:44):
future generations, just buckthe problem down the road to
future generations.
So it's a giant grab.
When you look at the last 10years, the last 15 years of
Alaska fiscal history, it's justa giant grab for all the
benefits of spending all thebenefits of bigger government uh
(36:05):
, without without fiscalresponsibility, at the higher
end of the income bracket, or orat the oil companies we're
going to get ours Now.
Speaker 2 (36:13):
We don't care what happens down the road, cause
we'll be gone.
Essentially, yep, I meanthey're taking away, I mean when
they chip away at the corpus ofthe permanent fund, and that
means diminishing returns everyyear.
Eventually there will be moretaxes because somebody is going
to have to pay for all thatspending.
Right, and it'll be you and me,the people who are still left.
We'll be the ones paying forall that spending when it, when
(36:35):
it comes down, because theywanted to make sure that they
got theirs now.
That's what it's about.
Ok, tail wagging, and OPECc,opec has been the dog, we've
been the tail, it's been wagged.
But brad says that that can befixed.
Just bob the tail, that'll fix.
I mean, no, let's, uh, let'snot do that, brad.
(36:56):
Uh, what's, uh, what's yoursolution here?
Speaker 1 (36:58):
all right.
So we're seeing a bunch ofarticles, now that that you know
where people are saying lymanis one of.
So we're seeing a bunch ofarticles, now that that you know
where people are saying Lymanis one of them.
We're saying they're saying oh,you know, oil did this to us,
opec did this to us, or or theTrump tariffs did this to us.
You know, whoever, whoever theywant to pick on to be the, to
be the cause, it's not our fault, it's not the legislature's
fault.
We're just responding to what'sgoing on out there in the world
(37:20):
in terms of in terms of oilprices.
I wrote an article.
This is this is not a newargument.
It's an argument that comes upevery once in a while.
I wrote an article a long timeago, during the early days of
the Alaska landmine column thatI'm doing, that.
That talked about you know howwe could become, how we could
take control from OPEC, how wecould take control of our
(37:43):
destiny, and the same issue popsup from time to time.
Here's the deal.
What oil does is and we allknow this oil goes up, oil goes
down.
Oil goes up, oil goes down.
What we do is we follow theroller coaster.
Oil goes up, revenues go up,spending goes up.
(38:03):
Oil goes down, oil revenues godown.
And what we're seeing this yearPFD cuts go up to make up for
oil going down.
We don't bring spending down asmuch as we just start grabbing
the SBR or the CBR or PFD cutsor, in the future, the corpus.
Oil goes down, we grab revenues, oil goes back up.
(38:24):
Well, we've got all theserevenues that we created from,
you know, drawing from the CBR,sbr and permanent fund dividend.
We're going to keep those.
Oil goes back up.
We're going to increasespending to make up for the
lower spending that we had whenoil was down.
And then oil goes back down andall of a sudden we're in a
crisis again, like we are thisyear, and we have to take deeper
and deeper PFD cuts, therevenue du jour, the alternative
(38:48):
revenue that they can grab.
Now.
What we do with other things is, for example, the PFD, the
statutory calculation of the PFD.
Earnings go up, earnings godown.
Earnings go up, earnings godown.
We take the average, thefive-year average, in
(39:09):
calculating the PFD.
We don't chase after earningsas they're going up and down.
We take the five-year average,pomv, the percent of market
value, draw.
We do the same thing thepercent of market value draw.
We do the same thing the marketvalue, the percent of market
value, goes up, goes down, goesup, goes down, depending upon
where the landing spot of thepermanent fund at any given year
(39:33):
is.
But we take the five-yearaverage of the market value of
the permanent fund incalculating the POMV draw.
Take the five-year average ofthat Oil.
We just follow the rollercoaster every year.
We don't even follow the rollercoaster, we follow where we
(39:53):
think the roller coaster isgoing.
We don't even say the rollercoaster went up this year we're
going to spend more, the rollercoaster went down this year.
We're going to spend less orwe're going to draw more revenue
.
What we say is we think theroller coaster is going up, so
we're going to spend more, or wethink the roller coaster is
going to go down and so we'regoing to draw more from the PFD.
(40:15):
We're, we're, we're project.
(40:37):
We're basing our spending on onon where the we think the oil
revenues are going, or space isspent basing our revenue draws
from other sources based uponwhere we think the oil revenues
are going.
We could easily, and so we're,we're at this extreme end of the
tail with the OPEC dog.
And so we're at this extremeend of the tail with the OPEC
dog.
I mean, opec breathes one way,oil prices go down and all of a
sudden you know we're beingbounced around here at the end
of the tail.
We could take control of ourown destiny with respect to oil
(41:03):
prices if we did the same thing,just did the same thing we
already do with the PFD and thePOMV, if we used the historical
average of what oil prices wereand only spent that.
And in one of the articles thatI did on this, one of the op-ed
pieces I did on this, I did thecalculations and said, look, if
we take the average, if we havea year that goes high, we take
the excess revenues above theaverage that goes high.
(41:27):
We take the excess revenuesabove the average and we put
them in an oil revenuestabilization fund or we put
them in some as part of the CBR.
We put them somewhere and say,look, we're going to bank these
against periods when oil isgoing to go down, because we
know oil is going to go down.
When oil goes down, then wehave if we've used the average,
then we have funds from a priorperiod when oil was up and we
(41:48):
use those funds to fill the hole.
Not only does that stabilizerevenues across a period of time
, it stabilizes spending acrossa period of time, across the
future, because what we've seenis, when oil prices have gone up
, we've spent like crazy.
We've started new programs,we've started new capital
expenditures, we've started newthings and then, when oil prices
(42:11):
inevitably go down, we don'tstop the spending on those, we
don't try to control thespending on those.
We want to continue spending onthose because we've now created
constituencies for thatspending and so we have to go
grab revenues from someplaceelse to make up the oil hole,
the hole that's being created byoil prices going back down.
(42:31):
And the ones that we've beengrabbing the revenue source that
we've been grabbing since 2017is PFD cuts.
Doing it through PFD cuts,filling that gap through PFD
cuts.
If we had revenue stabilizationby having an average take
across.
(42:51):
The calculations I've done showa 10-year span with some
sideboards on, it would workbest.
But if we had revenuestabilization across a span, we
would have spendingstabilization better spending
stabilization because wewouldn't have the periodic
splurges in revenues, in oilrevenues that have allowed us to
create these new programs butthen create constituencies that
(43:15):
we then have to fund in futureyears when oil prices are down.
It's aggravating when I seepeople try to blame the problem
that we're having in the statethis year with oil prices.
It's aggravating when I seepeople blame that on OPEC or
blame it on Trump's tariffs orblame it on something else.
It's aggravating because wecould control this ourselves,
(43:40):
just like we've done with thePFD and the POMV.
We could control this ourselves, but we've chosen not to do it.
Speaker 2 (43:45):
Well, because it would require fiscal discipline.
Because it would require in theyears of plenty, like you said,
the years of plenty when weshould be taking that excess and
banking it in some way, whetherin a CBR or some kind of new
petroleum, whatever it is.
They would then have towithhold that spending and hold
onto it, and they've shown thatthey don't have that kind of
(44:10):
discipline.
That's.
I mean, I've been advocatingfor this for years that the
budgetary process should bebased on a five-year rolling
average of what the revenue hasbeen historically, not plucking
a number out of the sky becausethe projectors at the Department
of Revenue say oh, oil'sprobably going to be this.
You know, 8, 10, 12 months fromnow, oil's probably going to be
(44:31):
this.
Let's build a budget based onthe maybe, the if-come Instead.
You know what you've receivedthe last five years, take an
average of it and set that asyour spending level and if you
get more, bank it.
If you don't, then you'd haveto pull some money from some.
But again, it would requirefiscal discipline, brad, which
is the whole problem we'redealing with.
Speaker 1 (44:55):
Yeah, michael, sometimes when I think about
think through this issue, I cometo the conclusion that, yes, we
have a spending problem, butthe spending problem is being
driven by the failure of revenuemanagement, prudent revenue
management.
And we really have a revenuemanagement problem because
what's happened is through thislack of revenue management
(45:16):
discipline.
What's happened is we'veallowed these spike peaks to
occur in projected oil prices.
Keep in mind, this is allprojected oil prices.
We've allowed these spike peaksto occur in projected oil
prices.
Keep in mind, this is allprojected oil prices.
We've allowed these spike peaksto occur in projected oil
prices and rushed in with and byusing that as the revenue,
rushed in with a bunch ofspending, because we have all
this money, we might as wellspend it.
(45:36):
All these people have pent updemand from the years that oil
prices were low, demand from theyears that oil prices were low.
If we had adequate revenuemanagement tools, if we use the
five or the 10-year averagingfor oil prices, the same as we
use the averaging for the PFDand the POMV, our other two big
(45:56):
financial issues if we use thesame sort of averaging tool with
respect to oil, we would seerevenue stability across that
period and that would lead, inmy opinion, to spending
stability, because we would beable to say look, we don't have
the revenue to support thatspending.
But by going down this road ofriding the roller coaster where
(46:19):
we think the roller coaster isgoing, going down this road of
riding the roller coaster, we'rehitting these spikes when we
create this additional spending.
And then we have all thesepeople wailing about well, we
created this program and nowI've got all these people
dependent on this program andexpecting this program.
How can we cut this programback now that we've created it?
(46:41):
We've created this cycle wherewe've allowed the roller coaster
of oil to set the high spendingand that failure is it is a
spending failure, but thatrevenue is being driven by a
failure of revenue managementrevenue management.
Speaker 2 (47:08):
Yeah, no, and I agree .
If we had a base that said weknow we're going to take this
five-year rolling average, therewouldn't be that pie in the sky
of.
Oh man, they're rubbing theirhands together.
Look at all the money we'regoing to make this next year
because our revenues are goingto be up, up, up, and so they
start planning Now.
It would be more of a stablebaseline, I agree, I agree, but
again, you've got to take thatfirst step, Brad.
And the first step is theaddicts don't want to put the
(47:29):
crack pipe down right.
They don't want to do that.
They don't want to be forcedinto a corner and have to spend
within the means or have lessmoney available.
And that's part of the problem.
They just they.
You know, again, it leads backto the lack of discipline to be
able to do that kind of stuff.
They want to be the heroes, tosay I delivered the program to
you.
But you're right, I think it'sit must happen.
Speaker 1 (47:53):
It's not just Democrats that are leading us
down this road.
We were in high revenue yearsin years in which Republicans
were in control of the budgetand the Republicans.
We have been in high revenueyears in years in which
Republicans are in control ofthe budget and Republicans have
continued this process also.
So it's not just I mean, youcan't look at this and say, oh,
it's the Democrats, we can justget the Democrats out.
(48:14):
It's not.
It is the institution thatwe've set up of riding this
roller coaster, where we thinkthe roller coaster is going,
riding this roller coaster fromyear to year.
Speaker 2 (48:28):
Yeah, no, I mean it's not.
We've said it here on theprogram.
This is not a left or a right,a Democrat versus Republican.
This is a big government versussmall government problem.
And we've got a ton ofRepublicans.
I mean, they're the ones youcan lay.
You can lay most of this crisisat the feet of Republicans
because they refused toacknowledge that they had a
spending problem back in theteens when they spent $15
(48:50):
billion out of the savingsaccount because they didn't want
to reduce the size and scope ofgovernment to match what the
revenues were, not realizingthat it was well.
I mean, they didn't even thinkthe fact that it was a
short-term solution to draw $3billion, $4 billion a year out
of the CBR.
It's not going to.
That's not going to help.
You know, that's not along-term solution.
(49:11):
And it doesn't matter, becausemost of the people who were
there in the teens are gone now,although they'll write op-eds
saying what we need now issomething even you know is
something even better.
I mean I was there, hey, I wasthere when we were spending
money like drunken sailors.
But it'll be fine, don't worryabout it.
Open up the corpus, it'll begreat.
I mean this is all part andparcel of the problem.
(49:33):
I agree with you.
This is why I mean the charterof changes.
Number four was change thefunding mechanism for government
, and that was, I wasspecifically saying, changing
the budgeting process to havinga five-year rolling average.
We use it everywhere elsebecause of the volatility of the
petro-state.
Why aren't we using it there?
Speaker 1 (49:54):
Yeah, yeah, it's it is.
It is as critical I think it'sas critical a piece of an
overall fiscal fix as any otherpiece.
It is lowering expectations.
I mean, what we've done iswe've set spending expectations
at the peaks of these oil cyclesbecause we've spent that money,
(50:18):
we've treated it as revenue,treated all of it in the year
which it occurs as revenue, andso we've spent it.
And we've set up new programsand so we've spent.
We've set the expectation ofspending at the peaks of all
these oil cycles and the realityis we don't we certainly don't
always hit these peaks, and sowe're faced with a situation
where, you know, we're goingthrough these cycles and now
(50:41):
that we've set the expectations,we have to find additional
revenue sources.
I think, looking at this as muchas a revenue management problem
as a spending problem,controlling the amount of
revenues that we use in thebudgeting cycle by being much
more realistic about oil prices,being much more long-term
(51:04):
oriented about oil prices asopposed to chasing the roller
coaster I think having a muchbetter revenue management system
is as important to controllingspending as anything else.
And this all comes back up tomy mind because we have these
people, we have legislators whoare saying oh, it's not my
problem, you know the fact wehave to do PFD cuts this year.
(51:28):
Not my problem, because youknow all prices went down.
It's OPEC's problem or it'sTrump, the Trump tariffs problem
.
It's not.
It's your problem from nothaving set up a revenue
management system with respectto oil that takes into account
oil goes up and oil goes down.
That's your fault.
That's not OPEC's fault andit's not Trump-Tarrant's fault.
(51:49):
It's your fault for not havingset up a controlled discipline
revenue management system.
Speaker 2 (51:55):
Tony says what about a five-year rolling average?
How about with the five-yearrolling average at a two-year
budget cycle, so that there's abaseline for the two-year
legislative cycle?
I mean, I'm not opposed to thatSome states do that, why not?
But I mean it would be a hugeleap forward to just go with a
five-year rolling average.
Speaker 1 (52:16):
Five years would be better than where we are.
Ten years would be better thanfive years.
I mean, what you find is theseoil cycles tend to go on for a
period of time, so a 10-yearaverage on oil prices tends to
get you better, get you closerto the median point in the sine
curve than a five-year.
But five years is better thanwhere we are, that's for damn
(52:36):
sure.
Speaker 2 (52:38):
Yeah, because right now we're pie in the sky.
Let's pluck a number out ofthis.
What does it sound like?
I mean, that was the again theSean Parnell oil is going to be
one hundred and fifteen dollarsa barrel.
I don't care that it's seventyeight dollars right now, it's
going to be one hundred andfifteen dollars a barrel and I'm
going to write a budget basedon that.
I mean, it's, it's madness.
It is madness.
This all comes back to thefiscal discipline of a
(53:04):
legislature which heretofore hasnot shown really any fiscal
discipline at all.
Speaker 1 (53:09):
But it's fiscal discipline.
I guess my point on this isit's fiscal discipline on the
revenue side as well as on thespending side.
It's fiscal discipline to say,yes, you know, the revenues that
were projected for next yearmay be X, but we're only going
to use Y because we know thatoil goes up and oil goes down
(53:31):
and we're going to set ourrevenues at a realistic
long-term level, as opposed tofollowing the roller coaster up
and down.
Our problems are being drivenby not doing that as much as
they're being driven by spendingit all when we have it.
We shouldn't be doing thateither, but we should be
defining our revenues in a waylike we do with POMV revenues,
(53:52):
like we do with PFD revenues.
We should be defining them in away that is much more
disciplined.
Speaker 2 (54:00):
No, and, like you said, it would hold that back.
That back now.
How do we get that instituted?
That's my question.
How do we get that instituted?
It's a strong governor.
We're out of time, brad.
Speaker 1 (54:11):
Go ahead quickly the governor could do it.
The governor could do it in thebudget cycle.
In saying this is the amount ofrevenues I'm using in my budget
cycle, doesn't take thelegislature.
Speaker 2 (54:19):
The governor could do it well, we'll see where that
goes.
Brad Keithley Alaskans forSustainable Budgets the weekly
top three.
Thank you, my friend,Appreciate you coming on board.
Speaker 1 (54:29):
Michael, as always, thanks for having me.
Well, that's a wrap for anotherweek's edition of the weekly
top three from Alaskans forSustainable Budgets.
Thank you again for joining us.
Remember that you can find pastepisodes on our YouTube,
SoundCloud, Spotify and Substackpages, and keep track of us
during the week on Facebook andTwitter.
This has been Brad Keithley,Managing Director of Alaskans
(54:52):
for Sustainable Budgets.
We look forward to you joiningus again next week for the next
edition of the Weekly Top Three.
Weekly top three.
Hi, this is Brad Keithley, managing Director of
Alaskans for Sustainable Budgets.
Welcome to the weekly top threethe top three things on our
mind here at Alaskans forSustainable Budgets for the week
of May 26th 2025.
The weekly top three is aregular segment on the Michael
Duke Show.
The show broadcasts on bothFacebook Live and YouTube Live
(00:33):
as well as via streaming audiofrom the show's website.
Weekdays from 6 to 8 am.
I join Michael weekly in thefirst hour of Tuesday's show
from 6 10 to 7 am for adiscussion between the two of us
about our three issues.
We post the podcast of ourdiscussion following the show on
the Alaskans for SustainableBudgets Facebook, youtube,
(00:55):
soundcloud, spotify and Substackpages, also on the Alaskans for
Sustainable Budgets website, aswell as the projects page on
national blog site mediumcom.
You can find past episodes ofthe weekly top three also at the
same locations.
Keep in mind that, in additionto these podcasts during the
(01:16):
week, you can also follow andparticipate in the discussion
with us of these and otherissues affecting Alaska's fiscal
and economic condition byfollowing us on the Alaskans for
Sustainable Budgets Facebookpage and through our posts on
Twitter.
This week, our top three issuesare these First, we look at the
sources and uses of funds in theFY26 budget and look at who is
(01:41):
bearing the burden created byusing PFD cuts to provide nearly
a third of the revenues.
Second, we explain how a recentop-ed from Anna McKinnon on the
permanent fund picks up fromwhere she left off when she left
the Senate, funding spendingwhile protecting the top 20% and
(02:01):
oil companies the top 20% andoil companies.
And third, we discuss how wecould avoid the Alaska budget
being so impacted by swings inoil prices.
And now let's join Michael.
Speaker 2 (02:14):
So the session is over and we're in the interim
now, and your first topic is, ofcourse, going to be about the
PFD, because I fully expect thatthis will probably be the last
year that we see really any kindof.
Maybe next year we may see a$500 PFD, but it's going to be a
(02:35):
tough one.
And you tell us why.
We got a big chunk of thebudget being paid for this year
with the PFD paid for this yearwith the PFD.
Speaker 1 (02:47):
Well, and this is sort of my typical post-mortem,
post-session look at what thebudget was and I go back to
Finance 101, sources and uses ofcash or sources and uses of
revenue and try to chart thatout.
And I did that for the budgetthat the legislature passed last
(03:07):
year and to me even to me, whohad sort of seen this coming
along the way it was sort ofeye-opening.
Do you have that first chartthat we can pop up?
I do right here.
So this chart looks at thesources and uses for the budget.
The budget was $5.44 billion.
The sources, the revenues, areon the left-hand side, the
(03:32):
spending is on the right-handside, the uses of the revenue is
on the right-hand side and thething that pops out to me is the
red on the left-hand side therevenues, the sources of funds
on the left-hand side, from thebottom up, are oil revenues.
In the dark blue, existingtaxes and fees.
(03:57):
In the green the portion of thePOMV draw percent of market
value, draw from the permanentfund that is designated by
statute for government services.
In the yellow and then the redis the portion of revenue that
came from PFD cuts, came fromwithholding and diverting the
(04:18):
statutory portion of the PFD tothe general fund to support
government spending instead.
And you can see, hopefullygraphically, from that that the
red is about a third.
It's 32 some odd percent.
It's about a third of the totalrevenues being used to support
(04:41):
this year's budget.
I think I'm going to do this forthe Friday column, to be sure,
but I think that's the largestpercentage that they've ever
used the PFD cuts to supportrevenues.
It is, in fact.
The PFD cuts are, in fact, thelargest single source of revenue
(05:04):
for this year's budget.
They are at $1.77 billion,nearly $1.8 billion.
They are larger than oilrevenues, which are at $1.65
billion.
They're larger than the portionof the POMV draw designated,
statutorily designated forgovernment services at $1.34
billion.
The PFD cuts are the singlelargest source of revenue that
(05:29):
the budget depends on.
And for those I think this alsois useful to show, for those
who say, well, we'll just cutour way, we can just cut
spending, cut our way out ofthis.
Well, pfd to get back to justusing the traditional revenues
plus whatever share of the POMVdraw is designated for
government services, to get backthere, you'd have to cut the
(05:50):
budget by a third.
You'd have to cut the budgetdown to something in the
neighborhood of $3.7 billion andthat's just not going to happen
.
This chart is useful for anumber of reasons, but in
particular I think it's usefulto show how deeply the
legislature has become dependenton PFD cuts what I think are
(06:13):
personal taxes, pfd cuts to fundgovernment On the right for
those who are interested and canfollow it later, we build up
the spending.
The agency operations is $4.76billion, statewide it's $0.45,
$450 million.
Capital budget is $170 millionand then there's a surplus
(06:34):
so-called surplus in there toreally account for the fact that
oil prices are going down andthe revenues that we're showing
on the left-hand side may notadd up by the end of the year,
may not add up to the level ofthe revenues projected there.
There's a so-called surplus ofabout $60 million on the
(06:56):
spending side.
So we did that and then welooked at how does that
translate?
How does those PFD cutstranslate on an income bracket
basis?
And the second chart shows theimpact of using PFD cuts by
income bracket.
This is essentially the whopays chart.
(07:16):
We know that PFD cuts arepaying for a third of the
overall budget, providing athird of the overall revenues.
A third of the overall budget,providing a third of the overall
revenues.
Who is paying?
Who's taking the impact ofusing PFD cuts of that third?
Who's contributing?
That third and the second chartdoes that and it shows it by
(07:38):
using the IRS brackets, shows itby the low 25, the lower middle
, 25%, the upper middle, 25%,the top 25% and then the top 10,
top five, top one and thennon-residents out at the end.
And it shows that the bulk ofthe impact of using PFD cuts by
(08:02):
far is hitting middle and lowerincome Alaska families.
All of them are paying inexcess of the average rate.
We've got a line through thisgraph that shows what the
average impact is on Alaska.
On adjusted gross income, theaverage impact is about 5.2%.
(08:25):
We're diverting 5.2% throughPFD cuts.
We're diverting 5.2% of Alaskapersonal income what would be
Alaska personal income.
We're diverting 5.2%withholding and diverting that
over to support governmentspending.
That's the average tax rate, ifyou will, that those PFD cuts
(08:45):
represent.
But you can see thatdistributionally it falls by far
hardest on the lowest 25% ofAlaska families, significantly
hard on the lower middle, stillharder than the average on the
upper middle and then when youget to the upper 25% they're
paying significantly less.
They're contributingsignificantly less as a share of
(09:07):
income by using PFD cutsthrough, by using PFD cuts.
So the top 25% overall is justlosing 2.1% of their income.
Top 10% 1.4, the top 5% 0.9%.
The top 1% it's justcontributing of their income 1.4
.
The top 5% 0.9%.
(09:28):
The top 1% is just contributingof their income 0.4% toward
that cost of government.
The non-residents, of course,are contributing zero.
So you can see that between thetwo charts you can see that a
huge chunk now of the budget isbeing financed the third of the
budget's being financed by PFDcuts.
And then when you flip over tothe second chart, you can see
who is paying, who's bearing theburden of using those PFD cuts
(09:53):
as a revenue source.
Speaker 2 (09:57):
No, I mean, this is a huge chunk.
We're talking about almost 30%of the lower 25, 30% of their
income.
25% lower 25% lost out in PFDcuts 11% of the income of the
lower middle class.
And it's interesting becausethere's a new PFD doomsday clock
online.
I don't know if you saw that.
Phil Lizon put it together,mustard reported on it and it'll
(10:20):
actually do the math for youhow many people were in your
house and it'll tell you howmuch pfd you've lost um in the
last you know, since theystarted this nonsense.
Um and mine is like seventy sixthousand dollars in our, in our
household, over the last, uh,you know, seven years or
whatever, and it's a huge.
It's a huge chunk.
And when people realize this iswhere the money's coming from
(10:42):
and when you start showing thisto them, sometimes eyes are open
, sometimes they're not,sometimes you're like, oh, it's
just free money, go ahead and doit.
I mean it's madness.
Speaker 1 (10:51):
at this point, yeah, but what the second chart shows
the chart you still got up isyou're showing the subsidies
that are going on.
So the low 25 are paying theabove, the low 25, lower, middle
and upper middle quartiles arepaying above the average so that
the top 25%, top 10%, top 5%and top 1% can pay, can pay less
(11:13):
.
They're the the the 75% ofAlaska families are having more
taken out of their income.
That so that the top 25% andnon-residents can have zero,
essentially zero, taken out oftheir income.
And that's what economistsrefer to as a cross-subsidize.
You have the lower 75%, you havethe upper, lower and low 25%
(11:43):
income Alaska familiessubsidizing the top 25%,
subsidizing them by not havingas much income taken out of
their pockets.
And you can see the extent ofthe subsidy by the difference
between what's the share ofincome being taken out through
PFD cuts and the average shareof income, the share of income
(12:04):
being taken out through PFD cutsand the average share of income
.
So, yeah, people say, well, youknow, that's just what it is.
The people who say that tend tobe in the top 25% and
non-residents.
And you can see why they saythat because the system is
benefiting them.
They're not contributing theaverage cost toward the average
cost of government.
They're contributing much lessthan the average cost of
(12:27):
government.
They're contributing much lessthan the average cost of
government, while the remaining75% of Alaska families are
contributing significantly morethan the average toward the cost
of government.
Speaker 2 (12:36):
So what do you think?
Where does this take us here inthe future, Brad?
I mean, now that we've lookedat these two things, and
especially that second chart, orthe first chart with the huge
one-third number, what does thisspell for the coming years in
your mind before we go to?
Speaker 1 (12:55):
number two.
Well, it depends.
I mean it depends on oil.
I mean the way they've operatedthis.
I mean the way they've operatedthis.
Pfd cuts are being used as themakeup for oil bouncing around
in oil prices and as oil pricesgo low, pfd cuts are being used
to make up for that.
(13:15):
The problem is and we'lldiscuss this in the third
segment but the problem is, whenwe have a low year like this
and we use a huge amount of PFDcuts to subsidize the fact, to
make up for the fact that oil iscoming in low, when we have a
high oil year, we don't reducenecessarily reduce the share of
(13:37):
the PFD.
We just spend more.
We use the additional oilrevenues to spend more to what
some say make up for pastunderspending, um.
So I think this, I think whatthis is is saying, and when I do
the Friday chart, I suspectwhat I'm going to see is this
wedge of PFD cuts as a share ofthe budget growing over time, um
(13:58):
and to to this point where it'sgotten to be the biggest it's
been, uh, since we started usingPFD cuts a decade ago.
I think we're going to see justthat wedge continuing to grow
and sort of staying in place.
Once you get to a certain levelof revenues being used from PFD
cuts tends to stay in place andthen the next year, even if we
(14:21):
have higher oil revenues, theyjust spend that additional oil
revenues as opposed to reducethe share of PFD cuts.
Yep.
Speaker 2 (14:28):
Nope, I see it already.
It's the largest component,that big red bar, it's the
largest component of stategovernment right here in their
spending.
That's where it comes from, isfrom you and me.
So every time somebody says, oh, we don't pay taxes in this
state, just look at that big redbar right there, that'll do it
every time.
That'll get your attention.
It's.
(14:50):
I mean, what's crazy is that tothink that and I've been
reading all the stories thismorning, post-session stories
and columns about you know, theschooling and everything else
and I mean there's an article inthe ADN that basically just
says, with all thesuperintendents across Alaska
urging Governor Dunleavy to keepschool funding boost intact,
(15:11):
they've all said it.
They're all saying they're noteven being quiet about it.
Oh, this is just the beginning.
This is just a little bit.
This just ties us over tillnext year where we come back and
beat you down for more.
That's where it's going and Imean I don't, I don't even know
what to say at this point.
Brad.
Speaker 1 (15:27):
Well, michael, I mean what we have is the top 20%,
top 25% saying it's notaffecting us.
So let's just keep spending,let's keep doing more.
I mean you read the editorialsand or the op-eds in the in the
ADN.
You read the op-eds in theFairbanks News Minor.
I know a bunch of the peoplethat are writing those.
They're all in the top 20%.
It's not affecting them.
There's no break on theirdesire to spend because they
(15:54):
don't have to pay a portion ofit.
It's all being shoved down tomiddle and lower income Alaska
families.
So maybe the break kicks inonce the PFD is gone and we have
some sort of revenue regimethat takes a portion of their
income also to pay for it.
But until then it is free moneyto them.
(16:15):
I mean they're being subsidizedheavily by taking the money out
of middle and lower incomeAlaska families instead become
Alaska families instead.
There's one thing that reallysurprises me, given we do have a
fairly decent level of press,media, political reporters in
this state.
The Alaska Beacon had a headlinethis week that says CBO
(16:39):
analysis, talking about thefederal budget.
Cbo analysis shows US House GOPbudget measure tilted toward
upper income taxpayers and thatis a detailed.
That article is a detailedanalysis of the Congressional
Budget Office analysis of whatthe House GOP bill would do and
(16:59):
it is the House GOP bill wouldresult in reducing the tax
burden of upper-income familiesa lot more than the tax burden
of middle and lower-incomeAlaska families.
I'm not going to argue what'sgoing on at the federal level.
The point is we don't haveanything near an article like
that about what's going on inAlaska.
(17:20):
We don't have an article thatlooks at who's paying for this
third of the budget coming fromPFD cuts.
We have a lot of articles aboutwho's paying the oil taxes and
the impact of increased oiltaxes on the oil companies.
We don't have any articles.
It's a third of the budget.
(17:40):
We don't have any articlesfocusing on what using that
revenue source, how that revenuesource affects Alaska families
in the same way as the CBOanalysis.
We don't have any articles thatanalyzes that.
Nor do we have any articlesthat talk about what impact
using PFD cuts is having on thelong-term economy of the state.
(18:06):
Yet we have article afterarticle, op-ed after op-ed,
about the impact of oil taxes onthe state.
That's a lower revenue sourcein this budget.
That's a lower revenue sourcethan PFD cuts.
The ignorance of Alaskans, inpart resulting from the failure
(18:30):
of the media to follow throughon these stories in the same way
they do at the federal level.
The ignorance of Alaskans onthese issues, I think, is part
of the problem, and a biggerpart of the problem is it's just
the top 20% wanting to spendmore and more and more and more
because they don't have to payfor it.
Speaker 2 (18:47):
Right?
No, it's ultimately frustrating, that's for sure.
All right, Brad KeithleyAlaskans, for Sustainable
Budgets, is our guest.
The weekly top threepost-session edition of the
weekly top three.
We've got a lot of problems inthis state.
One of them could be an AnnaMcKenna problem.
She's got issues that just keepgoing on and on and on.
(19:09):
Brad, what are you talkingabout here?
What do you say?
When we've got an Anna McKenna,she picks up where she left off
.
What's going on?
Speaker 1 (19:17):
So, for those who don't recall, anna McKenna
previous to her married name,anna Faircloth uh, was in the
legislature from 2012.
Uh, no, she beat Pete Kotz.
So 2006, uh to 2018, a portionof the time in the house up
until 2012,.
(19:37):
I think, um, or maybe 2010, um,and a portion of the time in
the Senate.
What's important for thispurpose was during her time in
the Senate, anna was co-chair ofSenate Finance during the
period that Bill Walker beganPFD cuts.
So she was in the legislature,co-chair of finance in the
(20:00):
legislature at the time.
The legislature could have butdidn't respond to Walker's PFD
cuts.
And then she was co-chair ofSenate finance during the time
when the legislature, followingWalker's PFD cuts, the
legislature began its own set ofPFD cuts, and that's what's
(20:20):
continued on to today.
It's no longer the executivemaking the PFD cuts, it's the
legislature making the PFD cuts,and she was a critical part
during that period of time when,looking back, the precedent was
set to start using PFD cuts tosubsidize the budget, to help
pay, to generate revenues, topay for government.
(20:42):
She was part of the legislatureand at the time she talked
about.
You know we don't want toburden the oil companies for
additional taxes, and so we needto have another source of
revenue.
We don't want to burden, youknow.
We don't want to have taxes inthe state, which translated
means we don't want to burdenthe top 20% and non-residents.
(21:03):
We don't want to have taxes, sowe're going to use PFD cuts.
She was part of thatdecision-making process.
She left the Senate in 2018,frankly, because I think she
felt that she couldn't defeatLaura Reinbold, who had
announced for her seat in theSenate from Eagle River at the
(21:24):
time that she left.
She left the legislature in2018, went on, served in the
capacity of the Dunleavyadministration as director of
the Permanent Fund Division,ironically enough, and has since
retired from that, but she'sback.
She wrote an op-ed that's in theADN and the Alaska Beacon and
(21:46):
I'm sure we'll go through allthe other newspapers in the
state with an opinion piececalled A Permanent Fund
Endowment for All Alaskans, andit's a humorous title because
what it does, what that opinionpiece endorses, is the
consolidation of the permanentfund from the two account system
(22:08):
that we have under theConstitution currently to the
single account system that isbeing promoted by the Permanent
Fund Corporation and some in thelegislature, as we've talked on
the show before what thatreally is.
What that proposedconstitutional amendment really
is is a way of creating abackdoor into the permanent fund
(22:28):
corpus.
What's now in the permanentfund corpus is considered off
limits to being drawn.
What that constitutionalamendment does, by consolidating
the two accounts together, isallow the legislature to begin
taking the POMV draw, the fullPOMV draw, from the permanent
(22:48):
fund corpus.
In the event, the permanentfund isn't generating enough
earnings to cover that draw, andit hasn't, as we've talked
about, it hasn't in five of thelast six years.
So Anna is showing back up atthis particular point in time,
now that, now that you knowwe've almost drained the
entirety of the PFD, now thatwe're almost, you know, have cut
(23:10):
the PFD out entirely,terminated the PFD, drain the
PFD, and is showing back up atthis particular time to endorse
the proposal that would start,that would allow, open the back
door and allow the permanentfund corpus to start being
drained into the general fundwhen needed to be able to
(23:31):
support earnings and, with that,support spending.
The humorous part of this is thetitle a permanent fund
endowment for all Alaskans.
What this proposal really doesis it is a way of continuing to
(23:51):
put off the date on whichAlaskans would have to pay taxes
, which would fall on even aflat tax, would fall harder on
upper income Alaska familiesbecause they haven't been paying
taxes, as we saw in the lastchart.
They haven't been paying taxesand what the consolidation of
(24:11):
the permanent fund from the twoaccount system into the single
account and opening the backdoor into the permanent fund
corpus does is put off the dateof taxes a fairly long time down
the future.
So when she's talking about apermanent fund endowment for all
Alaskans, what's really goingon is the same thing as what
(24:33):
happened during her tenure asSenate Finance Co-Chair in the
mid 2000s, during thistransition period, when the door
to the permanent fund dividendwas opened.
What she's really trying to dois continue to protect the oil
companies and the top 20% andnon-resident industries from
having to pay taxes Becausewe've drained the permanent fund
(24:56):
dividend.
By then we will have shortlydrained the permanent fund
dividend.
We drained the SBR long ago.
We drained the constitutionalbudget reserve.
Now we're draining thepermanent fund dividend because
we will have drained thepermanent fund dividend.
The way to continue to protectthe oil companies and the top
20% is to open this back doorinto the permanent fund corpus
(25:18):
and start allowing the permanentfund corpus to be drained.
So the title I sent you for thesegment was Anna McKinnon Picks
Up From when she Left Off inthe Senate Spending, because all
this is to support spending, ofcourse, while protecting the
top 20% in oil companies frompaying.
And she did that when she wasin the Senate and now she's
(25:41):
resurfacing in time to try to doit again through endorsing the
constitutional amendment thatwould consolidate the two funds
into one.
Speaker 2 (25:51):
That she says that there's a growing concern with
the falling oil prices, thedwindling savings account and
few if any revenue options thatthe legislature will move to
withdraw more than the 5% tomeet current needs.
(26:13):
And so she says there's a realconcern about that.
And then she goes on to saythat's why we need to pull the
two funds together, becausethey'll need to draw and the
whole point was to protect thecorpus of the fund.
I mean it's dichotomous.
Even inside of her own articleshe's saying they're worrying
about this, but what we reallyneed to do is combine the funds
so they can get access to themain account.
(26:36):
I mean it's ludicrous.
Speaker 1 (26:38):
What's going on here, michael?
Is the public opinion polltested, what they think the best
arguments?
What will resonate the best?
Separate, apart from the merits, what arguments will resonate
best with Alaskans?
And the polls are coming backsaying look, protecting the
(27:00):
permanent fund, limiting thedraw to the 5%.
Those arguments and another oneis oh, we're going to drain the
earnings reserve down and thenwe won't have enough money.
We need to consolidate the twoaccounts because we're going to
drain the earnings reserveaccount down and we won't have
enough money to fund government.
Those arguments are what they'refinding resonate with Alaskans,
(27:21):
but they're disconnected fromwhat they're doing.
I mean, there are ways to limitthe permanent fund draw to 5%.
If that's what you're concernedabout, you could have a
constitutional amendment thatsays we will limit the permanent
fund draw to 5%.
We will still have the twoaccount system, but we will
limit the draw to 5%.
You could easily do that, butthat's not what they're doing.
(27:43):
What they're doing is justconsolidating the two accounts
together and the only reason youconsolidate the two accounts
together is to open thatbackdoor into the corpus.
So they are having disconnectedarguments, but they're using
arguments that they think willplay best with Alaskans, who
won't read the fine print, whowon't understand the economics
(28:06):
of what's going on.
They're using arguments thatthey think will play best with
Alaskans.
You know, shouting them outthere.
This is what we're trying to do, at the same time as they're
using those arguments to push aconstitutional amendment that
does something entirelydifferent arguments to push a
constitutional amendment thatdoes something entirely
different.
You know, it was sort of likethe same way when Anna was
(28:30):
co-chair of Senate Finances.
We needed to cut the permanentfund dividend because we had to
maintain spending and oil priceshad dropped, and we just had to
do this.
Well, when oil prices went backup, we didn't restore the
permanent fund dividend, wespent even more, and so the
arguments that they use at thetime are the arguments that they
think will sell the best withAlaskans, even though what
(28:53):
they're doing is somethingentirely different.
Speaker 2 (28:59):
The problem is, the inevitable destination is still
the same, the inevitabledestination of taking all of the
permanent fund dividend andeventually starting to draw into
the corpus and eating the seedcorn.
It all reaches the same spotone way or the other that we
(29:22):
have a spending problem in thisstate.
And until we find a way to curbthe spending problem and find
alternate revenues to pay for it, this is what we're going to
continue to get.
Speaker 1 (29:32):
Yeah, it is.
I mean, you can see this if youjust sort of step back and look
at the history of Alaska, thefiscal history of Alaska since
2010.
It's been spend, spend, spend.
Where do the revenues come from?
Well, first we'll drain the SBR,the statutory budget reserve,
then we'll drain the CBR, theconstitutional budget reserve,
(29:53):
then we'll drain the permanentfund dividend and now, as we're
hitting that end point where thepermanent fund dividend looks
like it's no longer sufficientto fund government itself, we're
going to find a way to open aback door into the corpus and
start draining down the corpus,regardless of the earnings being
produced by the permanent fund.
(30:15):
Anna's been there for largeparts of it.
I mean, she was either theHouse Finance Co-Chair or the
Senate Finance Co-Chair duringthe entire period that the SBR
and CBR were being drained down.
She was the Senate FinanceCo-Chair when they opened the
door into the permanent funddividend and started draining it
down.
And now she's coming back foran encore to write this op-ed
(30:39):
endorsing the next step in thisprocess of opening the corpus to
be able to start draining it tosupport spending.
Speaker 2 (30:51):
Which, again, I mean it all leads us to the same
place, which is total fiscaldestruction.
At this point I mean there's notwo ways about it.
Let me see there was a coupleof comments that I wanted to
take Brad's comments last hourabout the fact that there's not
(31:12):
enough.
Well, there's not any goodreporting in the state.
Kim says.
You're right, brad, they're notnews reporters, only
left-leaning political analysts.
That's in.
You know, how many times haveyou seen that?
Have you seen them rewrite apress release?
Essentially, you know, drop apress release into chat GPT and
come out with a news story withwith no alternate side, with no
(31:35):
analytic.
I mean this whole this, thispiece from the ADN and Sean
McGuire starts off with, youknow, after it talks about the
superintendents urging Dunleavyto keep the school funding and
it says almost after almost adecade of flat state funding,
the lawmakers on Tuesday votedto override Dunleavy's veto.
After a decade there has notbeen flat funding.
(31:57):
The BSA has remained relativelyflat, but the way that it's
written makes it sound likethey've had no extra funding at
all for a decade.
I mean there is no accuracy inwhat's being written out there,
brad.
Speaker 1 (32:12):
Yeah, and it's not consistently left, michael.
I mean the article that theBeacon published, rushed to
publish on the CBO analysis.
Cbo analysis shows US Housesupport GOP measure tilted
toward upper income Alaskataxpayers.
That some would consider wouldbe a left-leaning article.
And you could, if you wereleft-leaning in Alaska you could
(32:34):
see an article that said youknow, alaska analysis shows
Alaska budget measure tiltedtoward upper income taxpayers.
But they don't, they don't dothat.
So it's not, it's not evenconsistently left, it's just
consistently nothing.
I mean it's, it's, it's not,it's not an analysis of what's
(32:55):
going on in Alaska at the, atthe fiscal level, at the, at the
individual level.
It's just, you know, it's justsilence, without the type of
analysis that we're seeing themthemselves publish from a
national level.
So it's not consistently leftor right, it's just consistently
sort of nothing.
Speaker 2 (33:18):
It's just lazy, is what it is.
It's lazy reporting.
I mean we're not.
I mean we're not really seeingthe deeper analysis of any of
those things.
And, of course, it's the sameplayers, like you said, I mean
the highlight of bringing AnnaMcKinnon back after she was a
huge part of the problem.
I mean again, she was thereright in the teens when they
were entering out that hole,when they emptied out the CBR of
(33:42):
you know 15, $16 billion.
She was right there along withthem.
Like we can be, we can beresponsible.
I mean, we only spent all thismoney, but trust us, we can be
responsible with this money.
Yes, we need access to thecorpus of the fund because we
can be.
We can be and Randy is saying,well, I want to.
I want the two funds to becombined as well.
(34:03):
I want the consolidation of thecorpus.
How is that going to help them,randy?
They can't control theirspending now, so you're going to
give them access to a biggerpot of money, because that's
what's going to.
Well, I just want to put off anincome tax.
Yes, it's coming.
That's the thing.
It's inevitable.
(34:23):
At this point, nobody seems toreally want to address that, but
at the rate of spending that wehave right now.
It's coming.
Am I wrong, brad?
Speaker 1 (34:34):
No, but it may not be an income tax.
It may be a sales tax, becausethat tilts heavily.
Speaker 2 (34:38):
Well, it's income tax .
Yeah, I guess, yeah.
Speaker 1 (34:40):
That's regressive, and so it continues to protect
the top 20 percent and the oilcompanies.
It may be something other thana sales tax, but, michael, what
they're trying to do is they'retrying to put off even that, and
what and the effect is going tobe for future generations?
It's just going to.
It's just making it worse.
It's just piling it more andmore and more and more on future
(35:03):
generations by first drainingthe SBR, then draining the CBR,
which the CBR is intended to bemulti-generational.
It's intended to be sort ofthis emergency fund that each
generation gets when it hits thehard spots in the road.
What this generation has done isjust drained it out and they're
(35:23):
not restoring it for futuregenerations.
So they just drained it out.
So this generation is passingon to the future generations an
empty bank account when thosefuture generations hit their
hard spots in the road.
Permanent fund dividends,taking it from middle and lower
income Alaska families and theCBR will just pass it on to
(35:44):
future generations, just buckthe problem down the road to
future generations.
So it's a giant grab.
When you look at the last 10years, the last 15 years of
Alaska fiscal history, it's justa giant grab for all the
benefits of spending all thebenefits of bigger government uh
(36:05):
, without without fiscalresponsibility, at the higher
end of the income bracket, or orat the oil companies we're
going to get ours Now.
Speaker 2 (36:13):
We don't care what happens down the road, cause
we'll be gone.
Essentially, yep, I meanthey're taking away, I mean when
they chip away at the corpus ofthe permanent fund, and that
means diminishing returns everyyear.
Eventually there will be moretaxes because somebody is going
to have to pay for all thatspending.
Right, and it'll be you and me,the people who are still left.
We'll be the ones paying forall that spending when it, when
(36:35):
it comes down, because theywanted to make sure that they
got theirs now.
That's what it's about.
Ok, tail wagging, and OPECc,opec has been the dog, we've
been the tail, it's been wagged.
But brad says that that can befixed.
Just bob the tail, that'll fix.
I mean, no, let's, uh, let'snot do that, brad.
(36:56):
Uh, what's, uh, what's yoursolution here?
Speaker 1 (36:58):
all right.
So we're seeing a bunch ofarticles, now that that you know
where people are saying lymanis one of.
So we're seeing a bunch ofarticles, now that that you know
where people are saying Lymanis one of them.
We're saying they're saying oh,you know, oil did this to us,
opec did this to us, or or theTrump tariffs did this to us.
You know, whoever, whoever theywant to pick on to be the, to
be the cause, it's not our fault, it's not the legislature's
fault.
We're just responding to what'sgoing on out there in the world
(37:20):
in terms of in terms of oilprices.
I wrote an article.
This is this is not a newargument.
It's an argument that comes upevery once in a while.
I wrote an article a long timeago, during the early days of
the Alaska landmine column thatI'm doing, that.
That talked about you know howwe could become, how we could
take control from OPEC, how wecould take control of our
(37:43):
destiny, and the same issue popsup from time to time.
Here's the deal.
What oil does is and we allknow this oil goes up, oil goes
down.
Oil goes up, oil goes down.
What we do is we follow theroller coaster.
Oil goes up, revenues go up,spending goes up.
(38:03):
Oil goes down, oil revenues godown.
And what we're seeing this yearPFD cuts go up to make up for
oil going down.
We don't bring spending down asmuch as we just start grabbing
the SBR or the CBR or PFD cutsor, in the future, the corpus.
Oil goes down, we grab revenues, oil goes back up.
(38:24):
Well, we've got all theserevenues that we created from,
you know, drawing from the CBR,sbr and permanent fund dividend.
We're going to keep those.
Oil goes back up.
We're going to increasespending to make up for the
lower spending that we had whenoil was down.
And then oil goes back down andall of a sudden we're in a
crisis again, like we are thisyear, and we have to take deeper
and deeper PFD cuts, therevenue du jour, the alternative
(38:48):
revenue that they can grab.
Now.
What we do with other things is, for example, the PFD, the
statutory calculation of the PFD.
Earnings go up, earnings godown.
Earnings go up, earnings godown.
We take the average, thefive-year average, in
(39:09):
calculating the PFD.
We don't chase after earningsas they're going up and down.
We take the five-year average,pomv, the percent of market
value, draw.
We do the same thing thepercent of market value draw.
We do the same thing the marketvalue, the percent of market
value, goes up, goes down, goesup, goes down, depending upon
where the landing spot of thepermanent fund at any given year
(39:33):
is.
But we take the five-yearaverage of the market value of
the permanent fund incalculating the POMV draw.
Take the five-year average ofthat Oil.
We just follow the rollercoaster every year.
We don't even follow the rollercoaster, we follow where we
(39:53):
think the roller coaster isgoing.
We don't even say the rollercoaster went up this year we're
going to spend more, the rollercoaster went down this year.
We're going to spend less orwe're going to draw more revenue
.
What we say is we think theroller coaster is going up, so
we're going to spend more, or wethink the roller coaster is
going to go down and so we'regoing to draw more from the PFD.
(40:15):
We're, we're, we're project.
(40:37):
We're basing our spending on onon where the we think the oil
revenues are going, or space isspent basing our revenue draws
from other sources based uponwhere we think the oil revenues
are going.
We could easily, and so we're,we're at this extreme end of the
tail with the OPEC dog.
And so we're at this extremeend of the tail with the OPEC
dog.
I mean, opec breathes one way,oil prices go down and all of a
sudden you know we're beingbounced around here at the end
of the tail.
We could take control of ourown destiny with respect to oil
(41:03):
prices if we did the same thing,just did the same thing we
already do with the PFD and thePOMV, if we used the historical
average of what oil prices wereand only spent that.
And in one of the articles thatI did on this, one of the op-ed
pieces I did on this, I did thecalculations and said, look, if
we take the average, if we havea year that goes high, we take
the excess revenues above theaverage that goes high.
(41:27):
We take the excess revenuesabove the average and we put
them in an oil revenuestabilization fund or we put
them in some as part of the CBR.
We put them somewhere and say,look, we're going to bank these
against periods when oil isgoing to go down, because we
know oil is going to go down.
When oil goes down, then wehave if we've used the average,
then we have funds from a priorperiod when oil was up and we
(41:48):
use those funds to fill the hole.
Not only does that stabilizerevenues across a period of time
, it stabilizes spending acrossa period of time, across the
future, because what we've seenis, when oil prices have gone up
, we've spent like crazy.
We've started new programs,we've started new capital
expenditures, we've started newthings and then, when oil prices
(42:11):
inevitably go down, we don'tstop the spending on those, we
don't try to control thespending on those.
We want to continue spending onthose because we've now created
constituencies for thatspending and so we have to go
grab revenues from someplaceelse to make up the oil hole,
the hole that's being created byoil prices going back down.
(42:31):
And the ones that we've beengrabbing the revenue source that
we've been grabbing since 2017is PFD cuts.
Doing it through PFD cuts,filling that gap through PFD
cuts.
If we had revenue stabilizationby having an average take
across.
(42:51):
The calculations I've done showa 10-year span with some
sideboards on, it would workbest.
But if we had revenuestabilization across a span, we
would have spendingstabilization better spending
stabilization because wewouldn't have the periodic
splurges in revenues, in oilrevenues that have allowed us to
create these new programs butthen create constituencies that
(43:15):
we then have to fund in futureyears when oil prices are down.
It's aggravating when I seepeople try to blame the problem
that we're having in the statethis year with oil prices.
It's aggravating when I seepeople blame that on OPEC or
blame it on Trump's tariffs orblame it on something else.
It's aggravating because wecould control this ourselves,
(43:40):
just like we've done with thePFD and the POMV.
We could control this ourselves, but we've chosen not to do it.
Speaker 2 (43:45):
Well, because it would require fiscal discipline.
Because it would require in theyears of plenty, like you said,
the years of plenty when weshould be taking that excess and
banking it in some way, whetherin a CBR or some kind of new
petroleum, whatever it is.
They would then have towithhold that spending and hold
onto it, and they've shown thatthey don't have that kind of
(44:10):
discipline.
That's.
I mean, I've been advocatingfor this for years that the
budgetary process should bebased on a five-year rolling
average of what the revenue hasbeen historically, not plucking
a number out of the sky becausethe projectors at the Department
of Revenue say oh, oil'sprobably going to be this.
You know, 8, 10, 12 months fromnow, oil's probably going to be
(44:31):
this.
Let's build a budget based onthe maybe, the if-come Instead.
You know what you've receivedthe last five years, take an
average of it and set that asyour spending level and if you
get more, bank it.
If you don't, then you'd haveto pull some money from some.
But again, it would requirefiscal discipline, brad, which
is the whole problem we'redealing with.
Speaker 1 (44:55):
Yeah, michael, sometimes when I think about
think through this issue, I cometo the conclusion that, yes, we
have a spending problem, butthe spending problem is being
driven by the failure of revenuemanagement, prudent revenue
management.
And we really have a revenuemanagement problem because
what's happened is through thislack of revenue management
(45:16):
discipline.
What's happened is we'veallowed these spike peaks to
occur in projected oil prices.
Keep in mind, this is allprojected oil prices.
We've allowed these spike peaksto occur in projected oil
prices.
Keep in mind, this is allprojected oil prices.
We've allowed these spike peaksto occur in projected oil
prices and rushed in with and byusing that as the revenue,
rushed in with a bunch ofspending, because we have all
this money, we might as wellspend it.
(45:36):
All these people have pent updemand from the years that oil
prices were low, demand from theyears that oil prices were low.
If we had adequate revenuemanagement tools, if we use the
five or the 10-year averagingfor oil prices, the same as we
use the averaging for the PFDand the POMV, our other two big
(45:56):
financial issues if we use thesame sort of averaging tool with
respect to oil, we would seerevenue stability across that
period and that would lead, inmy opinion, to spending
stability, because we would beable to say look, we don't have
the revenue to support thatspending.
But by going down this road ofriding the roller coaster where
(46:19):
we think the roller coaster isgoing, going down this road of
riding the roller coaster, we'rehitting these spikes when we
create this additional spending.
And then we have all thesepeople wailing about well, we
created this program and nowI've got all these people
dependent on this program andexpecting this program.
How can we cut this programback now that we've created it?
(46:41):
We've created this cycle wherewe've allowed the roller coaster
of oil to set the high spendingand that failure is it is a
spending failure, but thatrevenue is being driven by a
failure of revenue managementrevenue management.
Speaker 2 (47:08):
Yeah, no, and I agree .
If we had a base that said weknow we're going to take this
five-year rolling average, therewouldn't be that pie in the sky
of.
Oh man, they're rubbing theirhands together.
Look at all the money we'regoing to make this next year
because our revenues are goingto be up, up, up, and so they
start planning Now.
It would be more of a stablebaseline, I agree, I agree, but
again, you've got to take thatfirst step, Brad.
And the first step is theaddicts don't want to put the
(47:29):
crack pipe down right.
They don't want to do that.
They don't want to be forcedinto a corner and have to spend
within the means or have lessmoney available.
And that's part of the problem.
They just they.
You know, again, it leads backto the lack of discipline to be
able to do that kind of stuff.
They want to be the heroes, tosay I delivered the program to
you.
But you're right, I think it'sit must happen.
Speaker 1 (47:53):
It's not just Democrats that are leading us
down this road.
We were in high revenue yearsin years in which Republicans
were in control of the budgetand the Republicans.
We have been in high revenueyears in years in which
Republicans are in control ofthe budget and Republicans have
continued this process also.
So it's not just I mean, youcan't look at this and say, oh,
it's the Democrats, we can justget the Democrats out.
(48:14):
It's not.
It is the institution thatwe've set up of riding this
roller coaster, where we thinkthe roller coaster is going,
riding this roller coaster fromyear to year.
Speaker 2 (48:28):
Yeah, no, I mean it's not.
We've said it here on theprogram.
This is not a left or a right,a Democrat versus Republican.
This is a big government versussmall government problem.
And we've got a ton ofRepublicans.
I mean, they're the ones youcan lay.
You can lay most of this crisisat the feet of Republicans
because they refused toacknowledge that they had a
spending problem back in theteens when they spent $15
(48:50):
billion out of the savingsaccount because they didn't want
to reduce the size and scope ofgovernment to match what the
revenues were, not realizingthat it was well.
I mean, they didn't even thinkthe fact that it was a
short-term solution to draw $3billion, $4 billion a year out
of the CBR.
It's not going to.
That's not going to help.
You know, that's not along-term solution.
(49:11):
And it doesn't matter, becausemost of the people who were
there in the teens are gone now,although they'll write op-eds
saying what we need now issomething even you know is
something even better.
I mean I was there, hey, I wasthere when we were spending
money like drunken sailors.
But it'll be fine, don't worryabout it.
Open up the corpus, it'll begreat.
I mean this is all part andparcel of the problem.
(49:33):
I agree with you.
This is why I mean the charterof changes.
Number four was change thefunding mechanism for government
, and that was, I wasspecifically saying, changing
the budgeting process to havinga five-year rolling average.
We use it everywhere elsebecause of the volatility of the
petro-state.
Why aren't we using it there?
Speaker 1 (49:54):
Yeah, yeah, it's it is.
It is as critical I think it'sas critical a piece of an
overall fiscal fix as any otherpiece.
It is lowering expectations.
I mean, what we've done iswe've set spending expectations
at the peaks of these oil cyclesbecause we've spent that money,
(50:18):
we've treated it as revenue,treated all of it in the year
which it occurs as revenue, andso we've spent it.
And we've set up new programsand so we've spent.
We've set the expectation ofspending at the peaks of all
these oil cycles and the realityis we don't we certainly don't
always hit these peaks, and sowe're faced with a situation
where, you know, we're goingthrough these cycles and now
(50:41):
that we've set the expectations,we have to find additional
revenue sources.
I think, looking at this as muchas a revenue management problem
as a spending problem,controlling the amount of
revenues that we use in thebudgeting cycle by being much
more realistic about oil prices,being much more long-term
(51:04):
oriented about oil prices asopposed to chasing the roller
coaster I think having a muchbetter revenue management system
is as important to controllingspending as anything else.
And this all comes back up tomy mind because we have these
people, we have legislators whoare saying oh, it's not my
problem, you know the fact wehave to do PFD cuts this year.
(51:28):
Not my problem, because youknow all prices went down.
It's OPEC's problem or it'sTrump, the Trump tariffs problem
.
It's not.
It's your problem from nothaving set up a revenue
management system with respectto oil that takes into account
oil goes up and oil goes down.
That's your fault.
That's not OPEC's fault andit's not Trump-Tarrant's fault.
(51:49):
It's your fault for not havingset up a controlled discipline
revenue management system.
Speaker 2 (51:55):
Tony says what about a five-year rolling average?
How about with the five-yearrolling average at a two-year
budget cycle, so that there's abaseline for the two-year
legislative cycle?
I mean, I'm not opposed to thatSome states do that, why not?
But I mean it would be a hugeleap forward to just go with a
five-year rolling average.
Speaker 1 (52:16):
Five years would be better than where we are.
Ten years would be better thanfive years.
I mean, what you find is theseoil cycles tend to go on for a
period of time, so a 10-yearaverage on oil prices tends to
get you better, get you closerto the median point in the sine
curve than a five-year.
But five years is better thanwhere we are, that's for damn
(52:36):
sure.
Speaker 2 (52:38):
Yeah, because right now we're pie in the sky.
Let's pluck a number out ofthis.
What does it sound like?
I mean, that was the again theSean Parnell oil is going to be
one hundred and fifteen dollarsa barrel.
I don't care that it's seventyeight dollars right now, it's
going to be one hundred andfifteen dollars a barrel and I'm
going to write a budget basedon that.
I mean, it's, it's madness.
It is madness.
This all comes back to thefiscal discipline of a
(53:04):
legislature which heretofore hasnot shown really any fiscal
discipline at all.
Speaker 1 (53:09):
But it's fiscal discipline.
I guess my point on this isit's fiscal discipline on the
revenue side as well as on thespending side.
It's fiscal discipline to say,yes, you know, the revenues that
were projected for next yearmay be X, but we're only going
to use Y because we know thatoil goes up and oil goes down
(53:31):
and we're going to set ourrevenues at a realistic
long-term level, as opposed tofollowing the roller coaster up
and down.
Our problems are being drivenby not doing that as much as
they're being driven by spendingit all when we have it.
We shouldn't be doing thateither, but we should be
defining our revenues in a waylike we do with POMV revenues,
(53:52):
like we do with PFD revenues.
We should be defining them in away that is much more
disciplined.
Speaker 2 (54:00):
No, and, like you said, it would hold that back.
That back now.
How do we get that instituted?
That's my question.
How do we get that instituted?
It's a strong governor.
We're out of time, brad.
Speaker 1 (54:11):
Go ahead quickly the governor could do it.
The governor could do it in thebudget cycle.
In saying this is the amount ofrevenues I'm using in my budget
cycle, doesn't take thelegislature.
Speaker 2 (54:19):
The governor could do it well, we'll see where that
goes.
Brad Keithley Alaskans forSustainable Budgets the weekly
top three.
Thank you, my friend,Appreciate you coming on board.
Speaker 1 (54:29):
Michael, as always, thanks for having me.
Well, that's a wrap for anotherweek's edition of the weekly
top three from Alaskans forSustainable Budgets.
Thank you again for joining us.
Remember that you can find pastepisodes on our YouTube,
SoundCloud, Spotify and Substackpages, and keep track of us
during the week on Facebook andTwitter.
This has been Brad Keithley,Managing Director of Alaskans
(54:52):
for Sustainable Budgets.
We look forward to you joiningus again next week for the next
edition of the Weekly Top Three.
Weekly top three.
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