The Need for a The Need for a Sustainable BudgetSustainable Budget

Bradford G. KeithleyBradford G. KeithleyPartner, Perkins Coie LLCPartner, Perkins Coie LLC

Meet AlaskaMeet AlaskaAlaska Support Industry AllianceAlaska Support Industry Alliance

January 11, 2013January 11, 2013

Key PointsKey Points

Alaska’s current fiscal future is highly Alaska’s current fiscal future is highly uncertainuncertain

The risk of instability undermines long-The risk of instability undermines long-term investmentterm investment– Who wants to invest in an uncertain fiscal Who wants to invest in an uncertain fiscal

climate (creating an uncertain tax structure)climate (creating an uncertain tax structure) Finding a solution to fiscal instability is Finding a solution to fiscal instability is

key to maintaining long-term investmentkey to maintaining long-term investment

April 21, 2023 2

ISER January 2013ISER January 2013

““Right now, the state is on a path it can’t Right now, the state is on a path it can’t sustain. Growing spending and falling sustain. Growing spending and falling revenues are creating a widening fiscal revenues are creating a widening fiscal gap.”gap.”

““Reasonable assumptions about potential Reasonable assumptions about potential new revenue sources suggest new revenue sources suggest we do not we do not have enough cash in reserves to avoid have enough cash in reserves to avoid a severe fiscal crunch soon after 2023, a severe fiscal crunch soon after 2023, and with that fiscal crisis will come an and with that fiscal crisis will come an economic crasheconomic crash.”.”

“The figure … shows the growing General Fund fiscal gap—even assuming new revenues from natural gas production and more oil production—if spending increases at a rate of 4.5% annually. “

April 21, 2023 4

April 21, 2023 5

April 21, 2023 6

April 21, 2023 7

April 21, 2023 8

ISER January 2013ISER January 2013

““What can the state do to avoid a What can the state do to avoid a major fiscal and economic crisis? major fiscal and economic crisis? The The answer is to save more and answer is to save more and restrict the rate of spending restrict the rate of spending growthgrowth. … . … the state needs to the state needs to sharply step up its savings rate, sharply step up its savings rate, starting nowstarting now.”.”

““In fiscal year 2014, Alaska’s state In fiscal year 2014, Alaska’s state government can afford to spend government can afford to spend about $5.5 billion.”about $5.5 billion.”

“All revenues above the sustainable spending level of $5.5 billion—including Permanent Fund income except the share funding the dividend—would be channeled into savings.”

April 21, 2023 10

“On this sustainable path the combined earnings of all the financial assets … would initially all be reinvested, except the amount set aside to pay the Permanent Fund dividend …. The financial assets would gradually become the most important source of revenues for the General Fund ….”

April 21, 2023 11

It won’t be easy …It won’t be easy …

Governor’s Governor’s

Proposed BudgetProposed Budget

$6.5 B

Proposed FY2014 Budget

+ .5 B “Legislative Priorities”

$ 0 Savings

ISER Calculated BudgetISER Calculated Budget

$5.5 B

ISER Calculated FY2014 Spend

$1.5 B Savings

But it is necessary …But it is necessary …

The risk of instability The risk of instability undermines long-term undermines long-term investmentinvestment– Who wants to invest in Who wants to invest in

an uncertain fiscal an uncertain fiscal climate (creating an climate (creating an uncertain tax structure)uncertain tax structure)

April 21, 2023 13

Adopting a sustainable budget is as important to attracting and

maintaining long-term investment as oil reform