Anchorage Republican senator is proposing significant changes Alaska’s state spending caps. This is the first step towards a long-term plan for balancing the state’s budget, which multiple legislators agree is a priority.
On Friday , Sen. James Kaufman (R-Anchorage) gave his proposal its first hearing before the House Judiciary Committee. It was sponsored by Rep. Will Stapp (R-Fairbanks). In the coming weeks, additional hearings will be held.
Kaufman’s proposal, sometimes called the Kaufman–Stapp plan but Kaufman is the principal author, would establish an annual limit on state spending. It’s based upon a five year average of the nongovernmental gross domestic products of the state — which is the sum of all goods and services from the private sector — over the past five years.
Kaufman stated that the goal is to stop state spending rising when oil prices rise and to avoid spending plummeting when oil prices drop, which could lead to double-dip damage to the state economy.
Kaufman stated that a five-year average would moderate boom-and-bust effects.
Kaufman sees the opportunity to save the oil price rises in years and then spend it in the future, spreading the effects of the spike long after the prices drop. This would allow for years of reliable construction work instead of mass hirings or layoffs based on the boom/bust cycle.
He stated, “If we can avoid booms and associated spending, then the busts,” he added.
While spending caps in other states are based on economic indicators as well, Alaska’s proposal would be the first state to base an appropriation limit upon GDP.
Alaska has an existing annual spending limit. It was established in 1982.
The plan also includes spending cuts, new revenue (possibly taxes) and constitutional amendments that limit the annual draw of the Permanent Fund by the state government and guarantee a Permanent Fund dividend.
According to estimates from the senator’s bureau, Kaufman’s proposal would have a much tighter limit.
The state’s current spending limit is over $11 billion for fiscal year 2023. This period runs from June 30 to June 30. The new hard limit would be slightly more than $6.2 billion. This is in addition to the $5.8 trillion in cap-covered spending approved by legislators last spring.
Kaufman’s plan creates a soft cap that is even lower — currently $5.1 billion — and can only be broken with the support from two-thirds (or 60) of the Legislature’s members.
The hard cap is proposed to amend the Constitution; the soft cap is suggested as a state law that might permit bare majority of legislators, just like they did the Permanent Fund dividend formula.
As it stands now, the Permanent Fund dividend and disaster spending, as well as bond proposals and federal grants, would be exempt from the cap. However, most services such K-12 education, roads, and ferry systems would fall within the limit.
Even with these exceptions, legislators would be constrained. Public members are calling for an increase in state funding for K-12 school as well as for the restoration of a state pension scheme that is open to new employees.
Both ideas could be impossible at the current level of spending if spending is limited to levels suggested by Kaufman and Sapp.
“Some people fear caps because they are often associated with cuts and think it’s a Trojan Horse for a cut. He said that it isn’t.
Kaufman proposes strict process controls and management plans for state agencies in , a separate piece of legislation. Better planning can improve efficiency and save money, while allowing for more spending below the cap.
Rep. Cliff Groh (D-Anchorage) is a member the House Judiciary Committee. He ran last year on the importance a spending cap. This he sees as part the “five-legged stool”, which was proposed under the 2021 fiscal plan.
Kaufman’s proposal was open to him, but he said that he wasn’t sure if the cap is right. He also questioned the timing of Kaufman’s proposal. Can the proposal be advanced without the rest of the fiscal plan?
He said, “There are a lot of technical questions regarding Kaufman’s proposal as well as the central timing query that I have.” “I believe there are a lot of legislators with similar sentiments.”
The Alaska Beacon originally published this story. It is republished with permission.
