Why Alaska needs to reduce state spending (and how to do it).

• Author: Keithley, Bradford G.
• Position: FISCAL POLICY OP-ED

The opinions expressed herein are those of the author.

Based on state Office of Management and Budget data, over the last decade annual state government general fund spending--operating and capital combined--has nearly tripled, from roughly $2.3 billion in FY 2004 to a now-projected $7.1 billion for FY 2014.

Over the same period, the Consumer Price Index (CPI) has only increased by 27 percent. That means increases in state spending over the period have outstripped the CPI by roughly eight times.

The escalation has been substantial even when measured only over the last five years, since Governor Parnell took office. Alaska state general fund spending over that period alone has increased by approximately 40 percent, from roughly $5.1 billion in FY 2009, the last budget prepared under Governor Palin, to $7.1 billion for FY 2014.

During the same period the CPI has only increased 6 percent.

As I have discussed in this column before, earlier this year the University of Alaska Anchorage Institute of Social and Economic Research (ISER) had this to say when looking at these trends: "Right now, the state is on a path it can't sustain. Growing spending and falling revenues are creating a widening fiscal gap ... Reasonable assumptions about potential new revenue sources suggest we do not have enough cash in reserves to avoid a severe fiscal crunch soon after 2023, and with that fiscal crisis will come an economic crash."

Importantly, that analysis was based on projections which assumed the continuation of ACES (Alaska's Clear and Equitable Share), the former oil tax law that almost all now agree took too much of the North Slope revenue stream and subsequently has been supplanted.

Alaska is not facing a revenue problem, it is facing a serious--and potentially soon--catastrophic spending problem of its own creation. In short, Alaska is careening toward a crisis, not attributable to "federal overreach" or any other Outside force, but entirely created by the state's own inability to control spending.

What Is Going On?

When confronted by these facts readers may ask: "Why has spending risen so quickly and so much?" The answer is simply that government has spent more--and then more--through both the operating and capital budgets.

In FY 2004 the operating budget was $2.23 billion. For FY 2009, the operating budget was $3.38 billion. For FY 2014, the current fiscal year, the state operating budget provides for $5.3 billion in spending.

In short, in ten years...