The Weekly Top 3
The Weekly Top 3
The Weekly Top 3 (5.5.2025)
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 5, 2025.
This week, our top 3 issues are these: 1) we discuss what’s going on with oil prices: what’s driving the price drop, how low could they go and how long could the price drop last (2:17); 2) we discuss the failure of those who voted for HB 57 (the permanent K-12 funding increase) to realistically deal with a fundamental question: where’s the money coming from and #WhoPays (18:56); and 3) we discuss a bill hovering over this session that, if passed, could make Alaska’s future even worse from a fiscal perspective (40:35).
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.
Hi, this is Brad Keithley, managing Director of Alaskans for Sustainable Budgets. Welcome to the weekly top three the top three things on our mind here at Alaskans for Sustainable Budgets for the week of May 5th 2025. The weekly top three is a regular segment on the Michael Duke Show. The show broadcasts on both Facebook Live and YouTube Live, as well as via streaming audio from the show's website weekdays from 6 to 8 am. I join Michael weekly in the first hour of Tuesday's show from 6 10 to 7 am for a discussion between the two of us about our three issues. We post the podcast of our discussion following the show on the Alaskans for Sustainable Budgets Facebook, youtube, soundcloud, spotify and Substack pages. Also on the Alaskans for Sustainable Budgets website, as well as the project's page on national blog site mediumcom, you can find past episodes of the weekly top three also at the same locations.
Speaker 1:Keep in mind that, in addition to these podcasts during the week, you can also follow and participate in the discussion with us of these and other issues affecting Alaska's fiscal and economic condition by following us on the Alaskans for Sustainable Budgets Facebook page and through our posts on Twitter. This week, our top three issues are these First, we discuss what's going on with oil prices, what level they've gone to, how low they could go and how long does the price drop? Last Second, we discuss the failure of those who voted for HB 57, the permanent K-12 funding increase, to realistically deal with the fundamental question where's the money coming from and who pays? And third, we discuss a bill hovering over this session that, if passed, could make Alaska's fiscal future even worse. And now let's join Michael.
Speaker 2:Let's get started. We've been talking a lot about it. Like I said before, it seems like the legislature has now just welcome to the party, pal. You're the first person to realize that we're in a deficit and they're shocked, shocked. I tell you that this is actually going on. But the news from oil is not good. For those who've been planning on a big, rosy budget for next year, it's just not as good as they thought it was right. Give us the news on oil pricing, brad. What's happening?
Speaker 1:there. It's not only not good, it's getting terrible. I did the futures prices this morning before we started and the current fiscal year FY25, that we've got what two months left of month and a half left of is going to be okay. The projection on which the budget was based was $75. The spring revenue forecast brought that down a dollar and said it was going to come in at $74. And factoring in the current futures markets for the remainder of this month and for June, it looks like the average is going to end up around $73 a barrel. So FY25 is taking a hit, but not that much of a hit.
Speaker 1:Fy26 is just a disaster when you look at it. When you look at it. The forecast, the spring revenue forecast, on which this budget was theoretically being built, is $68 a barrel for Alaska crude, the current futures market, and some will sometimes argue with me and say, well, there is no futures market for Alaska, which is absolutely true, but you can take Brent, which is what Alaska is priced against basically in the world market. You can take Brent and you can adjust it for the Alaska differential and we keep track of what the differential is between Alaska crude and Brent crude on a daily basis and then factor that in in looking at the Brent futures market coming up with an Alaska futures price and the current market for Alaska futures against a spring revenue forecast of $68,. The current futures price from this morning for the Alaska futures is $62, $6 less and that translates into about a $200 miss, $200 reduction in projected oil revenues for the state.
Speaker 2:So FY26 $200 million, not $200,. $200 million, right, yeah, right, $200 million, I'm sorry $200 million lower funding for the state.
Speaker 1:So FY26 is just looking horrible and interesting thing about the current market since this ride started a couple of months ago. Interesting thing about the current market up to a couple of months ago since COVID up to a couple of months ago, the oil futures market had been in what is called backwardation, which means that current prices are higher than futures prices. It was a downward slope to the market. What's happened in the last four weeks, six weeks, is that the market has gone into this sort of roller coaster that is in backwardation for the first couple of years and then goes into what's called contango by the futures analysts or the market analysts, by the futures analysts or the market analysts. Contango, which means that futures prices are higher than current prices. So we're in backwardation for a couple of years and then we start into contango and what that means is beyond FY26, the market sort of comes back up and if you look at an average of FY27 through FY32, at least in the current futures market, the spring revenue forecast says $67 a barrel and the current futures market says $67 a barrel also. So we sort of even out in the future years. But right now, looking at the futures market. Fy26 is a disaster and it's not entirely clear we get out of this anytime soon. What's going on is we started with a soft market because of reduced demand, largely because of the tariffs. As the tariff wars started, demand started contracting, uh, and so we've got a soft market.
Speaker 1:Uh, uh, to begin with, uh, but what's mostly happened over the last couple of months is that OPEC has OPEC plus has vastly increased, uh, the quotas, vastly increased production, uh, first in April for May, uh, and now at the most recent meeting they upped it another 400,000 barrels a day in May for June, which was a surprise to the market. I think the market expected about 100,000 barrels a day increase, or 150,000 barrels a day increase, and OPEC substantially exceeded that. And there's an increasing expectation that OPEC is going to do the same in June, up at another $400,000 in June for July, which will bring prices down even further. So it's not entirely clear what's going to change. That sort of stops, the freefall that we're in gets this sort of stops, the free fall that we're in the OPEC production increases are in response. I mean against the soft market, against the soft demand market.
Speaker 1:You would think that they'd start tightening up, but what they've done is they've expanded because they've got a problem with two of their members, iraq and Kazakhstan, greatly exceeding their OPEC quotas. So this is sort of you know, if you're going to do that, we're just going to increase theC quotas. So this is sort of this is sort of you know, if you're going to, if you're going to do that, we're just going to increase, we're just going to increase the overall quotas and everybody's going to compete for for that increased market share that you've been filling by over over supplying your quota. It's a punishment. It's a punishment.
Speaker 2:Anything else to try and drive the whole market price down. So sure you could overproduce, but you're going to make less because we're all going to overproduce at this point.
Speaker 1:It's mostly punishment, but it's also a market share battle. I mean Saudi. So what's happened is we had in a soft market, Kazakhstan and Iraq were increasing their market share dramatically, which was coming at the expense of Saudi. So Saudi's response was look, you're not going to be able to play that game. We're going to increase the quotas so we can compete for that increased market share, that increased share of the market you've been supplying, and in doing that it drives price down. But it begins with a market share battle that has the effect on price. Dropping price is also sort of a fortuitous response by the Saudis to request by the Trump administration to bring price down, to level off inflation, to keep inflation under control, even with the tariff increases. And Trump's headed over to Saudi for a foreign visit in the next month or so, next few weeks or so, and this gives the Saudis an opportunity to say see, you know, you ask us for lower prices. Look what's happened.
Speaker 2:We deliver, right, we deliver. So what's the effect on Alaska, though? I mean, this is you know, you know, sixty eight dollars a barrel is what they factored it on, but sixty one, sixty, fifty, nine, I mean we look, and we're looking into the high fifties, or what are we thinking?
Speaker 1:What is it going to mean for Alaska? The Trump administration says they want 50. The current futures price is at 62. If the Saudis increase the quotas again in June by another 400,000, which is what they could do, I mean they're really restoring the cuts that happened during COVID. And if they could, if they increase it by another 400,000, which the Saudis have the capability of doing that'll drive it into the fifties for sure and and possibly start approaching the $50 barrel level that the Trump administration has said it has said it wanted. So that just makes FY26 for Alaska an absolute disaster and will just wreck the budget all to heck. We don't have enough savings to guide us over. So just really, I mean FY 26 is going to be if the Saudis increase the production again, if the price drives down into the fifties, into the middle and low fifties, it's going to, it's going to wreck the FY 26 budget and start putting future budgets at risk as well. Even though we're in contango, if you start from a lower base the contango the contango gets you lower levels. I mean it gets you higher levels than current, but it ends up getting you lower levels.
Speaker 1:I don't think it'll affect production. I don't think it will affect the incentive for projects currently underway like Willow and PICA. They're too far along CapEx is too far along to really stop work on those. It probably will slow down any future projects beyond Willow and beyond PICA that may be in the planning phases or may be in people's minds right now. It will weight down on those. But I think we'll continue to have production. It's just that the price for that production is just going to be, uh, significantly lower than the, than the, than the forecast and the, the price on which the budget's based in dollars and cents though you're talking about, I mean, if we end up with a drop, every dollar, and drop is what?
Speaker 2:about 40 million dollars or so at these levels, about 30 million? 30 million dollars. Yeah, so at every dollar. So if we drop $10 down from that's the thing they keep factoring the budget on this higher and higher Number 68, now we get to 58. If we get to 55, I mean all of a sudden we're talking about going from potentially a billion-dollar deficit to a $2 billion deficit.
Speaker 1:Oh, easily 1.9. Easily oh easily.
Speaker 2:We're talking big dollars.
Speaker 1:Current law deficit. Starting from the statutory PFD, we're easily over $2 billion. Even at $62 a barrel we may be over $2 billion. I haven't run those numbers yet, I'll run them on Friday. But even at $62, we're probably over $2 billion for FY26 against the current law budget, against the budget, factoring in the PFD cuts that they're making Against that budget, we'll still be down maybe $400, $500 million if we get into the mid-50s for FY26. And we've only got like $3 billion in savings. We say savings. What it really is is accumulated PFD overcuts that have happened during the last five years.
Speaker 2:The PFD slush fund right. Only whatever's left of your PFDs is sitting in there at this point, and it's what? 2.8, 2.9,. But they say they have to retain almost a billion dollars for cash flow. So it's not even that. It's about $2 billion. That's really what's available is just under $2 billion. So it makes it even more. And that doesn't even account for the new employee contracts which we don't even have the full price tag on that yet. But it's upwards of $300 million a year in perpetuity going forward. So there's another. I mean this is. I mean this just hurts all the way through. It's just, it just keeps getting worse as we go through.
Speaker 1:Yeah, and and. In the face of this, michael, I mean we'll talk about this more in the second segment, but, but in the face of this, we keep voting spending increases. I mean we'll talk about this more in the second segment, but in the face of this, we keep voting spending increases. I mean the K-12 spending increase permanent increase that the House just passed is insane in this environment. They don't have a way of paying for it. They didn't even discuss a fiscal plan on how to pay for it, but nevertheless they voted this permanent increase. And now we're talking about childcare. And now we're talking about the. You know, people are pushing for the childcare subsidies that are out there. And now we're talking about the increased wage increases.
Speaker 2:It's- Medicaid, all the other things. I mean it's just gonna be. Yeah, this is whoo, it's gonna be fun, yeah, brad. I mean I'm just looking at this and going, it's going to be. You know, it's going to be worse If Trump gets his way and they get to that $50 mark, which would be good for the overall US economy, don't get me wrong. But for Alaska, I mean, if we went from 18 to 50 or 51, 52, I mean that's devastating. It's devastating for what we've got going on right now.
Speaker 1:We should have long ago and I've been an advocate of this since the 20 teens. We haven't talked about it much on the show but I've written a couple of pieces on it. We should have long ago gone to a system for the oil revenues we use in our budget based upon the 10-year history. We should be basing the oil revenues that we use in the budget on what we have, the surplus we may have built up by using a 10-year forecast or a 10-year history. But we haven't done that. I mean we're just riding the curb as it goes and we're about to see just sort of riding the roller coaster.
Speaker 1:It goes up and goes down and we're about to see the down consequence of this Again. I mean we've been through it before. We've never been through it with savings this low before, so it'll be a new thrill to go down through it in this situation. But we're about to go through the down dive again and if it gets down to 50, if oil gets down in the $50 range, trump's going to want to keep it there. I mean because the deflationary effects of getting oil prices down that low is going to be offsetting the inflationary effects of the tariffs and he's going to want to keep that deflationary pressure there to offset what's going on with the tariffs, to continue to justify the tariff policy, and so he's going to want to keep it there.
Speaker 1:And the Saudis? If the Saudis regain market share, saudis have a lot of capacity for absorbing low prices, and so the Saudis may go there for a while. So once we get down there, there's going to be a lot of pressure to keep it there, and if it stays there, alaska is just going to take one hit after another in terms of revenue and in terms of the budget.
Speaker 2:Well, maybe I hate to say this, but maybe that's what we need. Maybe we need that wake-up call. Maybe we need the call to say, hey look, you can't be all things to all people, and you know two or three years of oil at, you know, at $50 a barrel in in the 50s. Maybe that will be the wake-up call that's required. I don't know. It just seems like they just discovered recently that we have a deficit problem and now it'll be like woof, you know now we'll see where it goes from there.
Speaker 1:Yeah, and, and you know, you said who wants to be governor of this. Well, we already have two candidates that announced yesterday, neither of whom click put out this long release about. You know all the stuff he's concerned about. Fiscal policy Wasn't one of them? Oh no, the budget, the budget wasn't one of them, so neither of them were ready for this.
Speaker 2:Yeah, no, it's. Yeah, I'm not, I'm not encouraged. Well, I'll. Yeah, I'm not encouraged. Well, to be honest with again, I want to know more before I go, but there's really, it has not been an inspiring field thus far about all the names that have been mentioned, but we'll see where it goes from here.
Speaker 1:I'm holding that for Ben Carpenter to tell you the truth.
Speaker 2:That would be pretty awesome. All right, we got to go. We're drawn to number two here of the weekly top three Brad Keithley, alaskans for sustainable budgets. The basic question of the week is uh, you know what is the basic question on hb 57, what is the question that we should all be? We all know it right, it's the question we should all be asking all the time who pays, brad? Hb 57. You're in an analysis, an analysis of, in an analysis of this debacle here.
Speaker 1:So HB 57, for those who are numbers challenged, HB 57 is the K-12 bill, the $750 K-12 or 700, which was it? 700? The $700 K-12 bill that got through the legislature, got through. Yeah, that got through. Uh, they got through the legislature, got through the Senate and got through the house and currently is sitting on the on the on the governor's desk.
Speaker 1:If there's one thing, michael, that we did over the course of the last two years, or the course of the last three years, as long as people have been writing these, these, these op-eds about, we need increased K through 12 funding. We need,12 funding. We need more funding in the schools. We need to spend more in the schools. If there's one thing we talked about on this show, one thing I wrote about elsewhere repeatedly, was okay, if we're going to address increased spending, we have to talk about who pays. We have to talk about broadly distributing the burden of any such increase. Especially if they're going to do it on a permanent basis, we have to address who pays. It has to be hand in glove and we criticized liberal op-ed after liberal op-ed after liberal op-ed for not addressing the issue of who pays, not talking about how they were going to make sure the burden wasn't entirely focused on middle and lower income Alaska families through PFD cuts. So we get to. We get to the vote on HB 57 and we have a bunch of conservatives vote for it and they don't. They don't talk about who pays and they and they don't care. It's a permanent increase and they're voting for a permanent increase in the BSA, permanent increase in K-12 spending, permanent increase. Taking it out of the discussion for the future and offset to. If you're going to vote for increased spending, you have to vote for increased revenues. Are you ready to do that? And are we going to spread those revenues broadly, taking it out of that discussion? Voted for a permanent increase and they don't address who pays.
Speaker 1:Rob Yunt had an op-ed in the last week trying to explain what the hell he was doing and the headline of it was how a common sense education package passed the Alaska legislature to fund some additional spending funded by that internet tax $60 million of internet tax and all he talks about in his op-ed is that he was responsible fiscally because when he added that additional, that addition he added, when he added that additional spending, it added additional additional revenue to support it. But he doesn't talk about the, the baseline seven $700 increase, permanent increase that he voted for. He doesn't talk about how he's going to pay for that and why that was fiscally responsible. The thing that really surprised me is Sarah Vance and Refridge and Bill Elam voting for HB 57. And then they came out afterwards with an op-ed or with a release that justified their votes for it. And one of the things they said in here in this explanation is, quote education funding is the single biggest issue before the legislature this year, said Representative Vance.
Speaker 1:We had a choice make real progress now or risk walking away with nothing. I chose progress. Education funding isn't the single biggest issue before the legislature. As we just discussed in the last segment, especially with oil prices dropping, fiscal policy is the biggest issue facing the legislature and what we've got again, what those op-eds tried to do the last three years is they tried to say, oh, forget about fiscal policy. We just need to focus on education policy and we need to fund it no matter what, and build additional spending, no matter what. And what our response was the last three years is no, it needs to be fiscally responsible education policy. You need to pay for it. If you want to increase it, you need to pay for it. And now we've got Vance and Refuge and Elam falling in the same trap, saying, oh, it's education policy. We've got to do education policy without addressing the fiscal consequences, at least on the baseline portion of the increased funding.
Speaker 2:I mean, look, I could have stood behind it if it was a one-time thing just to get it off the table. But it's not, it puts it in perpetuity. And the second thing is you can already see them gearing up for next session. They're already saying this is a good start. Essentially, the Anchorage School District Superintendent said well, this is just to hold us over until next year. Essentially, this is going to be a. This is a whole new deal. This is a. This is. They've seen that you've blinked and that you've given in, and so they'll be back next year for another thousand dollars.
Speaker 1:We get into these traps. We get into these traps where something that's going to cause an increase in spending becomes more important. The policy of pursuing it becomes more important than the fundamental fiscal policy of how you pay for it and how you pay for it equitably Education policy. I mean Representative Vance has fallen into that trap with the statement that education funding is the single biggest issue before the legislature this year. We got another trap coming up in the 15 days or however few days 14 to 10 days, whatever it is left in the session. We got another trap coming up in terms of childcare. I mean people are going around oh, we've got to fund childcare. We've got a crisis in childcare. We've had a crisis in child care. We've had all these child care facilities closed. We've got to increase the subsidies or make permanent the subsidies we've got in the legislature for child care. How do you pay for that? How do you pay for that equitably? It isn't just middle and lower income Alaska families that are getting the benefit of that. Top 20% are taking advantage of that too. How do we fund that equitably? If you want to increase the spending, how do we fund that? But there's no discussion about how to fund it. It's just we need that additional spending and we get into these traps of where the policy around the spending is what drives the boat, as opposed to the fiscal policy of how do we pay for it. If you're going to do it, how do you pay for it responsibly? And I'm just.
Speaker 1:I'm shocked, frankly, that conservatives are now falling into the trap. It's like they're falling over the edge of the cliff right Into the gorge. To see that from Representative Vance was just shocking. To see the vote first of all and then to see this statement from Representative Vance is just shocking. At least Yunt tried to explain part of it by saying he voted for that increased increment because he had funding behind it. Didn't explain the rest of it, but at least he explained that increment. Representative Vance, and Refridge and Elam don't explain that at all. I mean, it's just, we need education policies first. We gotta deal with education funding. Fiscal policy oh, we'll get to it someday, but education policy, we gotta deal with it first.
Speaker 2:Yeah, well, putting $200 million on the bottom line forever moving forward to me was, I mean, as important as education may be, and even assuming all their arguments were correct, putting $200 million permanently on the books in perpetuity $175 million, whatever it is. Okay, I'm just, I'm rounding up, that's just. It's reckless. I mean it really is just reckless at that point Because, again, if you can't pay for it this year, how are you going to pay for it next year or the year after that, especially if oil continues to tank. I mean it's insane, it's madness.
Speaker 1:Well, it's 182 million. Whoever wanted to be picky about it forgot to include people transportation, which's 182 million. Whoever wanted to be picky about it forgot to include people transportation, which also was permanently increased. So yeah, how do you? I mean? So I'd sort of resigned myself to another one year funding as we continue the debate. That needs to go in parallel. We want to increase spending. Okay, how do you pay for it responsibly? How do you pay for it equitably? I'd sort of said, okay, another year of that, another temporary fix of permanent fund cut, pfd cuts to pay for it. But at least we preserve the debate going forward, the parallelism of the debate going forward.
Speaker 1:This takes away the parallelism. It says we're going to permanently increase spending without addressing funding, and so the implication of that is we don't know how we're going to fund it. It's probably going to be from PFD cuts on the long term, but we're not going to say that and we're not going to fix that and we're not going to address the issues that that raises in terms of out migration and other things. We're just going to increase the spending side raises in terms of out migration and other things. We're just going to increase the spending side and I've gotten used to progressives and moderates so-called moderates in the legislature who claim to be fiscal conservatives but aren't. I've sort of gotten used to them going down this one-way track of increasing spending permanently without addressing the fiscal side, but to have to have Vance and Ruffridge and and Elam do it was just. I mean, I don't know where we go If you can't, if you can't hold the conservatives on that issue, will you ever hold?
Speaker 2:on to anything, right, right. Well, it's the same thing with. I mean, in the first go around, the only person who voted against it in the Senate is Rob Myers, who's like hello, has anybody seen the fiscal outlook right? I mean even Schauer and Hughes and everybody. And then, even when it came back and Schauer and Hughes voted against it, you still got Cronk and Yount and Rauscher who are all saying, oh no, we're, you know, we're going to override the governor's veto on this. Well, I mean, I asked Mike Cronk on this program why are you, if you were going to support it, would you support it as a permanent or not? And he's like yes. And I'm like okay, come on, take a stand. Right, can we really afford this in perpetuity? Nobody's even really thinking about that.
Speaker 1:Yep, we get into these cycles where we talk about policy and we get focused on, you know, some policy child care policy, education policy, some policy. We get focused on that policy that has huge fiscal implications, but we get focused on that policy and we have to address that policy. I mean again, vance, education funding is the single biggest issue for the legislature this year. No, it's not, but you get focused in on that. You say, oh, that's the thing we got to focus on and everything else is secondary to that, including how you pay for it.
Speaker 1:And so we end up in these situations where we increase the spending on a permanent basis and we don't have the dollars sitting there. And and and we don't have the dollars sitting there, we don't have a way of paying for it other than taking even more out of the pockets of middle and lower income Alaska families through PFD cuts, even though the top 20% are benefiting from it as well. Right, we're taking more out of the pockets of middle and lower income Alaska families to pay for it. So it's, it's just hugely disappointing and hugely discouraging in terms of where we're going on fiscal policy. I'm concerned we're going to see the same thing on the child care subsidies. What fiscal policy.
Speaker 2:I mean, that's the thing the fiscal policy seems to be spend whatever you need, it'll always be there, don't worry about it. Nothing to see here, move along. I mean, that really is the. I think Anthony said something about. You know that we're. You know we can't fund anything. Alaska is literally getting those scam credit cards activated to pay off the other four credit cards that they maxed out. We're all in a death jungle with chainsaws flying in the air and the government keeps adding more and bigger chainsaws to the mix. I mean, that's where we're at. It's just like we just keep doing more and more and more, with no end in sight. No thought of how, I mean when the music finally stops. Will there even be one chair left in the room when the music stops is my question.
Speaker 1:We're going to find out next year If oil keeps dropping. We're going to find out next year if there's, even if there's even one chair, one chair, left in the room and it's not. I mean, this was done in the context of the oil drops. This is done in the context of stedman and others saying we got a fiscal. Even stedman and others saying we've got a fiscal problem. This was done in the context of that. Oh no, yeah, I understand. Yeah, whatever, but education funding is the most important. We got to vote.
Speaker 3:We got to vote this permanent increase because ironically, steadman had this really great speech on the floor the week before and I think some of the rhetoric that we've had for the last two months is numbing people's minds on how big a billion dollars is. You know they act like we've got a billion and a half underfunded. It's no big thing. Or we're a billion or we're 500 million. That is a pile of money. And when we look at adding another 100 million or so cut out of our operations, we put it in today, we take it out tomorrow. In the finance committee and other areas we don't have any choice. You know, it's not a matter of what we want to do, is what we have to do.
Speaker 2:So he says that the week before which I'm like wow, I mean he and I are, I can't believe it he's doing. And then the next week he votes for the $700 million permanent increase. $700 permanent increase 180 something million bucks a year moving forward. So it's, everybody is there. They're schizophrenic in the legislature as far as that goes. As far as policy, I think Anthony's right.
Speaker 1:I think Anthony is the scam credit card that you're going to pay off all the other credit cards with. It's just we don't have at the core, we don't have good solid fiscal conservatives except for maybe Rob. We don't have good solid fiscal conservatives that think about dollars and cents first how you're going to pay for this stuff before you vote for additional spending, and people that we thought over on the House side that were turned out not to be not.
Speaker 2:Yeah, Maybe Brad or I should write an opinion piece that says when the music stops, will there be any chairs in the room? When the music stops, no, we'll all be sprawled on the floor. Brian says the chairs will all be in the pawn shop and the wooden ones will be pretty much it. There won't be any chairs. We rented all the chairs from the wedding caterer and now they're all been repossessed and gone. That's the thing. That's that's the thing you know. And, yeah, where's Donna Ardwin when we, when we missed her? I mean, she told us years ago that this was coming down. She tried to get it fixed, but nobody wanted to face reality back in 2018, 2019. Nobody wanted to look at it. We're too big to fail, Brad, too big to fail.
Speaker 1:Well, I mean, I mean the, the. The thing that's got, the thing that everybody has thought about has justified their actions on at least the progressives and the so-called moderates have justified their actions on through the years is we've always got the PFD. We can always take the PFD, we can always tax the PFD to pay for it, to cover ourselves. And that's essentially what Vance and Ruffridge and Elam have done in their action. I mean, without having a fiscal plan on how you pay for this permanent increase in spending you just voted for. They're essentially saying you know, we're going to rely on this hidden account, the PFD account, that we can just tax because it has to go through our fingers on its way to Alaska citizens. Uh, we're going to rely on it to tax it. Well, we're about running out of that too, right?
Speaker 2:Well, what do you do then? Because you could take all of the PFD next year and we'll still be underwater. I mean, I just you know what are you going to do then?
Speaker 1:Yeah, so it's. I mean, I just can't understand how you don't have a speech on the floor by those voting for it or you know those trying to explain why they're voting for it Conservatives, so-called fiscal conservatives, trying to explain why they're voting for it. So-called fiscal conservatives trying to explain why they're voting for it. I don't understand how you don't have a speech on the floor that says I would vote for this. I agree it's good policy. I agree we're making good decisions here. I agree that this is what K-12 needs, but I can't vote for it until we have a plan of how we're going to pay for it. Until we have a plan not just're going to pay for it, until we have a plan, not just this, but the whole bundle. Until we have a plan to pay for it, I'll do it. I'll vote for it, I'm ready for it, but we've got to have a plan on how we're going to pay for it first.
Speaker 1:I can't believe we didn't have a speech like that on the floor in the course of this. I mean, this was the perfect opportunity for it. If Sarah says, if Sarah Vance says, this is good policy, we need to pursue it, great, you're prepared to vote for it, but at least say that we need to have a plan about how we're going to pay for it. Other than PFD cuts, right, we need to have a plan about how we're going to pay for it before we start going down that road. And just no click. Yes, I'm ready to go there now, even though I don't have a plan to pay for it and even though the bottom's falling out in one of our major revenue sources.
Speaker 2:So the one thing I mentioned it earlier but we haven't gotten the full price tag yet it came out yesterday that the that the employee contracts were done were signed Right. They come to an agreement. An 11 percent increase in in a pay bump 11 percent pay bump. But the pay bump is not the big thing. The big thing is the medical cost increase because it went from paying $12.50 per employee to now, depending on the plan, anywhere from $180 to over $500 per employee per month on health care. So an 11% increase in pay and upwards of a a 500 increase in benefit payments on top of that. I mean there's no, I haven't seen the full price tag. Nobody was really reporting on what the full price tag was, but it's got to be the high end of that 300 million dollar range yeah, yeah.
Speaker 1:We've both seen estimates of between two and three hundred million dollars. So it's gotta be. It's gotta be somewhere in there, and they've already I mean. So the PFD cut, the most recent PFD cut from 1400 down to a thousand, was supposed to create a cushion that would that would incorporate that increased spending plus, you know, the permanent increase in K through 12 spending, plus whatever additional spending. Anybody can sneak in the door, like child care subsidies, sneak in the door before the end of the session, but with oil cratering the way it's doing, I'm not sure that $1,000 is sacred at this point. I'm not sure it creates enough cushion to be able to absorb that increased spending, the increase in spending on salaries and healthcare, plus all the other increased spending that we're layering on top of that. So I'm not going to be hugely shocked if somewhere along the way somebody says well, maybe we need to take another couple hundred bucks out of the PFD to make sure all this balances out at some point.
Speaker 2:Yeah, well, we'll have to see. I'm sorry, it wasn't 500. It was 300. It was from $12.50 to 300 for the current contract to the new contract. We'll get into that more, an hour or two, I'm sure. But yeah, this is not going to end well, that's all I'm saying. It's not going to end well. The weekly top three continues. I mean, after all that doom and gloom, you'd think, oh man, this is bad, it couldn't possibly get worse. And then somebody in the legislature said hold my beer, and they produced SJR 14. Brad, it couldn't possibly get worse, right, right?
Speaker 1:Yeah, no, it could get worse. It could get worse. So here's the one thing that's sort of hovering out there that I'm really concerned about in these closing days SJR 14 is a proposed constitutional amendment that would, as we've talked about on the show previously, open a back door into the permanent fund corpus. It would set it would, it would restate the, the Constitution, the constitutional provision around the permanent fund from saying you cannot spend from the corpus period End of statement, end of discussion, end of anything. You cannot spend from the corpus to a constitutional provision that would merge the corpus and the earnings reserve together and essentially say you can spend 5% of the average value over the previous five years. You can spend 5%. This is the thing it doesn't say, but that it would permit, regardless of whether actual earnings equal 5% or not. Essentially, it opens the ability of the legislature to keep going at 5% draws from the permanent fund, even if the permanent fund is only earning 4% or 3% or 2%. And people quickly say, oh, but the permanent fund's always going to earn 5%, well, over inflation. And the response to this well, it hasn't in five of the last six years. It hasn't earned 5% over inflation in five of the last six years. So there's a reasonable expectation that it may not be able to do that on an ongoing basis. And if it doesn't do that on an ongoing basis, what the proposed constitutional amendment does is say, fine, you can just take the difference. Whatever the difference is, you can take the difference from the corpus and just start draining down the corpus to continue supporting this 5% draw that the constitutional provision would set up. That opening a backdoor to the corpus like that is just, is it? I mean, we've gone through the SBR, we've gone through the CBR, we're going through the permanent fund dividend, and now it would open a backdoor into the corpus and just keep this show going on and on and on. In addition, it would negate the incentive for the permanent fund corporation to get its act together.
Speaker 1:The permanent fund corporation has two very real problems that are going on right now. One, it's spending way the hell too much on management fees and other things that it's doing to justify its investment program management fees and consulting fees. It's spending way the hell too much. It's spending a percent of the permanent fund on that thing when other similar agencies are spending much, much less than that, spending a billion dollars a year on that. So that's one problem is spending way too much. And the second problem is it's not earning enough. The way its investment portfolio is, it's earning less than 5% five of the last six years, 5% over inflation. It's earning less than that five of the last six years While the S&P just to use one measure, alternative measure has been skyrocketing, leveling off now, but it's been skyrocketing the last few years, while the permanent fund's been just sort of loping along earning less than 5% above inflation. Those are two serious problems facing the permanent fund.
Speaker 1:If we would adopt SJR 14 and allow a backdoor into the corpus, permanent fund corporation doesn't care about that because it will always deliver the 5% to the legislature. And the legislature doesn't care about it because they're always getting 5%, regardless of what the permanent fund's spending and regardless of what it's earning. So there's no incentives for the permanent fund. It releases the incentives on the permanent fund corporation to get its act together on those two very important things. So SJR 14 to me is just a disaster, another disaster to our fiscal house that would be set up by its passage.
Speaker 1:It's been hovering in the background in Senate Finance. They've brought it up a couple of times. They haven't passed it out yet. They haven't moved to pass it out yet, hopefully, because it doesn't have the votes, but it hasn't passed out yet. But it's sitting there and Burt's been a big supporter of it because he sees what it would do. It would ensure this 5% going forward, regardless of what the permanent fund was actually doing, and so Burt's been a big supporter of it.
Speaker 1:And my concern is in these final days, as everything's confused, as everything's, you know everybody's trying to get done, that they move it. It gets through the Senate and the House goes oh yeah, the Senate and the House goes. Oh yeah, the House sets up and adopts it as well. Governor, can't veto a constitutional amendment, so all it takes is passing. The Senate requires a super majority in each body, but all it takes is passing the Senate, passing the House and it goes to the people. And I'm concerned that it's sitting out there and doing it. So can it get worse? Yes, they could bring up SJR 14 and try to move it out.
Speaker 2:Yeah, Well, and it is. Frank says it's a resolution. It has no standing. You don't understand. It's a resolution on a constitutional amendment, so it has standing in the fact that if it does pass, it will go to a vote of the people and I guarantee you there'd be plenty of big entities out there who are just living on the government lucre who would spend. I mean, what did GCI spend that one year $2 million, $3 million on trying to take your PFD. When SB26 was going through, they spent millions of dollars to get it passed because they knew it would take money out of the PFD. So there would be a huge push to get that passed, even though, again, this is essentially eating the seed corn, right, Because if we haven't made our 5%, we're still going to draw.
Speaker 2:All it does is reduce the earning power of the fund. So the next year they make even less and then that just continues every year. They keep taking their 5% and it just keeps earning less, because now there's less investment money and it's over. It's over at that point. That's the beginning of the downhill slide.
Speaker 1:Yeah, I want to be clear. It is SJR, it is resolution, but it does have absolute effect in that it sets up a vote, if passed by the super majorities in the Senate and the House. If passed, it sets up a constitutional amendment vote and then it's a vote of the people. And there is. There's going to be a huge amount of money. Michael's exactly right.
Speaker 1:Gci is going to be behind it, the oil companies are going to be behind it, people are going to be behind it who want to spend more, want to ensure that that revenue stream continues, that, regardless of how screwed up the permanent fund corporation becomes, that revenue stream continues. And people are going to want it to make sure that, oh, we're not going to be talking about taxes on them because we're going to have this other revenue stream coming in that's going to be supplying revenue to the state, to the legislature, regardless of what's going on over the permanent fund corporation. There will be a lot of money behind it, and so it's my. It is a serious concern that it may be brought up in the last days and pushed.
Speaker 2:This would be. This would just be insult to injury. I mean, if something like this passed now Rob says they won't pass SJR 14 until next year It'll pass the Senate. It probably doesn't have the votes to pass the House. I mean. Passing the Senate, though, requires a super majority, which is what? 30 or 17? Is that what it is? 17 of 20 to get the two thirds? No, I mean of 17 of 20 to get out of the Senate. I mean, I just I mean really, would all these Republicans vote for this? Would you know? Cronk and Rauscher and Yount? I guess maybe I can't see Two-thirds isn't 17.
Speaker 1:Two-thirds is three-quarters is 15. Three-quarters.
Speaker 2:Oh, a three-quarter. Okay, so three-quarters so 15. They got 15 to get. Is it a three-quarters vote or is it a two-thirds vote? It's a three-quarters vote, isn't it? It's a high threshold 14 in the Senate, 27 in the House. Thank you, rob, for getting me squared away there. I just can't believe that people would be all excited about this, not looking at just the simple aspect of if you start sucking into the corpus of the fund, you're immediately reducing the investment opportunity, and it'll just be especially Bert Steadman who's always been going on and about stability and all this kind of stuff. Why would you allow them to cut into the corpus of the fund?
Speaker 1:Well, it is. I mean. Bert's answer to that is it is stability. It's always going to be 5%. We can count on that 5%, maybe 5% of declining number, but it's always going to be 5%. He's going to claim that is stability.
Speaker 1:To me, as important as breaking into the corpus, as opening a backdoor into the corpus, is eliminating those incentives on the permanent fund corporation to reduce cost, keep costs down and to have a strong earning stream. Eliminating those incentives because it'll always be 5%. It doesn't matter what we spend, it doesn't matter what our earnings are, it'll always be 5%. Eliminating those incentives or even more. Now the permanent fund corporation is going to tell you oh, we always do that, we always minimize costs, we always pursue strong returns.
Speaker 1:Well, just look at the last five years. You haven't. You've allowed costs to escalate dramatically and you've allowed returns to deteriorate dramatically compared to the S&P 500 or compared to other indexes, and you've allowed that to go on. So no, I mean you can claim that, but you haven't performed that way. This creates maintaining the current two account creates an absolute incentive to do that, creates an absolute incentive to minimize costs and to maximize or optimize returns. Eliminating that that SJR14 would do, consolidating the two together eliminates those incentives, and that to me is as important, because incentives matter a lot. That to me is as important as creating a backdoor into the corpus.
Speaker 2:Yep, it's, it could get worse. I mean, you, you, you, you proven it right there. It's a, it's a, it's a big thing. So all right, well, brad, um, there's a lot to unpack here. There's a lot to unpack. We still haven't finished fighting the child care fight. We still haven't finished fighting the Medicaid fight. Now we've got the employee cost fight. Now we've got all this other kind of stuff. Any care to run me a? You know, hold the envelope to your forehead and run me a Kreskin. Projection here on what you think the deficit is going to be this next year. Projection here on what you think the deficit's going to be this next year.
Speaker 1:You know $2.5 billion is not out of the. Against current law, against the current law budget, counting the PFD and statutory levels, $2.5 billion is not out of the question. A deficit that is half 50% of spending is deficit is not out of the question. Given where oil prices are going and given the way our budget is structured, it might be record-breaking, that might be a record deficit, but a 50% a budget that's only 50% paid for, the other 50% of which has to come out of the meager reserves we continue to have, plus huge PFD cuts, a budget that's funded 50% by that is not out of the question. I mean we're already at a 30% deficit financed budget.
Speaker 2:So you know oil prices diving down would get us fairly easily to a 50% deficit financed budget and we can't print money and we can't borrow to do it and we've only got $2 billion in spendable, just under $2 billion in spendable in the CBR in our savings account quote-unquote savings account which is supposed to have $10 billion in it, right constitutionally, or $12 or $15, something like that.
Speaker 2:Yeah, something like that. I mean, I think the minimum is supposed to be $10. And there you go, man. Next year is going to be fun. It's going to be fun around here, Brad.
Speaker 1:And we've got people who are voting for things. It shocks me, people who are voting for permanent spending increases in the face of all that, without saying I'll vote for it If you tell me how we're going to pay for it, without saying that, just voting for the increase because it's good policy. I mean fiscal conservatives. We really fiscal conservatives? We don't really have. I mean, they may claim to be, but they don't think that way. They think about other things, they prioritize other things instead.
Speaker 2:Well, it gets to the realm of emotion, because they got people banging on their door about my kids are going to die if you don't take care of them and everything. My kids are going to die if you don't take care of them and everything. And you know, I mean Shelley Hughes did have a good article in her blog yesterday or day before. There was an article about, you know, the Anchorage School District actually still sitting on a big chunk of the money that they got last year and they were holding it over. That's what they said in one of their fiscal reports. But on the other fiscal report said that they haven't spent any of it. And then the third fiscal report said they spent only a portion of it.
Speaker 2:So it's all shell games at this point. And yet they're genning up all the people with. We're going to cut 300 teaching positions, not telling you that 180 or 200 of them are not even filled, right, I mean. So it's all at this point. It's all theater to get more money out of everybody. That's what it's all about. And they're buying it, they're buying into it and again not asking the question of how do we pay for it all. That's the problem. All right, brad, we got to go, thanks.
Speaker 1:Thanks for having me, Michael. Well, that's a wrap for another week's edition of the Weekly Top Three from Alaskans for Sustainable Budgets. Thank you again for joining us. Remember that you can find past episodes on our YouTube, SoundCloud, Spotify and Substack pages, and keep track of us during the week on Facebook and Twitter. This has been Brad Keithley, Managing Director of Alaskans for Sustainable Budgets. We look forward to you joining us again next week for the next edition of the Weekly Top Three.
