The Weekly Top 3
The Weekly Top 3
The Weekly Top 3 (5.26.2025)
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 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.
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 26th 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.
Speaker 1: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 projects page on national blog site mediumcom. You can find past episodes of the weekly top three also at the same locations. 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.
Speaker 1:This week, our top three issues are these First, we look at the sources and uses of funds in the FY26 budget and look at who is bearing the burden created by using PFD cuts to provide nearly a third of the revenues. Second, we explain how a recent op-ed from Anna McKinnon on the permanent fund picks up from where she left off when she left the Senate, funding spending while protecting the top 20% and oil companies the top 20% and oil companies. And third, we discuss how we could avoid the Alaska budget being so impacted by swings in oil prices. And now let's join Michael.
Speaker 2:So the session is over and we're in the interim now, and your first topic is, of course, going to be about the PFD, because I fully expect that this will probably be the last year that we see really any kind of. Maybe next year we may see a $500 PFD, but it's going to be a tough one. And you tell us why. We got a big chunk of the budget being paid for this year with the PFD paid for this year with the PFD.
Speaker 1:Well, and this is sort of my typical post-mortem, post-session look at what the budget was and I go back to Finance 101, sources and uses of cash or sources and uses of revenue and try to chart that out. And I did that for the budget that the legislature passed last year and to me even to me, who had sort of seen this coming along the way it was sort of eye-opening. Do you have that first chart that we can pop up? I do right here. So this chart looks at the sources and uses for the budget. The budget was $5.44 billion. The sources, the revenues, are on the left-hand side, the spending is on the right-hand side, the uses of the revenue is on the right-hand side and the thing that pops out to me is the red on the left-hand side the revenues, the sources of funds on the left-hand side, from the bottom up, are oil revenues. In the dark blue, existing taxes and fees. In the green the portion of the POMV draw percent of market value, draw from the permanent fund that is designated by statute for government services. In the yellow and then the red is the portion of revenue that came from PFD cuts, came from withholding and diverting the statutory portion of the PFD to the general fund to support government spending instead. And you can see, hopefully graphically, from that that the red is about a third. It's 32 some odd percent. It's about a third of the total revenues being used to support this year's budget.
Speaker 1:I think I'm going to do this for the Friday column, to be sure, but I think that's the largest percentage that they've ever used the PFD cuts to support revenues. It is, in fact. The PFD cuts are, in fact, the largest single source of revenue for this year's budget. They are at $1.77 billion, nearly $1.8 billion. They are larger than oil revenues, which are at $1.65 billion. They're larger than the portion of the POMV draw designated, statutorily designated for government services at $1.34 billion. The PFD cuts are the single largest source of revenue that the budget depends on. And for those I think this also is useful to show, for those who say, well, we'll just cut our way, we can just cut spending, cut our way out of this. Well, pfd to get back to just using the traditional revenues plus whatever share of the POMV draw is designated for government services, to get back there, you'd have to cut the budget by a third. You'd have to cut the budget down to something in the neighborhood of $3.7 billion and that's just not going to happen. This chart is useful for a number of reasons, but in particular I think it's useful to show how deeply the legislature has become dependent on PFD cuts what I think are personal taxes, pfd cuts to fund government On the right for those who are interested and can follow it later, we build up the spending.
Speaker 1:The agency operations is $4.76 billion, statewide it's $0.45, $450 million. Capital budget is $170 million and then there's a surplus so-called surplus in there to really account for the fact that oil prices are going down and the revenues that we're showing on the left-hand side may not add up by the end of the year, may not add up to the level of the revenues projected there. There's a so-called surplus of about $60 million on the spending side. So we did that and then we looked at how does that translate? How does those PFD cuts translate on an income bracket basis?
Speaker 1:And the second chart shows the impact of using PFD cuts by income bracket. This is essentially the who pays chart. We know that PFD cuts are paying for a third of the overall budget, providing a third 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 of using PFD cuts of that third? Who's contributing?
Speaker 1:That third and the second chart does that and it shows it by using the IRS brackets, shows it by the low 25, the lower middle, 25%, the upper middle, 25%, the top 25% and then the top 10, top five, top one and then non-residents out at the end. And it shows that the bulk of the impact of using PFD cuts by far is hitting middle and lower income Alaska families. All of them are paying in excess of the average rate. We've got a line through this graph that shows what the average impact is on Alaska. On adjusted gross income, the average impact is about 5.2%. We're diverting 5.2% through PFD cuts. We're diverting 5.2% of Alaska personal income what would be Alaska personal income. We're diverting 5.2% withholding and diverting that over to support government spending. That's the average tax rate, if you will, that those PFD cuts represent.
Speaker 1:But you can see that distributionally it falls by far hardest on the lowest 25% of Alaska families, significantly hard on the lower middle, still harder than the average on the upper middle and then when you get to the upper 25% they're paying significantly less. They're contributing significantly less as a share of income by using PFD cuts through, by using PFD cuts. So the top 25% overall is just losing 2.1% of their income. Top 10% 1.4, the top 5% 0.9%. The top 1% it's just contributing of their income 1.4. The top 5% 0.9%. The top 1% is just contributing of their income 0.4% toward that cost of government. The non-residents, of course, are contributing zero. So you can see that between the two charts you can see that a huge chunk now of the budget is being financed the third of the budget's being financed by PFD cuts. And then when you flip over to the second chart, you can see who is paying, who's bearing the burden of using those PFD cuts as a revenue source.
Speaker 2: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 PFD cuts 11% of the income of the lower middle class. And it's interesting because there'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 actually do the math for you how many people were in your house and it'll tell you how much pfd you've lost um in the last you know, since they started this nonsense. Um and mine is like seventy six thousand 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 is where the money's coming from and when you start showing this to them, sometimes eyes are open, sometimes they're not, sometimes you're like, oh, it's just free money, go ahead and do it. I mean it's madness.
Speaker 1:at this point, yeah, but what the second chart shows the chart you still got up is you're showing the subsidies that are going on. So the low 25 are paying the above, the low 25, lower, middle and upper middle quartiles are paying above the average so that the top 25%, top 10%, top 5% and top 1% can pay, can pay less. They're the the the 75% of Alaska families are having more taken out of their income. That so that the top 25% and non-residents can have zero, essentially zero, taken out of their income. And that's what economists refer to as a cross-subsidize.
Speaker 1:You have the lower 75%, you have the upper, lower and low 25% income Alaska families subsidizing the top 25%, subsidizing them by not having as much income taken out of their pockets. And you can see the extent of the subsidy by the difference between what's the share of income being taken out through PFD cuts and the average share of income, the share of income being taken out through PFD cuts and the average share of income. So, yeah, people say, well, you know, that's just what it is. The people who say that tend to be in the top 25% and non-residents. And you can see why they say that because the system is benefiting them. They're not contributing the average cost toward the average cost of government. They're contributing much less than the average cost of government. They're contributing much less than the average cost of government, while the remaining 75% of Alaska families are contributing significantly more than the average toward the cost of government.
Speaker 2:So what do you think? Where does this take us here in the future, Brad? I mean, now that we've looked at these two things, and especially that second chart, or the first chart with the huge one-third number, what does this spell for the coming years in your mind before we go to?
Speaker 1:number two. Well, it depends. I mean it depends on oil. I mean the way they've operated this. I mean the way they've operated this.
Speaker 1:Pfd cuts are being used as the makeup for oil bouncing around in oil prices and as oil prices go low, pfd cuts are being used to make up for that. The problem is and we'll discuss this in the third segment but the problem is, when we have a low year like this and we use a huge amount of PFD cuts to subsidize the fact, to make up for the fact that oil is coming in low, when we have a high oil year, we don't reduce necessarily reduce the share of the PFD. We just spend more. We use the additional oil revenues to spend more to what some say make up for past underspending, um. So I think this, I think what this is is saying, and when I do the Friday chart, I suspect what I'm going to see is this wedge of PFD cuts as a share of the budget growing over time, um and to to this point where it's gotten to be the biggest it's been, uh, since we started using PFD cuts a decade ago.
Speaker 1:I think we're going to see just that wedge continuing to grow and sort of staying in place. Once you get to a certain level of revenues being used from PFD cuts tends to stay in place and then the next year, even if we have higher oil revenues, they just spend that additional oil revenues as opposed to reduce the share of PFD cuts. Yep.
Speaker 2:Nope, I see it already. It's the largest component, that big red bar, it's the largest component of state government right here in their spending. That's where it comes from, is from you and me. So every time somebody says, oh, we don't pay taxes in this state, just look at that big red bar right there, that'll do it every time. That'll get your attention. It's. I mean, what's crazy is that to think that and I've been reading all the stories this morning, post-session stories and columns about you know, the schooling and everything else and I mean there's an article in the ADN that basically just says, with all the superintendents across Alaska urging Governor Dunleavy to keep school funding boost intact, they've all said it. They're all saying they're not even being quiet about it. Oh, this is just the beginning. This is just a little bit. This just ties us over till next year where we come back and beat you down for more. That's where it's going and I mean I don't, I don't even know what to say at this point. Brad.
Speaker 1:Well, michael, I mean what we have is the top 20%, top 25% saying it's not affecting us. So let's just keep spending, let's keep doing more. I mean you read the editorials and or the op-eds in the in the ADN. You read the op-eds in the Fairbanks News Minor. I know a bunch of the people that are writing those. They're all in the top 20%. It's not affecting them. There's no break on their desire to spend because they don't have to pay a portion of it. It's all being shoved down to middle and lower income Alaska families. So maybe the break kicks in once the PFD is gone and we have some sort of revenue regime that takes a portion of their income also to pay for it. But until then it is free money to them. I mean they're being subsidized heavily by taking the money out of middle and lower income Alaska families instead become Alaska families instead. There's one thing that really surprises me, given we do have a fairly decent level of press, media, political reporters in this state.
Speaker 1:The Alaska Beacon had a headline this week that says CBO analysis, talking about the federal budget. Cbo analysis shows US House GOP budget measure tilted toward upper income taxpayers and that is a detailed. That article is a detailed analysis of the Congressional Budget Office analysis of what the House GOP bill would do and it is the House GOP bill would result in reducing the tax burden of upper-income families a lot more than the tax burden of middle and lower-income Alaska families. I'm not going to argue what's going on at the federal level. The point is we don't have anything near an article like that about what's going on in Alaska. We don't have an article that looks at who's paying for this third of the budget coming from PFD cuts. We have a lot of articles about who's paying the oil taxes and the impact of increased oil taxes on the oil companies.
Speaker 1:We don't have any articles. It's a third of the budget. We don't have any articles focusing on what using that revenue source, how that revenue source affects Alaska families in the same way as the CBO analysis. We don't have any articles that analyzes that. Nor do we have any articles that talk about what impact using PFD cuts is having on the long-term economy of the state. Yet we have article after article, op-ed after op-ed, about the impact of oil taxes on the state. That's a lower revenue source in this budget. That's a lower revenue source than PFD cuts. The ignorance of Alaskans, in part resulting from the failure of the media to follow through on these stories in the same way they do at the federal level. The ignorance of Alaskans on these issues, I think, is part of the problem, and a bigger part of the problem is it's just the top 20% wanting to spend more and more and more and more because they don't have to pay for it.
Speaker 2:Right? No, it's ultimately frustrating, that's for sure. All right, Brad Keithley Alaskans, for Sustainable Budgets, is our guest. The weekly top three post-session edition of the weekly top three. We've got a lot of problems in this state. One of them could be an Anna McKenna problem. She's got issues that just keep going on and on and on. Brad, what are you talking about 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: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 portion of the time in the house up until 2012,. I think, um, or maybe 2010, um, and a portion of the time in the Senate. What's important for this purpose was during her time in the Senate, anna was co-chair of Senate Finance during the period that Bill Walker began PFD cuts. So she was in the legislature, co-chair of finance in the legislature at the time. The legislature could have but didn't respond to Walker's PFD cuts. And then she was co-chair of Senate finance during the time when the legislature, following Walker's PFD cuts, the legislature began its own set of PFD cuts, and that's what's continued on to today. It's no longer the executive making 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 to subsidize the budget, to help pay, to generate revenues, to pay for government. She was part of the legislature and at the time she talked about. You know we don't want to burden the oil companies for additional taxes, and so we need to have another source of revenue. We don't want to burden, you know. We don't want to have taxes in the state, which translated means we don't want to burden the top 20% and non-residents. We don't want to have taxes, so we're going to use PFD cuts. She was part of that decision-making process. She left the Senate in 2018, frankly, because I think she felt that she couldn't defeat Laura Reinbold, who had announced for her seat in the Senate from Eagle River at the time that she left. She left the legislature in 2018, went on, served in the capacity of the Dunleavy administration as director of the Permanent Fund Division, ironically enough, and has since retired from that, but she's back.
Speaker 1:She wrote an op-ed that's in the ADN and the Alaska Beacon and I'm sure we'll go through all the other newspapers in the state with an opinion piece called A Permanent Fund Endowment for All Alaskans, and it's a humorous title because what it does, what that opinion piece endorses, is the consolidation of the permanent fund from the two account system that we have under the Constitution currently to the single account system that is being promoted by the Permanent Fund Corporation and some in the legislature, as we've talked on the show before what that really is. What that proposed constitutional amendment really is is a way of creating a backdoor into the permanent fund corpus. What's now in the permanent fund corpus is considered off limits to being drawn. What that constitutional amendment does, by consolidating the two accounts together, is allow the legislature to begin taking the POMV draw, the full POMV draw, from the permanent fund corpus. In the event, the permanent fund isn't generating enough earnings to cover that draw, and it hasn't, as we've talked about, it hasn't in five of the last six years. So Anna is showing back up at this particular point in time, now that, now that you know we've almost drained the entirety of the PFD, now that we're almost, you know, have cut the PFD out entirely, terminated the PFD, drain the PFD, and is showing back up at this particular time to endorse the proposal that would start, that would allow, open the back door and allow the permanent fund corpus to start being drained into the general fund when needed to be able to support earnings and, with that, support spending.
Speaker 1:The humorous part of this is the title a permanent fund endowment for all Alaskans. What this proposal really does is it is a way of continuing to put off the date on which Alaskans would have to pay taxes, which would fall on even a flat tax, would fall harder on upper income Alaska families because they haven't been paying taxes, as we saw in the last chart. They haven't been paying taxes and what the consolidation of the permanent fund from the two account system into the single account and opening the back door into the permanent fund corpus does is put off the date of taxes a fairly long time down the future. So when she's talking about a permanent fund endowment for all Alaskans, what's really going on is the same thing as what happened during her tenure as Senate Finance Co-Chair in the mid 2000s, during this transition period, when the door to the permanent fund dividend was opened. What she's really trying to do is continue to protect the oil companies and the top 20% and non-resident industries from having to pay taxes Because we've drained the permanent fund dividend.
Speaker 1:By then we will have shortly drained the permanent fund dividend. We drained the SBR long ago. We drained the constitutional budget reserve. Now we're draining the permanent fund dividend because we will have drained the permanent fund dividend. The way to continue to protect the oil companies and the top 20% is to open this back door into the permanent fund corpus and start allowing the permanent fund corpus to be drained. So the title I sent you for the segment was Anna McKinnon Picks Up From when she Left Off in the Senate Spending, because all this is to support spending, of course, while protecting the top 20% in oil companies from paying. And she did that when she was in the Senate and now she's resurfacing in time to try to do it again through endorsing the constitutional amendment that would consolidate the two funds into one.
Speaker 2:That she says that there's a growing concern with the falling oil prices, the dwindling savings account and few if any revenue options that the legislature will move to withdraw more than the 5% to meet current needs. And so she says there's a real concern about that. And then she goes on to say that's why we need to pull the two funds together, because they'll need to draw and the whole point was to protect the corpus of the fund. I mean it's dichotomous. Even inside of her own article she's saying they're worrying about this, but what we really need to do is combine the funds so they can get access to the main account. I mean it's ludicrous.
Speaker 1:What's going on here, michael? Is the public opinion poll tested, 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 back saying look, protecting the permanent fund, limiting the draw to the 5%. Those arguments and another one is oh, we're going to drain the earnings reserve down and then we won't have enough money. We need to consolidate the two accounts because we're going to drain the earnings reserve account down and we won't have enough money to fund government.
Speaker 1:Those arguments are what they're finding resonate with Alaskans, but they're disconnected from what they're doing. I mean, there are ways to limit the permanent fund draw to 5%. If that's what you're concerned about, you could have a constitutional amendment that says we will limit the permanent fund draw to 5%. We will still have the two account system, but we will limit the draw to 5%. You could easily do that, but that's not what they're doing. What they're doing is just consolidating the two accounts together and the only reason you consolidate the two accounts together is to open that backdoor into the corpus. So they are having disconnected arguments, but they're using arguments that they think will play best with Alaskans, who won't read the fine print, who won't understand the economics of what's going on.
Speaker 1:They're using arguments that they think will play best with Alaskans. You know, shouting them out there. This is what we're trying to do, at the same time as they're using those arguments to push a constitutional amendment that does something entirely different arguments to push a constitutional amendment that does something entirely different. You know, it was sort of like the same way when Anna was co-chair of Senate Finances. We needed to cut the permanent fund dividend because we had to maintain spending and oil prices had dropped, and we just had to do this. Well, when oil prices went back up, we didn't restore the permanent fund dividend, we spent even more, and so the arguments that they use at the time are the arguments that they think will sell the best with Alaskans, even though what they're doing is something entirely different.
Speaker 2:The problem is, the inevitable destination is still the same, the inevitable destination of taking all of the permanent fund dividend and eventually starting to draw into the corpus and eating the seed corn. It all reaches the same spot one way or the other that we have a spending problem in this state. And until we find a way to curb the spending problem and find alternate revenues to pay for it, this is what we're going to continue to get.
Speaker 1:Yeah, it is. I mean, you can see this if you just sort of step back and look at the history of Alaska, the fiscal history of Alaska since 2010. It's been spend, spend, spend. Where do the revenues come from?
Speaker 1:Well, first we'll drain the SBR, the statutory budget reserve, then we'll drain the CBR, the constitutional budget reserve, then we'll drain the permanent fund dividend and now, as we're hitting that end point where the permanent fund dividend looks like it's no longer sufficient to fund government itself, we're going to find a way to open a back door into the corpus and start draining down the corpus, regardless of the earnings being produced by the permanent fund. Anna's been there for large parts of it. I mean, she was either the House Finance Co-Chair or the Senate Finance Co-Chair during the entire period that the SBR and CBR were being drained down. She was the Senate Finance Co-Chair when they opened the door into the permanent fund dividend and started draining it down. And now she's coming back for an encore to write this op-ed endorsing the next step in this process of opening the corpus to be able to start draining it to support spending.
Speaker 2:Which, again, I mean it all leads us to the same place, which is total fiscal destruction. At this point I mean there's no two ways about it. Let me see there was a couple of comments that I wanted to take Brad's comments last hour about the fact that there's not enough. Well, there's not any good reporting in the state. Kim says. You're right, brad, they're not news reporters, only left-leaning political analysts. That's in.
Speaker 2:You know, how many times have you seen that? Have you seen them rewrite a press release? Essentially, you know, drop a press release into chat GPT and come out with a news story with with no alternate side, with no analytic. I mean this whole this, this piece from the ADN and Sean McGuire starts off with, you know, after it talks about the superintendents urging Dunleavy to keep the school funding and it says almost after almost a decade of flat state funding, the lawmakers on Tuesday voted to override Dunleavy's veto. After a decade there has not been flat funding. The BSA has remained relatively flat, but the way that it's written makes it sound like they've had no extra funding at all for a decade. I mean there is no accuracy in what's being written out there, brad.
Speaker 1:Yeah, and it's not consistently left, michael. I mean the article that the Beacon published, rushed to publish on the CBO analysis. Cbo analysis shows US House support GOP measure tilted toward upper income Alaska taxpayers. That some would consider would be a left-leaning article. And you could, if you were left-leaning in Alaska you could see an article that said you know, alaska analysis shows Alaska budget measure tilted toward upper income taxpayers. But they don't, they don't do that. So it's not, it's not even consistently left, it's just consistently nothing. I mean it's, it's, it's not, it's not an analysis of what's going on in Alaska at the, at the fiscal level, at the, at the individual level. It's just, you know, it's just silence, without the type of analysis that we're seeing them themselves publish from a national level. So it's not consistently left or right, it's just consistently sort of nothing.
Speaker 2:It's just lazy, is what it is. It's lazy reporting. I mean we're not. I mean we're not really seeing the deeper analysis of any of those things. And, of course, it's the same players, like you said, I mean the highlight of bringing Anna McKinnon back after she was a huge part of the problem. I mean again, she was there right in the teens when they were entering out that hole, when they emptied out the CBR of you know 15, $16 billion. She was right there along with them.
Speaker 2:Like we can be, we can be responsible. I mean, we only spent all this money, but trust us, we can be responsible with this money. Yes, we need access to the corpus of the fund because we can be. We can be and Randy is saying, well, I want to. I want the two funds to be combined as well. I want the consolidation of the corpus. How is that going to help them, randy? They can't control their spending now, so you're going to give them access to a bigger pot of money, because that's what's going to. Well, I just want to put off an income tax. Yes, it's coming. That's the thing. It's inevitable. At this point, nobody seems to really want to address that, but at the rate of spending that we have right now. It's coming. Am I wrong, brad?
Speaker 1:No, but it may not be an income tax. It may be a sales tax, because that tilts heavily.
Speaker 2:Well, it's income tax. Yeah, I guess, yeah.
Speaker 1:That's regressive, and so it continues to protect the top 20 percent and the oil companies. It may be something other than a sales tax, but, michael, what they're trying to do is they're trying to put off even that, and what and the effect is going to be for future generations? It's just going to. It's just making it worse. It's just piling it more and more and more and more on future generations by first draining the SBR, then draining the CBR, which the CBR is intended to be multi-generational. It's intended to be sort of this emergency fund that each generation gets when it hits the hard spots in the road.
Speaker 1:What this generation has done is just drained it out and they're not restoring it for future generations. So they just drained it out. So this generation is passing on to the future generations an empty bank account when those future generations hit their hard spots in the road. Permanent fund dividends, taking it from middle and lower income Alaska families and the CBR will just pass it on to future generations, just buck the problem down the road to future generations. So it's a giant grab. When you look at the last 10 years, the last 15 years of Alaska fiscal history, it's just a giant grab for all the benefits of spending all the benefits of bigger government uh, without without fiscal responsibility, at the higher end of the income bracket, or or at the oil companies we're going to get ours Now.
Speaker 2:We don't care what happens down the road, cause we'll be gone. Essentially, yep, I mean they're taking away, I mean when they chip away at the corpus of the permanent fund, and that means diminishing returns every year. Eventually there will be more taxes because somebody is going to have to pay for all that spending. Right, and it'll be you and me, the people who are still left. We'll be the ones paying for all that spending when it, when it comes down, because they wanted 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 be fixed. Just bob the tail, that'll fix. I mean, no, let's, uh, let's not do that, brad. Uh, what's, uh, what's your solution here?
Speaker 1:all right. So we're seeing a bunch of articles, now that that you know where people are saying lyman is one of. So we're seeing a bunch of articles, now that that you know where people are saying Lyman is one of them. We're saying they're saying oh, you know, oil did this to us, opec did this to us, or or the Trump tariffs did this to us. You know, whoever, whoever they want 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's going on out there in the world in terms of in terms of oil prices. I wrote an article. This is this is not a new argument. It's an argument that comes up every once in a while. I wrote an article a long time ago, during the early days of the Alaska landmine column that I'm doing, that. That talked about you know how we could become, how we could take control from OPEC, how we could take control of our destiny, and the same issue pops up from time to time. Here's the deal. What oil does is and we all know this oil goes up, oil goes down. Oil goes up, oil goes down. What we do is we follow the roller coaster. Oil goes up, revenues go up, spending goes up. Oil goes down, oil revenues go down. And what we're seeing this year PFD cuts go up to make up for oil going down. We don't bring spending down as much as we just start grabbing the SBR or the CBR or PFD cuts or, in the future, the corpus. Oil goes down, we grab revenues, oil goes back up. Well, we've got all these revenues 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 increase spending to make up for the lower spending that we had when oil was down. And then oil goes back down and all of a sudden we're in a crisis again, like we are this year, and we have to take deeper and deeper PFD cuts, the revenue du jour, the alternative revenue that they can grab.
Speaker 1:Now. What we do with other things is, for example, the PFD, the statutory calculation of the PFD. Earnings go up, earnings go down. Earnings go up, earnings go down. We take the average, the five-year average, in calculating the PFD. We don't chase after earnings as they're going up and down. We take the five-year average, pomv, the percent of market value, draw. We do the same thing the percent of market value draw. We do the same thing the market value, the percent of market value, goes up, goes down, goes up, goes down, depending upon where the landing spot of the permanent fund at any given year is. But we take the five-year average of the market value of the permanent fund in calculating the POMV draw. Take the five-year average of that Oil.
Speaker 1:We just follow the roller coaster every year. We don't even follow the roller coaster, we follow where we think the roller coaster is going. We don't even say the roller coaster went up this year we're going to spend more, the roller coaster went down this year. We're going to spend less or we're going to draw more revenue. What we say is we think the roller coaster is going up, so we're going to spend more, or we think the roller coaster is going to go down and so we're going to draw more from the PFD. We're, we're, we're project. We're basing our spending on on on where the we think the oil revenues are going, or space is spent basing our revenue draws from other sources based upon where we think the oil revenues are going.
Speaker 1: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 extreme end 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 being bounced around here at the end of the tail. We could take control of our own destiny with respect to oil prices if we did the same thing, just did the same thing we already do with the PFD and the POMV, if we used the historical average of what oil prices were and only spent that.
Speaker 1:And in one of the articles that I did on this, one of the op-ed pieces I did on this, I did the calculations and said, look, if we take the average, if we have a year that goes high, we take the excess revenues above the average that goes high. We take the excess revenues above the average and we put them in an oil revenue stabilization 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 is going to go down, because we know oil is going to go down. When oil goes down, then we have if we've used the average, then we have funds from a prior period when oil was up and we use those funds to fill the hole. Not only does that stabilize revenues across a period of time, it stabilizes spending across a period of time, across the future, because what we've seen is, when oil prices have gone up, we've spent like crazy.
Speaker 1:We've started new programs, we've started new capital expenditures, we've started new things and then, when oil prices inevitably go down, we don't stop the spending on those, we don't try to control the spending on those. We want to continue spending on those because we've now created constituencies for that spending and so we have to go grab revenues from someplace else to make up the oil hole, the hole that's being created by oil prices going back down. And the ones that we've been grabbing the revenue source that we've been grabbing since 2017 is PFD cuts. Doing it through PFD cuts, filling that gap through PFD cuts. If we had revenue stabilization by having an average take across.
Speaker 1:The calculations I've done show a 10-year span with some sideboards on, it would work best. But if we had revenue stabilization across a span, we would have spending stabilization better spending stabilization because we wouldn't have the periodic splurges in revenues, in oil revenues that have allowed us to create these new programs but then create constituencies that we then have to fund in future years when oil prices are down. It's aggravating when I see people try to blame the problem that we're having in the state this year with oil prices. It's aggravating when I see people blame that on OPEC or blame it on Trump's tariffs or blame it on something else. It's aggravating because we could control this ourselves, just like we've done with the PFD and the POMV. We could control this ourselves, but we've chosen not to do it.
Speaker 2:Well, because it would require fiscal discipline.
Speaker 2:Because it would require in the years of plenty, like you said, the years of plenty when we should be taking that excess and banking it in some way, whether in a CBR or some kind of new petroleum, whatever it is. They would then have to withhold that spending and hold onto it, and they've shown that they don't have that kind of discipline. That's. I mean, I've been advocating for this for years that the budgetary process should be based on a five-year rolling average of what the revenue has been historically, not plucking a number out of the sky because the projectors at the Department of Revenue say oh, oil's probably going to be this. You know, 8, 10, 12 months from now, oil's probably going to be this. Let's build a budget based on the maybe, the if-come Instead. You know what you've received the last five years, take an average of it and set that as your spending level and if you get more, bank it. If you don't, then you'd have to pull some money from some. But again, it would require fiscal discipline, brad, which is the whole problem we're dealing with.
Speaker 1:Yeah, michael, sometimes when I think about think through this issue, I come to the conclusion that, yes, we have a spending problem, but the spending problem is being driven by the failure of revenue management, prudent revenue management. And we really have a revenue management problem because what's happened is through this lack of revenue management discipline. What's happened is we've allowed these spike peaks to occur in projected oil prices. Keep in mind, this is all projected oil prices. We've allowed these spike peaks to occur in projected oil prices. Keep in mind, this is all projected oil prices. We've allowed these spike peaks to occur in projected oil prices and rushed in with and by using that as the revenue, rushed in with a bunch of spending, because we have all this money, we might as well spend it.
Speaker 1:All these people have pent up demand from the years that oil prices were low, demand from the years that oil prices were low.
Speaker 1:If we had adequate revenue management tools, if we use the five or the 10-year averaging for oil prices, the same as we use the averaging for the PFD and the POMV, our other two big financial issues if we use the same sort of averaging tool with respect to oil, we would see revenue stability across that period and that would lead, in my opinion, to spending stability, because we would be able to say look, we don't have the revenue to support that spending.
Speaker 1:But by going down this road of riding the roller coaster where we think the roller coaster is going, going down this road of riding the roller coaster, we're hitting these spikes when we create this additional spending. And then we have all these people wailing about well, we created this program and now I've got all these people dependent on this program and expecting this program. How can we cut this program back now that we've created it? We've created this cycle where we've allowed the roller coaster of oil to set the high spending and that failure is it is a spending failure, but that revenue is being driven by a failure of revenue management revenue management.
Speaker 2:Yeah, no, and I agree. If we had a base that said we know we're going to take this five-year rolling average, there wouldn't be that pie in the sky of. Oh man, they're rubbing their hands together. Look at all the money we're going to make this next year because our revenues are going to be up, up, up, and so they start planning Now. It would be more of a stable baseline, I agree, I agree, but again, you've got to take that first step, Brad. And the first step is the addicts don't want to put the crack pipe down right. They don't want to do that. They don't want to be forced into a corner and have to spend within the means or have less money available. And that's part of the problem. They just they. You know, again, it leads back to the lack of discipline to be able to do that kind of stuff. They want to be the heroes, to say I delivered the program to you. But you're right, I think it's it must happen.
Speaker 1:It's not just Democrats that are leading us down this road. We were in high revenue years in years in which Republicans were in control of the budget and the Republicans. We have been in high revenue years in years in which Republicans are in control of the budget and Republicans have continued this process also. So it's not just I mean, you can't look at this and say, oh, it's the Democrats, we can just get the Democrats out. It's not. It is the institution that we've set up of riding this roller coaster, where we think the roller coaster is going, riding this roller coaster from year to year.
Speaker 2:Yeah, no, I mean it's not. We've said it here on the program. This is not a left or a right, a Democrat versus Republican. This is a big government versus small government problem. And we've got a ton of Republicans. I mean, they're the ones you can lay.
Speaker 2:You can lay most of this crisis at the feet of Republicans because they refused to acknowledge that they had a spending problem back in the teens when they spent $15 billion out of the savings account because they didn't want to reduce the size and scope of government to match what the revenues were, not realizing that it was well. I mean, they didn't even think the fact that it was a short-term solution to draw $3 billion, $4 billion a year out of the CBR. It's not going to. That's not going to help. You know, that's not a long-term solution. And it doesn't matter, because most of the people who were there in the teens are gone now, although they'll write op-eds saying what we need now is something even you know is something even better.
Speaker 2:I mean I was there, hey, I was there when we were spending money like drunken sailors. But it'll be fine, don't worry about it. Open up the corpus, it'll be great. I mean this is all part and parcel of the problem. I agree with you. This is why I mean the charter of changes. Number four was change the funding mechanism for government, and that was, I was specifically saying, changing the budgeting process to having a five-year rolling average. We use it everywhere else because of the volatility of the petro-state. Why aren't we using it there?
Speaker 1:Yeah, yeah, it's it is. It is as critical I think it's as critical a piece of an overall fiscal fix as any other piece. It is lowering expectations. I mean, what we've done is we've set spending expectations at the peaks of these oil cycles because we've spent that money, we've treated it as revenue, treated all of it in the year which it occurs as revenue, and so we've spent it. And we've set up new programs and so we've spent. We've set the expectation of spending at the peaks of all these oil cycles and the reality is we don't we certainly don't always hit these peaks, and so we're faced with a situation where, you know, we're going through these cycles and now that we've set the expectations, we have to find additional revenue sources.
Speaker 1:I think, looking at this as much as a revenue management problem as a spending problem, controlling the amount of revenues that we use in the budgeting cycle by being much more realistic about oil prices, being much more long-term oriented about oil prices as opposed to chasing the roller coaster I think having a much better revenue management system is as important to controlling spending as anything else. And this all comes back up to my mind because we have these people, we have legislators who are saying oh, it's not my problem, you know the fact we have to do PFD cuts this year. Not my problem, because you know all prices went down. It's OPEC's problem or it's Trump, the Trump tariffs problem. It's not. It's your problem from not having set up a revenue management system with respect to oil that takes into account oil goes up and oil goes down. That's your fault. That's not OPEC's fault and it's not Trump-Tarrant's fault. It's your fault for not having set up a controlled discipline revenue management system.
Speaker 2:Tony says what about a five-year rolling average? How about with the five-year rolling average at a two-year budget cycle, so that there's a baseline for the two-year legislative cycle? I mean, I'm not opposed to that Some states do that, why not? But I mean it would be a huge leap forward to just go with a five-year rolling average.
Speaker 1:Five years would be better than where we are. Ten years would be better than five years. I mean, what you find is these oil cycles tend to go on for a period of time, so a 10-year average on oil prices tends to get you better, get you closer to the median point in the sine curve than a five-year. But five years is better than where we are, that's for damn sure.
Speaker 2:Yeah, because right now we're pie in the sky. Let's pluck a number out of this. What does it sound like? I mean, that was the again the Sean Parnell oil is going to be one hundred and fifteen dollars a barrel. I don't care that it's seventy eight dollars right now, it's going to be one hundred and fifteen dollars a barrel and I'm going to write a budget based on that. I mean, it's, it's madness. It is madness. This all comes back to the fiscal discipline of a legislature which heretofore has not shown really any fiscal discipline at all.
Speaker 1:But it's fiscal discipline. I guess my point on this is it's fiscal discipline on the revenue side as well as on the spending side. It's fiscal discipline to say, yes, you know, the revenues that were projected for next year may be X, but we're only going to use Y because we know that oil goes up and oil goes down and we're going to set our revenues at a realistic long-term level, as opposed to following the roller coaster up and down. Our problems are being driven by not doing that as much as they're being driven by spending it all when we have it. We shouldn't be doing that either, but we should be defining our revenues in a way like we do with POMV revenues, like we do with PFD revenues. We should be defining them in a way that is much more disciplined.
Speaker 2: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:Go ahead quickly the governor could do it. The governor could do it in the budget cycle. In saying this is the amount of revenues I'm using in my budget cycle, doesn't take the legislature.
Speaker 2:The governor could do it well, we'll see where that goes. Brad Keithley Alaskans for Sustainable Budgets the weekly top three. Thank you, my friend, Appreciate you coming on board.
Speaker 1:Michael, as always, thanks for having me. 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. Weekly top three.
