The Weekly Top 3
The Weekly Top 3
The Weekly Top 3 (8.11.2024)
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 August 11, 2025.
This week, our top 3 issues are these: 1) the Anchorage business community says they are concerned about the economy but at the same time they push the revenue option that has the “largest adverse impact” on it (2:15); 2) we explain why the next rounds of K-12 funding growth should come from increased local contribution (18:08); and 3) we explain why those pushing the “one account” approach to “protect” the Permanent Fund are, in fact, opening the door for raids on it (39:26).
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 August 11th 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 610 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, the Anchorage business community says they are concerned about the economy, but at the same time, they push the revenue option that has the largest adverse impact on it. Second, we explained why the next rounds of K-12 funding growth should come from increased local contribution rather than from the state. And third, we explained why those pushing the one account approach to protect the permanent fund are in fact opening the door for raids on it. And now let's join Michael.
Speaker 2:So, brad, today we're going to dive into it. We've got a lot of things to cover and we're going to start off with this article in the ADN, talking about the survey of businesses. And I mean, I don't know how much money was spent on this survey. I just the more I look at some of these stories and I see there's whole industries that are basically out there to tell the government to study for the government, the businesses or the. There was one in Soldotna today where they're studying the light poles and they paid $90,otna today where they're studying the light poles and they paid $90,000 for them to go study all the light poles to see which ones need to be fixed or not. And I'm just, I'm just shaking my head. But this week's we're faced, uh, we've got a conundrum. The Anchorage business set is facing a conundrum and they just don't know what to do.
Speaker 1:Brad, uh, give us the, give us the rundown here. Well, this last week was the annual Anchorage Economic Development Commission presentation in Anchorage where they have done a survey. The AEDC has done a survey of the Anchorage business community, identified things that the business community is concerned about, identified the level of confidence the business community has in the economy and the issues they see out there and the potential solutions they see to the business and or they see to the economic environment. And this year's survey was not great. The headline in the Anchorage News, the daily news story, is survey finds Anchorage business confidence fell amid Trump tariffs and federal cuts. The APRN has Anchorage business report. Businesses report declining confidence in new survey.
Speaker 1:Survey showed that more businesses were concerned about the state of the economy and believe the economy. The state of the Anchorage economy, and indeed the Alaska economy, was headed on a downward trajectory than believed it was on an upward trajectory. It wasn't unanimous. There were some who believed that the economy was doing okay, but the level of business confidence was on a downward spiral. From the standpoint of the Anchorage business community, the thing that caught my eye was one of the issues, a fairly high issue, for the reason for the lack of confidence was the state of the. The reason for the lack of confidence was the state of the, the condition of the state's fiscal situation and the, the concerns that that the business community has about the state's business or the state's fiscal situation, and and that it's not resolved and it and it remains up in the air. And and so the survey was not only about their, their, their concern about the state's fiscal situation, but about potential solutions. And the thing that caught my eye was the disconnect between the business community's concern about the state of the economy and their solutions to the economy, solutions to the state's fiscal situation that they voted for in the survey. The number one solution to the state's fiscal situation, a high level of concern about the state's fiscal situation the number one solution to the state's fiscal situation was reductions in the PFD, further reductions in the PFD. We're already down to $1,000 PFD. We're already down to a 70% cut or something in the PFD, and now the business community is saying, well, the solution to the state's fiscal situation is to reduce it even further. Second, behind that was reduction of state spending. Third, behind that was a statewide sales tax, then a statewide income tax, and then elimination of the PFD was at the bottom but nevertheless still got a significant share of votes more than a marginal amount of votes supporting the elimination of the PFD.
Speaker 1:Here's the disconnect. The disconnect is they're concerned about the economy. They're concerned about the impact, primarily the impact of the tariffs raising costs and cuts in federal spending reducing revenue in the local economy. But a big part of the concern about the economy is the state's fiscal situation and the unresolved nature of the state's fiscal situation. Concerned about the economy, they're concerned about the impact of all that on the economy. Yet they are voting for a solution the reduction in the PFD.
Speaker 1:That of the alternatives, has the largest adverse impact on the economy. It's like there's this fundamental economic disconnect in the mind of the Anchorage business community. Any regressive tax, because middle and lower income Alaska families, middle and lower income families generally, middle and lower income families generally have a higher marginal propensity to spend. That is the extra dollar they get they will spend as opposed to save or invest or sort of take off the board, as occurs in the higher income brackets. So any extra dollar in middle and lower income brackets tends to increase spending, tends to improve the business, tends to improve the business climate.
Speaker 1:Pfd cuts are the most regressive of all the options and have the largest adverse impact on middle and income families, and so they have the largest adverse impact on the overall economy. It's just that sort of axiomatic. That's how economics works. And so when you say that your solution to a bad business climate a business climate where you're concerned about consumer spending and you're concerned about revenue in the community and you're concerned about revenue in the pockets of consumers when you say that's a primary concern, but you vote for the solution that has the largest adverse impact on the economy, I don't know what you're trying to get at. I mean, you're saying the situation's bad and then you vote for the solution that makes it even worse.
Speaker 2:Well, and this shows us, I think more than anything else, how much of a dependency state. And in this case we're not talking about the welfare side of it, we're talking about the corporate welfare. They said they surveyed like 172 businesses. How many of those businesses are dependent on government largesse at one point or another? Government contracts, surveys, studies, maintenance, whatever that's what it looks like. To me it looks like this is that self-licking ice cream cone of businesses that have attached themselves to government and are so dependent on it. They're not really talking about the private economy, they're talking about the public economy. That's what this whole focus seems to be about, and as long as the public economy does well, what it kind of ends up being.
Speaker 1:Yeah, I think that's a good observation and I think that is a significant part of it. I think the other part of it is, when you do a business survey like this, you're doing a survey of the executives or the owners or the upper echelons of the business community, and so what you've got is what you're surveying are people in the top 20%, or people in oil, or people at the top levels of other industries who are saying, oh, the PFD doesn't mean much to me and so let's, let's cut that because it doesn't really impact me. I don't. I don't think they understand. I think they're surveying people who don't understand the impact of PFD cuts on middle and lower income Alaska families because it doesn't affect them. So they're saying, oh, cut that because it really doesn't affect me much, without understanding that it affects the economy a whole lot.
Speaker 2:Right, no, I mean, and I think that's part of the problem here is that, as they continue to look at it, this is a very insular appears to me to be a very insular group of people because overall and they mentioned this consumer confidence is rising steadily but the business confidence in Anchorage, specifically, was declining, and I think part of that again is because they're dependent on that government spend, while the private economy and the consumer confidence and inflation and all those other indicators seem to be dropping, and so consumers are excited, but the business climate is not so much, especially when those businesses have built an entire business model around subsidizing themselves from government spend.
Speaker 1:Yeah, I think that's a good observation and the focus on the decline in federal spending as a driver to the loss of confidence is probably a good indicator of that. That businesses have structured themselves to take advantage of the federal spending and when they see that federal spending declining they have a concern about it. Those businesses tend to also be concerned about state spending and be tied to state spending and when they see a decline in state spending or adverse impacts on state spending, constraints on state spending, they tend to be concerned about that. But to say that the solution to that is to utilize PFD cuts, the highest ranked solution to that is further PFD cuts from $1,000. Keep in mind we're already down to $1,000. Keep in mind we've already cut PFD something like 70%. When they say that the solution to that is to further cut the PFD, they're just I mean it's kabuki, I mean it's suicide theater, right? I mean they're increasing the level of the adverse impact on business as a solution to their concerns about business.
Speaker 2:Yeah, it's kind of frustrating. And I saw this chart I think it was must read or somebody who had this chart up originally where they were talking about their different options. You know reduction in state spending, statewide sales tax, income tax, elimination of the PFD, reduction of the PFD. And the largest take of anything was that reduction of the PFD followed closely by reduction of state spending. But I just kind of feel like that's an afterthought more than it. Now, nobody wants to eliminate the PFD, right, that's the last that has the lowest. But I mean, when you functionally reduced it down to, I mean we were at what 82, 83, 17 was this year's take of the PFD for the people. You know, this year's take of the PFD for the people, you know 83% went to government and 17% went to the people. I mean, how much lower can you go at this point before it is essentially eliminated?
Speaker 1:It was you know they're making it into a trivial impact on the economy. I mean, the PFD at full force has the potential to be a positive impact on the economy and again because the marginal propensity to spend is strongest in middle and lower income families, I mean, if you have a strong PFD, you're going to have a strong spending response to that additional money coming into those families and so to take that money when you cut it back, you're turning the PFD into a trivial share of family income and you're turning it into a trivial impact, uh, on the economy. Yeah, we don't want to eliminate it because, oh my gosh, nobody wants to say we want to eliminate the PFD but we want to trivialize it to the point where it really doesn't have any impact on the economy, at the same time that our largest concern is about the economy itself. You know.
Speaker 2:Brad. The one that got me was the final paragraph in this story in the ADN, where they're lamenting the federal Medicaid cuts and you really start to see the oversized impact that this has in Alaska, especially with the federal spending $9.5 billion spent annually on health care in Alaska, one third of that coming from Medicaid and Medicare $3 billion spent in this state. And of course they're already lamenting the fact that some of that stuff has been cut because then doctors may offer less services. And again you see there's dependency, because when I talk about dependency, most people think about, you know, maybe road construction or government contracts or something like this. But there's a huge dependency sector in the medical industry as well, where they are dependent on all that state and federal spending to a huge amount. And it really is. This is the problem that we're facing and this is kind of the theme of today. How much have we grown so dependent on government? We can't even envision it. We can't even imagine that we could live without that spending.
Speaker 1:Yeah, I remember early on in the Dunleavy administration, maybe in the roadshow he did after he was elected governor, where he was going to various groups and talking about his vision for cutting spending and getting state spending back under control. One of the groups he talked to was a group of doctors and the surprising thing about that was and he talked about cutting Medicaid as part of the overall spending cuts, cutting the state's tie to Medicaid or the state's contribution to Medicaid as part of the overall spending cuts. And one of the really surprising thing was the strong pushback he got from the docs. I mean the docs, basically, the position basically was yeah, yes, spending cuts, yes, that's how to get the state under control, but don't cut Medicaid, don't cut the federal government or don't cut the state's contribution to Medicaid or cut the Medicaid program. And that was I mean, you see that all over the place, right? You see, that's what we saw in 2019 with the pushback on the spending cuts. It was, yeah, spending cuts, yes, we got to do that, but don't cut my program, don't cut my library, don't cut my museum, don't cut my reading program, don't cut this, don't cut that.
Speaker 1:And with the docs, it was don't cut Medicaid. I mean the level of your point about dependency is a good one. I mean the level of dependency on point about PFDs to the point where they prioritize cutting the thing that has the, or doing the thing that has the largest adverse impact on the overall economy. Doing that in order to save dollars for their spending programs, dollars that they don't when we go back to the business elite, dollars that they don't have to pay. So hey, they don't count, right, we don't have to pay them, so we don't have to be worried about it. It's just everybody else who has to suffer the cut.
Speaker 2:Yeah, brian says, because a healthy workforce will produce more. Will they really? Or will they sit in their mom's basement smoking pot and playing on Xbox? I mean, that's really my question. When it comes down to it, number two of the weekly top three. We said it was coming, we predicted this. We said you know they got the BSA increase this time around, but that was just a nice start. You could already see them lining up and they're saying the quiet part out loud. Not only are they going to want to increase the BSA even more now, of course, it's the inflation proofing and everything else. This comes from an opinion piece in the Daily News. Miner Brad was kind enough to shoot me a screenshot of it here. Education funding a victory today, but uncertainty tomorrow. They're already selling the fear.
Speaker 1:Brad, yeah, the body wasn't even warm or the boats weren't even cold, weren't even the body wasn't even cold or the boats weren't even cold. From the BSA increase of the last session and the veto override, the news minor. The news minor. The news minor is already pushing the next round. A couple of paragraphs from that op-ed. But let's be clear this is not. They're talking about the $200. Let's be clear this is not a sustainable funding solution. The year's extra oil revenue gave lawmakers a fiscal space to act. The cushion may not be there next year and without a long-term fix to Alaska's education funding formula, the base student allocation, we're likely to see the same education funding tug of war again and again. This isn't an op-ed during the session.
Speaker 2:This is an op-ed now this week that says we're not there yet I want to interrupt here because it's very obvious to me that apparently, whoever's writing this op-ed for the Newsminer, this is the editorial board. Apparently they don't understand how this works Because they said let's be clear, this is not a sustainable funding solution. This year's extra oil revenue gave lawmakers fiscal space to act and that cushion may not be there next year. This is in perpetuity. Do they not understand that that $700 increase, $180, whatever million, almost $190 million is locked in forever in the future? They're acting like this is going away tomorrow, do they I mean, do they not understand?
Speaker 1:how this works. Oh, michael, I think they do understand. I think they're saying the $200 isn't enough. I think they're saying it needs to be more. And this paragraph is where it gives it away. What's needed is a durable funding model that adjusts for inflation and gives districts a predictable foundation. That doesn't mean writing a blank check. It means agreeing on what level of education Alaska wants to provide its children, determining what its costs and continuing and committing to it without the annual hostage negotiation. So no, I think they fully understand. The $200 is in perpetuity. I think they're just saying that's not enough and we need more on top of that, including inflation adjustments on top of everything else, top of that, including inflation adjustments on top of everything else. So it's a. As I said, the votes aren't even cold, the body isn't even cold and we're already on to the next round. The news minor has already taken us on to the next round. Here's a point I want to make as we go into that round and if you have that chart, let's flip it up I've been spending a lot of time on looking at how Alaska ranks, not in terms of spending, not in terms of per student spending, or how we rank in the nation on that.
Speaker 1:I've been looking at how we fund our spending and I've been doing that because, again, I grew up in a situation in Illinois where the burden of funding was substantially on the local communities and so when you were talking about school board or when you were talking about school funding, it was a local discussion, because the schools are funded substantially mostly locally, mostly locally, and so it was, if you want to increase spending or if you want to start a new program, or if you want to do this or you want to do that. It was a very local discussion. There was a lot of local pushback or local support in the case of you know if there was a unanimity that we needed to increase spending in this area, but it was a very local discussion which had an impact on the local school board and which had an impact on what was going on in the schools, and it's led to a substantial amount of consolidation. When I look back at my old school district, my old school district is no more because it's been consolidated two or three times since then into a much larger school district to achieve economies of scale and achieve cost savings. So there's been a push at the local level to consolidate because of the financial situation.
Speaker 1:What we have in Alaska is the exact reverse of that. What we have is the locality saying, hey, we don't have to pay for it, we don't have to pay much for it, and so it's the state's responsibility, and we'll keep pushing the burden more and more. Have to pay for it, we don't have to pay much for it, and so it's the state's responsibility, and we'll keep pushing the burden more and more of the burden on the state, and nobody is taking. I don't perceive that there's a lot of responsibility being taken at the local level to find cost savings, because it's always we'll just go push to the state, we'll just go ask the state for more and more funding. So I did a that's the key, by the way that's the state.
Speaker 2:We'll just go ask the state for more and more funding. That's the key. By the way, that's the key. They don't ever have to look for efficiencies, because Uncle Sugar will always be there to bail them out. That's the problem.
Speaker 1:So you don't get a lot of talk about consolidation at the local level. You don't get a lot of discussion about cost savings. You get some, but you don't get a lot because it's always. You get some but you don't get a lot because it's always well, we'll just go ask the state for more money, more and more and more money at the state level. So I'm spending a lot of time looking at how Alaska stacks up compared to other states in terms of the percent of funding coming from local level versus state level, versus federal level. And Alaska consistently. I mean there's various surveys out there of spending. They're not all, they don't all come to the same number, they're not all on the same base year. The most recent analysis isn't all on the same base year, so they're sort of spread all over Hekaback. But I mean they do have a consistent theme and I've taken a few of the major ones here and put them in this chart that I'm going to be using for a Friday column somewhere along the way and you can see that consistently, alaska is ranking very low in terms of the percent of school funding coming from the local level.
Speaker 1:The Census Bureau, the census study, shows that Alaska the most recent they have is for FY23, shows that Alaska is at 22.7 percent as opposed to the US average is 44.7%. Alaska is about half of the national average funded by the local level, the NCES study. The most recent year is FY21. Again, you can see Alaska is in the 20% range low 20% range against the US average in the mid-40s range. Again, alaska's about half. The EDI study that's published in 2025, not clear what base year it's based on, but again Alaska's at 20-some-odd percent against the national average in the 40s. Numbers are varying but you can see a theme here. And then the last is the Alaska Deed Study for FY24, the latest year for which they've audited. Again, alaska's in the local contributions in the mid 20%.
Speaker 1:So I think part of the discussion we need to be having maybe a big part, maybe the biggest part of the discussion we ought to be having in this next round of K-12 funding that we're talking about is increasing the burden on the local communities, increasing the incentive, to put it another way, increasing the incentive for the local communities to start pushing back on spending, to start saying, look, wait, we have to pay for a big chunk of this. So let's find efficiencies, let's find priorities within our communities to reduce spending or to keep spending under control. As I say, in Illinois it's led to the consolidation of a significant number of school districts across the state because they have found that they can't afford. You know, everybody wants to have their own school Every town and village wants to have their own school but you find you can't afford it and so you start looking for other ways to have schools that are affordable to the community, and in Illinois you know that's led to a lot of consolidation.
Speaker 1:I think a key of this next round of school funding is starting to talk about an increase in the level of local contribution, and I know that's going to lead to a lot of pushback, but that's exactly what we want, right, it's exactly. We want the local communities to start pushing back on increased school spending and start finding efficiencies in the context of their communities, because they'll know best how to do it Finding increased efficiencies and increased ways of controlling costs and achieving efficiencies in terms of consolidation or other things within their communities to push back on spending increases. If we don't do that, if we don't push more responsibility and more costs down to the communities, I'm afraid we're just the news miner's right, we're in for another repeating rounds of pushing for increased state spending because people, the local community, say hey, you know, let's have more. It's the state's fault.
Speaker 2:We don't have more. Part of that is a conundrum too, because we've accepted these federal dollars, and part of the hook in the federal dollars is that equity component, because we have some communities that are already funding up to that federal cap. Right, I mean, the Kenai Peninsula Borough was essentially funding to the cap that they were allowed under under federal law, and so we're being held in amber on that component. And then this is a little bit of an apples to oranges comparison because we've got huge swaths of the state that have no local contribution at all. Right, there's no local contribution, it's all being funded by the state. So the numbers are being kind of skewed by that as well. But we're, you know, we've got those two problems locking us in.
Speaker 1:I've looked at the. I've looked at the second problem, I've got a thought on the first problem too. But I've looked at the second problem and yes, there are big parts of the state geographically that have a limited amount of local contribution. The unincorporated borough has a limited amount of local contribution or no local contribution. Basically the feds are supplying the local contribution contribution. Basically the feds are supplying the local contribution and that's an issue, but it's not a big driver in that 22%. If you look at Anchorage, for example, Anchorage is in that general area, is in the 20s. It's a little bit higher than the average, than the Alaska average, but it's still a lot lower than the national average. Fairbanks a little higher than the Alaska average, but still a lot lower than the national average. And so we tend to overplay, I think, the impact, this disparity within the state in affecting these numbers. I think, even if you look at the big districts, they're not up to the national average, they're not involving the localities as much as we do on a national basis.
Speaker 1:The first one, about dependence on federal dollars and the resulting disparity test we're the only state that's still subject to the disparity test. We're the only state that's still trying to apply the federal dollars through the state and count that as toward the state share, which is what kicks in the disparity test, and I think it's appropriate to start considering or to consider whether that's something we still want to do, whether that's something that's important. It doesn't back out the federal dollars. The federal dollars still go in. They just don't count as part of the state's share Right. And so I think that if we're, if we're focusing on getting the contribution, getting the incentives at the local level up and increasing the incentives at the local level, the incentives at the local level, increasing the involvement, increasing the funding from the local level, it's time to evaluate whether or not we really still need to be subjecting ourselves to the federal disparity test.
Speaker 2:Well, because that was the call from the legislature, right? Oh, they are all about local control. That was the whole argument. They are all about local control. If they're about local control, then up your contribution so that you can control it and be directly involved in that from now on. That seems to be the answer here.
Speaker 1:Yeah, they're all about local control. But they're all about local control of state spending, which is sort of the worst of all worlds, because you get a body committed to pushing for increased state spending so they can have more of it at the local level without them having to raise it themselves.
Speaker 2:You know, Brad, that's what I've been saying is, if a community wants to give more, if a community wants to make itself the showcase of education, they could just fund it as much as you want. That should be part of it. I didn't realize that it was because of the way that they accounted for it the federal monies that was triggering that I mean. So we stopped that. We just we should stop that a hundred percent for sure. When you look at the numbers that you just you threw up there and I'll pull that, pull that chart back up real quick but when you look at it and you see localities are spending, you know, are contributing 40 percent to their community schools and we're, we're doing half that in almost every survey. Our local communities are only providing half of the same amount.
Speaker 2:If they were squawking and it would mean that the local community would be more engaged on that, because they'd be like is this money being wasted or is it being spent? Are we looking for the most efficiencies this opinion piece is so full of, just, you know, the BSA unchanged for years the reality of running schools. The result of that unholy union is a cycle of short-term fixes and long-term uncertainty. I mean, how dare they should have to. You know they go on to talk about how they're forced to budget for worst case, and of course they should budget for worst case scenarios. You don't budget on the best case scenario. That's not how budgeting works. You do the best that you can do. You don't bet on the pie in the sky if come, and that's what these guys seem to be doing.
Speaker 1:Yeah, and again, michael, I mean I can't stress enough. So you go to a school board meeting or you go to, you know, you read about school board meetings. You read, you know, in the local, the pen and pieces, the local paper, about how you know school boards are reacting or school officials are reacting to the budget. It's all, oh, the state needs to give us more. I mean, the state needs to pay us more. We've created these lobbying organizations to go to the state and say the state needs to pay us more, the state needs to increase their contribution, and it's not even in proportion, right, the localities aren't even talking about and we'll pick up 20, whatever odd percent of it, which is sort of our average pickup. It's no, all the marginal money needs to come from the state level. We need to be increasing the state level, we need more money and all needs to come from the state. And so we've turned these school organizations and the localities into lobbyists for increased state contributions because they don't have any responsibility for it Funded by state contributions.
Speaker 2:by the way, Lobbying arms funded by state dollars to go get more state dollars.
Speaker 1:Yeah, and so you've got no sense of responsibility at the local level to find cost efficiencies, to find cost containment. I mean, they'll give mouth service, lip service to it. I read papers from all over the state and school boards are saying, oh, we'll constrain spending here or something. But generally speaking, there's no drive to find cost efficiencies, there's no drive to create priorities in the local community about what we're going to fund and what we're not going to fund, what's going to get more education funding. It's like everything needs more and we'll go to the state to get everything more and we'll complain to the state if they don't give us more. And we'll complain about our state to get everything more and we'll complain to the state if they don't give us more. And we'll complain about our state officials if they don't give us more. That's what we've set up. We've set up local lobbying for more money from the state.
Speaker 1:I think it's time to. If we're truly interested in getting cost efficiencies, if we're truly interested in prioritization, I think it's time to not only give more power to the localities in terms of freeing them from the disparity test, but I think it's also time to give them more cost responsibility so that they feel this increased spending at the local community and they feel the constraint of no, I don't want to do it that way. I want to find other ways or I want other priorities. We only have so much money at the local level. I want to find other priorities and other ways to constrain it.
Speaker 2:I think it's interesting that we can already see that the verbiage for the battle lines is being set up, talking about things like predictable funding. You know that's the key the predictable. That's what they want. They want this locked in so that it's predictable. And again, that's just. You know, every dollar in the public coffers should fight against every other dollar, right? I mean, every program should be weighed and measured. Everything should have to fight against every other option that's out there, because that's the only way you keep things efficient. Otherwise, it just becomes, you know this bloated program, and that's what we're seeing right now.
Speaker 2:Yes, every administrator, every school district, every school board should budget for the worst case scenario, and then everything else is. You know, if it happens the other way, you know, know it's planned for the worst, hope for the best and all your surprises will be happy ones. That's what we need to be doing. But we're not going to. You know we're. We're not going to, uh, uh, to deal with that. And yeah, we've already talked about the disparity test. Harold, welcome to the program. Um, that's, that's part of the problem as well, is this disparity test. But if we stop accounting for it in the way that we do, maybe we can, I don't know, maybe we can. But again, brad, I think what we're talking about here is pie in the sky, because I don't think there's the political will. Like I said, people can't even envision that being part of the issue here.
Speaker 1:Maybe so, michael, maybe it is pie in the sky, but I think if anybody feels that, if any community feels that they may be pressured more, Just rudely interrupted Brad's final thought on the last topic, on number two we were talking about.
Speaker 2:I didn't think there was a political will to fix things like the disparity test, et cetera, et cetera. Brad, I'll give you the final thought on that before we jump into number three.
Speaker 1:Oh, I was going to simply say that I think any discussion maybe there's not the political will to increase local contribution, but any discussion about that, about the potential for increasing local contribution and you can have more money if it comes from increased local contribution I think that will start putting the brakes on this push for more and more and more, because local communities will start considering, well, I can't afford more. So, yeah, if I'm going to have to pick up part of this more, then I don't want more. I want to have some constraints on spending at the local level.
Speaker 2:Well, it's an interesting thought and I'd love to see some discussions on it. Will it happen? Probably not, but I'd love to see more conversations around that whole idea. All right, let's move on to number three, which is a discussion that we've been having over the last eight, 10 months about the permanent fund and this push by the fund itself. People like Stedman and others who see it as a way to I mean, I can't see it any other way to get their hands on the cookie jar, to get their hands into the corpus, and that is this continual discussion on quote unquote safeguarding the permanent fund by combining the earnings and the corpus. The latest is a piece out of the Fairbanks Daily News. Minor Bart Lebon, constitutional scholar, comes forward with a piece talking about it's time to safeguard the permanent fund for good. Brad.
Speaker 1:Well, lebon's op-ed is a pickup on a previous op-ed, a community op-ed that we discussed last week by Joshua Church. That was pushing the one account, the proposal to merge the two accounts and the permanent fund into a single account and to sort of recapture or bring everybody up to speed. We currently have two accounts, constitutionally created, two accounts. The corpus is constitutionally protected. The corpus of the permanent fund principle of the permanent fund is constitutionally protected. The legislature can only spend from the earnings of the permanent fund. So if the permanent fund is not producing enough earnings to fund whatever the legislature wants to use the earnings for, enough earnings to fund whatever the legislature wants to use the earnings for, then the legislature has to stop spending because there isn't under the Constitution. They can only spend from the earnings. So you only get to spend as much as the permanent fund earns. What the proposal for the one account system is is to merge the earnings reserve into the permanent fund corpus, create a single account, and the proponents say that's good because then you have predictability. You can set the draw at 5% a year or whatever number you pick. You can set the draw at 5% a year and you will have a consistent stream of earnings, consistent stream of revenues, rather coming out of the permanent fund at 5% of whatever the balance of the permanent fund. Is the problem with that? It doesn't increase the protection of the permanent fund. It decreases the protection of the permanent fund Because if you don't have earnings sufficient to fund the 5%, you can still under the proposed constitutional amendment they can still take the 5% every year. They can start eating into the corpus, what's previously been considered the corpus start eating into the corpus to fund the 5%. They take away, they eliminate the constitutional protection of having the two account system and you can only spend from the second account, from the earnings account. They take away that protection of the corpus and open up the corpus, open a back door into the corpus for withdrawals. During years in which there hasn't been the permanent fund hasn't earned 5% and that's not theoretical. If you look back over the last five or six or seven years, in the majority of those years the permanent fund corporation hasn't earned a real rate of return of 5% sufficient to fund the draw. So it isn't just speculation, it isn't just theoretical that there might be this problem. We've seen that problem occur where the permanent fund doesn't earn the level that the legislature now wants to withdraw. So the headline that it's time to safeguard the permanent fund for good by Bart LeBond is false. I mean, it's exactly the reverse. What the one account system does is undo the safeguards that are currently there, currently in the Constitution, protecting the permanent fund corpus. What's really going on is this and Bart LeBond is not my favorite legislator, so you know I I immediately went to this article, immediately went to this op-ed when I saw he he authored it.
Speaker 1:What's going on is this is this is sort of the continuation of the people and LeBond was in the legislature when they started doing this. This is the continuation. This is the continuation of the people who said oh, we need to continue spending, so we're going to start tapping into our savings accounts, first the statutory budget reserve till they drain that. Then the constitutional budget reserve, which you know, at one time had $12 billion in it until they drained that. And then you know we're going to continue spending. So we'll start draining down. We'll start cutting the permanent fund dividend because that's not important. You know, that's not really. Bartle Bond is a former banker, is a top 20 percenter. That's not really important. We'll start draining down the permanent fund dividend.
Speaker 1:This is the next step to give themselves a back door into the permanent fund so that they continue spending. They can continue spending even though they don't have the money. They didn't have the money when they drained the SBR. They didn't have the money when they drained the CBR, but they continued spending. They didn't have the money so they started draining the PFD, started cutting the PFD so they could continue spending. This is the next step to open a back door into the permanent fund corpus so they can continue the revenue draw even if the permanent fund is not earning enough to fund their spending. Going to a one-account system is the exact opposite of being conservative. It's the exact opposite of constraining revenues so you constrain spending. It's opening the back door to increase revenues and increase spending.
Speaker 2:And what kills me is that his one of his comments in here. During my four years in state office, a number of budget amendments were proposed on the House floor to overdraw the ERA beyond an amount allowed by current law. All these attempts failed. But the only way to keep this from ever happening is to combine the funds into a single fund endowment. Nothing's going to protect them from proposing you know you can't protect people from proposing to overdraw the fund. That's the thing. And even if it was set at 4.5%, which is what they're saying now, that's what they oh, we'll just drop it to 4.5. It'll be fine, it's a larger batch. It doesn't matter If it's not earning 5%. You're continually eating into the seed corn, eating into the seed corn, it. You know? That is none of this. It's all nonsense. None of that is going to prevent people from attempting to overdraw the fund. The only thing that stopped the overdraw was the votes on the floor. But again, this is the solution. No, it's not.
Speaker 1:Even if, even if you overdraw the fund, I mean I'm let's, let's, let's take their nightmare scenario that they can overdraw the ERA. Even if they do that, they drain it. And then the Constitution says you stop their proposal. Their one-account proposal says you can continue as long as you limit the draws to 5%.
Speaker 2:Right, as long as the money's in the main account, you can draw as much as you want, up to 5% in perpetuity, and again all you're doing is eating the seed corn. You're strangling the golden goose and that's where we're at. Yeah, I mean, that statement just kind of floored me, brad. Oh, we saw a number of amendments to propose that we're going to overdraw the earnings reserve. These attempts failed, but the only way to keep this forever happening is to combine the two funds. No, because they'll keep doing it. There is no appetite to reduce or constrain spending, so they're going to keep doing it. And if you put the two funds together, what that means is they'll just draw, they'll just eat into the funds.
Speaker 1:Yep, yep, I mean there isn't the reason I don't get concerned about this ERA overdraw issue because there's an absolute stop. If you drain it, you're done. There's no more money there. There's no more money to drain out of there, you're done. The permanent fund corpus is protected. Maybe then people will start looking at ways of increasing the returns on the permanent fund as opposed to the mediocre returns that we've had over the last several years. But you're done, the permanent fund corpus is protected.
Speaker 1:What Bart's suggesting is you're not done. Even if you're not earning 5%, even if you're not replenishing the amount that you're drawing every year, you get to keep going. There's no stopping point. I did a projection at one point when this first became an issue. I did a column on this and projected if you, if you just drained, if the permanent fund kept kept earning about 4% and real rate of return and you kept drawing a 5%, how many years would the permanent fund last? And it's not really a big number. I mean you can drain that sucker fairly quick by by overdrawing the permanent, over overdrawing earnings because it compounds, right, it compounds you, you.
Speaker 2:You got into the earning power. So every year the earning power is less and pretty soon it starts to accelerate and all of a sudden it's gone. You know, jeremy bynum rep jeremy bynum's in the room. He said well, we could just move the additional dollars from the era to the corpus problem solved in one way, except for then there'd just be more of a clamor to combine the funds because there is no political will in the legislature. Jeremy, you should know this. There's no political will to reduce the size and scope of government, so they're going to look for more money. So if you do that and they stop clamoring to combine the funds which I think that would just add more pressure to well, then they'd just eliminate the PFD and then they'd institute some form of tax because there is no political will to constrain the scope of government. Brad.
Speaker 1:No, if you want to move the ERA in, if you want to move the funds currently in the ERA into the corpus, you're slitting your own throat because there the current constitutional provision there won't be any money in the earnings reserve to use to pay PFDs, there won't be any money in the earnings reserve to use to supplement the budget. Legislature's already drained out the savings account. So you're just sort of done and I doubt that even Jeremy would vote for that. But the point is this the point is, if you want to protect the permanent fund corpus, the permanent fund corpus, the way to protect the permanent fund corpus is to leave the current constitutional provision in effect, because that protects the permanent fund corpus. To leave the current constitutional provision in effect because that protects the permanent fund corpus. It puts a hard stop on further drainage. If you drain the earnings reserve account, if you want to have access into the permanent fund corpus, then what you do is you do a one account system so that when you set the draw, the draw is without regard to whatever the earnings are and you can continue to draw at whatever pace you want, whatever pace is set by law. You can continue to draw that even if your earnings don't match what you're drawing out don't match what you're drawing out. So the way to protect the permanent fund is the permanent fund corpus, which is what the current constitution protects and what everybody says they want to protect.
Speaker 1:The way to protect the permanent fund corpus is to keep the current constitutional provision in effect, because it puts a hard stop at the end of the earnings reserve account.
Speaker 1:If you don't want to protect the permanent fund corpus, then yeah, go ahead and do the one account system and set the draw rate at something that is without regard to whatever the permanent fund is earning at any given point in time, and you can just drain that sucker on out. It's the exact reverse. What Bart LeBond and others who advocate the one account system are doing is they're saying we really want to have a steady draw from the permanent fund without regard to earnings. We've seen the last few years that the permanent fund corporation hasn't been achieving 5%, and so we've seen the earnings reserve drained. So we really want to have a way of accessing the permanent fund corpus, but we don't want to say that because we know people will rebel against that. So let's back into some argument that we can use that justifies going to a one account system and they backed into this, made up argument about draining the earnings reserve account and Well, not big money.
Speaker 2:This is a self-inflicted wound too, right, I mean, because Bartle Burt, stedman and company and everything else, they moved eight billion dollars over the last 10 years into the corpus from the earnings reserve. That money was sitting there in the earnings reserve and they could have had access to it, but they did this intentionally to kind of foster this environment of, oh, now we're out of money, we have to have, we have to tap into the corpus. It's, I mean, this is, and of course this all it goes back to the predication also that the permanent fund is not earning what it should. So I mean, you know, it's a, it's a, it's a hot hot mess.
Speaker 1:It's a hot mess. All right, brian. The earnings reserve should. The permanent fund should be earning more, and so we would have less of this problem about the earnings reserve being drained because we would have more earnings and we would have more in the earnings reserve. That's sort of a separate issue, though this issue is really about protecting the corpus, and if you really want to protect the corpus, the current two account system does that, because it creates the hard stop at the end of earnings. That's it, you're done. What Bart and others want to do is they want to create a backdoor into the permanent fund.
Speaker 2:All right, brad. Thank you so much. We appreciate you coming on board.
Speaker 1:Michael Lewis, 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 on the Weekly Top Three. Thank you,
