The Weekly Top 3
The Weekly Top 3
The Weekly Top 3 (8.18.2025)
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 August 18, 2025.
This week, our top 3 issues are these: 1) we explain why the EIA’s new oil price forecast suggests Alaska is on the precipice of slipping back into a steep, deficit-driven budgetary position for the remainder of FY26 and into FY27 (campaign year 2026) (2:16); 2) we explain why the growing problem with Social Security is likely to have a significant impact on Alaska (21:44); and 3) we explain how a recent proposal from the FNSB would only make the state’s K-12 funding issue even worse (41:88).
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 18th 2025. The weekly top three is a regular segment on the Michael Dukes 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 project's 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 Energy Information Administration's new oil price forecast suggests Alaska is slipping back into a deficit-ridden fiscal outlook throughout the remainder of FY26 and on into FY27. Second, we explain why the growing problem with Social Security is likely to have a significant impact on Alaska. And third, we explain how a recent proposal from the Fairbanks-North Star Borough would only make the state's K-12 funding issue even worse. And now let's join Michael.
Speaker 2:All right, Brad. Well, we've got a lot to cover today, so I want to get right down into the heart of it. We're going to start off with this week's topics, including the tough what you call the tough election cycle, and that's coming up because of what I've been teasing the last few days, which is the latest report from the EIA. Tell me what this is, Brad, and why should I care?
Speaker 1:So the Energy Information Agency is a US federal agency. It, along with two other global agencies, publish a global view of the oil market once monthly. Opec, the Organization for Petroleum Exporting Countries does one. They call it the Monthly Oil Market Report. The IEA the International Energy Agency, does one and then EIA does a third.
Speaker 1:Iea, the International Energy Agency and OPEC really do broad-based supply-demand evaluations. The short-term energy outlook from EIA really gets down into the weeds and takes that global picture and narrows the focus down into what the impact is on price. This month both OPEC and IEA talked a lot about the supply-demand picture. Iea in particular said the supply-demand picture with OPEC Plus's recent announcement that they're going to lower the production cuts that they put in place all the way back in COVID but continuing shortly after is going to lower the production cuts, which will increase supply. And IEA looked at that and said boy, this is going to have a big impact on supply-demand balance because we don't see demand growing at the same pace as what supply is going to grow as OPEC lowers the production cuts. And IEA in fact ended its analysis by saying something's got to give. Eia came through, took that or took its own analysis, which came to the same place as IEA, that there's a big imbalance between supply and demand. Eia followed through on that and said the thing that's going to give is price and this is what EIA said in its opening paragraph. Significant growth in oil supply will cause crude oil prices to fall in the coming months. In our forecast, the Brent crude oil price falls from $71 per barrel in July to $58 in the fourth quarter of 25, and fourth quarter EIA uses calendar year quarters, so they're talking about October through December caused it to drop to $58 in the fourth quarter and $49 per barrel in March and April of 2026. And then it goes through the extended impact of that through the end of next year, which is the usual period over which EIA forecasts prices.
Speaker 1:I took that in this week's landmine column that was published on Friday. I took that and I took that through to Alaska. What does that mean for Alaska revenues and what does that mean for the Alaska budget? And if you've got the revenues chart, michael, let's pop that. Pop that up.
Speaker 1:If anybody wants to look at these in detail, they're in the current Alaska Friday Alaska landmine column that I do, and this is this follows no, that's the, that's the flip up the other one.
Speaker 1:There we go.
Speaker 1:So this follows through the price forecasts on the left-hand side from the fall 2024 oil price forecast that the governor's budget was based on, the governor's proposed budget or FY26 was based on.
Speaker 1:Follows it through to the spring revenue forecast from DOR and then DOR published a second spring forecast, if you'll recall when the governor did the vetoes, and the governor explained that the vetoes were necessary because of the drop in oil price and the drop in revenues. Follows it through to that second DOR price forecast and then follows it through to the EIA, the current EIA forecast, and, as you can see, oil prices dropped from $70 in the fall forecast, on which the governor's budget was based, to $68, on which the legislature's FY26 budget was based, to $64 for FY26, on which the governor's vetoes was based, and now we're at $56.25. When you restate the EIA forecast on an Alaska fiscal year basis and you can see the drop in unrestricted general fund revenues that are going along with that. The governor's, the revised DOR forecast that came out along with the governor's vetoes was down 10% from the spring, which was already down 3% from the fall. The EIA forecast drops out another 6% from that 10 percent drop in the in the revised EOR forecast for FY26.
Speaker 2:And in real dollars that means unrestricted general funds, from when the governor first proposed the budget of 2.4 billion down to 1.9 billion dollars.
Speaker 1:Right over 400 million dollar drop. Now let's go to this. Let's go to the next chart. This follows through, uh, to what this means for the budget, uh, and and the status of the budget when.
Speaker 1:When the legislature left, uh, they, they left.
Speaker 1:They set the budget based upon the spring forecast and after the governor's vetoes that the governor did after the legislature left, there was like $175 million surplus, actually an excess.
Speaker 1:What that actually is is an excess PFD cut, but $175 million surplus in the budget based upon the spring forecast. After the override budget based upon the spring forecast, After the override, the legislative override of the K-12 bill, that surplus was down to $130 million, again based upon the spring forecast. But then you look at the two subsequent price forecasts out there the DOR, the revised DOR forecast that the governor on which the governor based the vetoes, the revised EOR forecast that the governor on which the governor based the vetoes, you, you use that as the base and that comes down to roughly a $90 million deficit in the budget. This is what the EIA forecast means. The EIA forecast jumps, drops out another $140 million. So we're now looking at a potential quarter billion dollar, quarter billion dollar, $250 million, to be precise, $234 million deficit in the FY26 budget as a result of the revised oil prices, if the revised oil prices that are in the EIA forecast come through for FY26.
Speaker 2:Yeah, that's the budget. And just for clarification for the listeners, for folks who can't see the chart, that's for the budget that was just passed. So that's the year. We're going into almost a quarter billion dollar deficit in the current year that we just passed the budget for. We're not talking about next year, we're talking about this year.
Speaker 1:We're talking about the budget that just got passed, that the legislature thought they were leaving Juneau with a surplus and now, if the price forecasts come through now, we're looking at a quarter billion dollar deficit. The reason I say that this really upends the 2026 campaign is you look at, you think through the timing. The campaign is really going to get going during spring next year during the legislative session. Now that we've got a lot of candidates in here may start earlier, but it's at least going to start next spring and the legislature is going to come back into Juneau, the first of the year, facing this huge deficit that they're going to have to deal with with. First thing, I mean they've already set spending revenues. Because of the way we do oil revenues, revenues are going to be bouncing around. But if the EIA forecast is good, we're going to be looking at a quarter billion dollar revenue when they come back into Juneau and then the legislature, when it comes into session next year, we'll be starting to work on the FY27 budget. We'll work on the FY27 budget and you look at what the price forecast, the drop in the price forecast for FY27 is and you can see that's another $400 million plus or minus that reduction in revenues that the legislature is going to be dealing with next year another huge deficit year. So the campaign the 2026 campaign is going to be based is, if these forecasts, if the EIA forecast is correct.
Speaker 1:These campaigns are going to be based in an environment in which the legislature is having to deal with this huge deficit for FY26 when they walk in the door through supplementals or through pulling more money out of reserves that we don't have or something, and then in FY27, they're going to be dealing with an even deeper deficit than they thought they were going to be dealing with when they did the FY26 budget, which was already, they claimed, a tight budget.
Speaker 1:So we're going to be dealing in an environment the 2026 campaign is going to go off in an environment in which oil prices are dropping and candidates are going to have to be talking about what the fiscal plan is to respond to this environment in which we've got rapidly dropping, deeply dropping oil prices, and I think that's going to reshape the 2026 campaign in a way that I'm not sure people have thought through yet. They're going to, instead of talking about what new program they can layer on, instead of Tom Begich being able to talk about what additional programs he's going to bring. They're going to have to be talking about how they're going to deal with these huge deficits on the oil price as a result of the oil price drop and what plan they're going to have in place when they take office for dealing with a significantly reduced outlook from the standpoint of oil prices.
Speaker 2:Because, again, just to be clear, we're talking about, when they come back in January, almost a quarter billion dollar in supplemental spending, because the price will be down, and then an additional 1.4 billion down if the EIA numbers hold. We're talking about one and three quarters billion dollars, 1.75 billion dollars in deficit. That's just based on the current spending level, with no additional spending, just the escalators that are built in and everything else 1.75 billion dollars.
Speaker 1:Yep, and we've got. I mean, I haven't looked at the latest CBR number, but it's not much. It may be a little bit north of two. It may be between two and three CBR anymore is really the accumulated PFD cuts that they didn't, that they sort of saved up for future use and so it's not. It's maybe between two and $3 billion. So it's not maybe between two and three billion dollars. So you know, you can easily see that sort of being wiped out between between these two deficits and it's just, it's going to be a significantly different environment. The 2026 campaign. What EIA is telling us, if this oil forecast holds, is it's going to be a significantly different environment out there in 2026 than I think what people have previously imagined a significantly different fiscal environment for the state coming forward.
Speaker 2:Before we go here, Brad, quickly, you know, if the number holds, what's the probability? How close has EIA been in the past? I mean, what do we think here? I mean, is this a 50-50 proposition? Is this a, you know, more than 50% proposition that these prices will actually happen the way that they are?
Speaker 1:Well, everything changes over time. So it's based upon the supply demand outlook that EIA and IEA essentially share. If demand grows at a significantly higher rate than what either EIA or IEA is forecasting, it'll soak up some of that excess supply and it will increase price. Opec, for its part, in its monthly report, projected higher demand growth than either IEA or EIA. So that's one factor. If somehow the world economy strengthens faster than forecast. The other is on the supply side, and the supply side what these forecasts are based upon is some moderate decline or some moderate decline in the pace of growth.
Speaker 1:There you go in non-OPEC supplies and sort of this huge jump as a result of OPEC reducing the production cuts on the OPEC Plus side.
Speaker 1:If either of those don't hold if, for example, the non-OPEC supply drops quickly drops at a faster pace than projected in response to price, or if OPEC, seeing the impact on price, decides to sort of slow the production cuts that they're pursuing, then that would reduce supply and increase price. So it's based upon the supply-demand outlook that the agencies have right now None of them other than OPEC, but none of them really foresee changes in that demand side picture. They both do detailed analysis of the world economy and they see that demand forecast holding up the real variable is going to be on the supply side. That demand forecast holding up the real variable is going to be on the supply side. And if OPEC decides not to pull the string on all of these production cuts or if there's a big price response on the non-OPEC side in terms of slowing supply growth, then the supply side may fall short and these prices may be a little bit higher.
Speaker 2:This chart is going to be the chart to show all the candidates at this point. So this is what you're potentially looking at. What do you think? How are you going to fix it? What are you going to do? That's going to be the big. That's going to be the big chart right there for folks to remember and and and listen to.
Speaker 2:For sure, brad Frank says 26 campaigns will not have a different environment. It will tell voters what they want to hear, and that's what I'm afraid of, because, what you know, what about the fiscal plan? What about? I mean, yesterday we had, uh, we had, uh, we'll step on and I asked about a fiscal plan and it kind of got shoveled under the carpet. I mean, there was just, you know, kind of got shoveled under the carpet. I mean there was just, you know, the answer was elect better people. You know which? Again, the people in the room are the ones that we have to work with. I mean, yeah, we'd be nice to elect more fiscally responsible adults, but that just doesn't seem to be the answer at this point.
Speaker 1:Yeah, I don't know. I mean, the legislature is going to have to talk about these deficits. They're going to have to talk about these deficits. They're going to have to talk about the fact that FY26 revenues are coming in way below. Assuming the EIA projections hold that FY26 revenues are coming in way below that they forecast. They got this huge deficit that they're going to have to deal with in FY26. And if the legislature has to talk about that, then the news media are going to be talking about it and that's going to set the environment that the candidates are going to be talking in. The legislature is also going to have to talk about the FY27 budget and they're going to have to talk about the fact that revenues are coming in much lower than previously projected and they're going to have to talk about how they're going to deal with that in the FY27 budget than previously projected. And they're going to have to talk about how they're going to deal with that in the FY27 budget and the legislature is going to have to deal with that or the news media is going to pick up on that and have to talk about that Also.
Speaker 1:You've also got one interesting wild card in this Lyman Hoffman's retiring and in his retirement year, in his retirement session, he seems to have decided that he's just going to, you know, tell the truth. And so you know he's been honest. Even Will pointed that out yesterday in yesterday's discussion with you. And so Lyman, I think is going to be co-chair of Senate Finance, is going to be talking about this perhaps more than he otherwise might, more than if he was campaigning for reelection. So, yes, I mean candidates. I mean Bernadette may continue to talk about full PFD and no taxes and all that sort of stuff. Yeah, they may continue to do that. But the credibility of them saying that, in the face of these deficits that the legislature is going to be having to deal with, both FY26 and FY27, the credibility of candidates you know often la-la land talking about you can do all this stuff and you don't have to worry about the fiscal plan I think the credibility of those candidates is going to be severely tested.
Speaker 2:Yeah, it's going to be problematic. And now again, we've got 10 in the field and uh, I mean we don't know how many more we'll throw their hat in the ring here between now and and whenever. Uh, but uh, so far I'm not seeing anybody that's jumping up and, uh, putting you know, offering a, offering, a full fiscal plan of any kind, or even a partial, really partial fiscal plan. At this point, um, it's a vote for me. Chicken in every pot. Um, and and and I, I just, I mean, I, I don't have a whole lot of hope at this point.
Speaker 1:Yeah, and it's not like there isn't a plan out there. I mean the legislature's 2021 fiscal policy working group plan that Shelly was a part of. Shelly Hughes was a part of God, you'd think she'd adopt it. But that plan sitting there that says a little bit of everything, a little bit of all the above a little bit of spending cuts, a little bit of new revenues, a little bit of PFD cuts down to POMV 50-50, a little bit of this and a little bit of oil revenues. And that plan it sort of spreads the burden in a way.
Speaker 1:I talk a lot about rate design and revenue design and what you want to do in revenue design and rate design. You want to spread the burden as much as you can to get the divisor up and to have the impact on anyone group low. That plan spreads the burden more than almost any plan I've seen. So it's not like they don't have a plan they can talk about. There's one sitting there but no one seems to I mean not even Shelly. One of the authors of the plan has jumped up on it.
Speaker 2:Yeah, she didn't. I gave her the softball asking her, you know she just didn't want to, didn't want to deal with it. All the softball asking her, you know she just didn't want to, didn't want to deal with it. All right, welcome back. We continue with Brad Keithley, alaskans for Sustainable Budgets the weekly top three. We're on to number two, which is happy birthday to social security and you're about to die. Seven years is the latest number, seven years until the benefits basically end if we don't do something and this affects Alaska as well Alaska has a social security problem as well, brad.
Speaker 1:So yeah, so social security is sort of the coming. If oil prices are the issue that's going to drive, I think, the Alaska fiscal discussion over the next couple of years, social Security is sort of the issue that's coming on the federal scene. That's going Security your benefits go from wherever they are now down to zero. What's going on is this Over the years that the current generation, or the current elderly generation or the current senior generation or whatever however you want to call them, over the years that the baby boom generation there we go, over the years that the baby boom generation was working Social Security, built up a big pot of money, a big reserve. They weren't using all of the current revenues. I mean, like a pension plan, they weren't using all the current revenues to pay benefits. They were building up this big reserve that was going to sit there, earn money, and it did uh, and sort of sit there for when baby boomers retired and then it would, and then baby boomers would uh, would benefit from that, would start draining it down, like you do with any pension plan, for a variety of reasons, including low contribution rates, lower contribution rates than what an actuary would say. Baby boomers ought to be contributing into Social Security in order to build up enough of a reserve. For a variety of reasons, the reserve isn't big enough to see the baby boomers through or to see social security through. And so what? What? The what?
Speaker 1:The projection is, all these projections about timing is when the reserve is going to be gone. And once the reserve is gone, all that's going to be available for social security is what the current generation, the current working generation, is contributing in to. That's going to be turned around and be distributed in benefits. There's not going to be, there's not going to be any buildup reserved by the current working generation. Everything they're contributing in is going to be immediately turned around and and sent to and sent to the currently retired generation, and so the benefit that's been built up through this surplus is going to disappear. When it does, the current Social Security retirement rates, the current Social Security benefits that are set in law will have to drop, because you won't be able to pull't be able to pull the reserve, pull on the reserve for the additional, the additional money. The drop's going to be significant.
Speaker 1:Committee for a Responsible Federal Budget does great work on this and other federal issues, and they've done a recent analysis of what the impact is of that drop when the reserve depletes, what that drop's going to be and for a medium-income family. These are national numbers but it's going to be generally applicable to everybody. For a medium-income single working person or single retired person, the drop's going to be about $14,000 a year. Single retired person, the drop is going to be about $14,000 a year. For a married family or two that are in retirement, a man and a wife who are in retirement or a married couple that is in retirement, the drop is going to be about $18,000, $18,500 a year. So the drop is going to be significant and again, that's the impact of the reserve coming off. The thing about these numbers is they may go even lower because all you're doing is you're recycling what the current working generation is contributing into the plan. If you continue to have a contraction in the current working generation, as some are concerned we're going to have because of the drop-off in population growth or the AI revolution, that's going to drop employment. If you continue to have a decline in the employment, the contribution to Social Security is going to drop and that amount that's coming over to the retirement group is going to drop as well. So these numbers are sort of the best projection of what it's going to be like at the beginning of the drop.
Speaker 1:But the drop can be even more significant. This comes through to Alaska because Alaska is projected to have already has a significant retirement population. Already roughly 15% of the Alaska population is retired, living on Social Security benefits or in part living on Social Security benefits. But that's projected. Alaska is projected to gray significantly over the next 20 or so years, growing from 15% of the population up to 20% of the population if the population continues, if the Alaska population continues to grow. If you look at Department of Labor's recent projections about a population decline in Alaska over the next 20 or 30 years, then the percent of the population that is retired grows even higher because the projection of decline is more the working population, the working age population, than it is the retirement age population. The retirement age population sort of sticks here and it's the working age population that is out migrating. So you have.
Speaker 1:So the percentage of of Alaskans that are retired in that scenario grows even higher than the, than the 20%. That's uh, that's projected with uh, with some moderate population growth in Alaska, if you, if you start looking at 20% of the population, facing significant cuts. I mean I would say 18 to a medium income family, roughly $20,000 in cuts to a retired couple is not going to be immaterial to their economic well-being. And if you start looking at that sort of cut to 20% of the population, you're going to see a material amount of contraction in the amount of money that's in the economy, that's in the consumer economy or it's in the savings economy or the investment economy or whatever segment of the economy you want to look at. You're going to see a significant contraction of money in the economy. So it's a national problem that social security is a national problem, but it has significant economic implications for Alaska if it's not solved at the national level.
Speaker 1:Through the level of cuts that are going to hit Alaska, the Alaska retired population as a consequence, most people say, oh, this problem will get solved, congress will do something. And it's sort of again to pick up on a comment that Will made yesterday, will said well, you know, people kick the can, kick the can, kick the can, kick the can and it's the last guy who ultimately has to face it and has to take draconian steps to make it work. And it's getting worse and worse and worse. I mean the current projection out there or the current discussion on the table about how we solve this is to increase the retirement age. So we reduce the population that's drawing on social security, cut the benefits or cap the benefits to that population that is retired so that that limits the draw on social security.
Speaker 1:The draw on social security increase the tax essentially on on the population that's working, to increase the revenue flow into social security. And that comes through two steps. One is to increase the tax itself, but also there's a cap on on social security. Who pays social security or what portion of your income you pay social security on is better put. And so one of the steps under discussion is to increase the cap on the wages that you pay social security on to increase the revenues on social security.
Speaker 1:So there's a number of steps and they're getting worse and worse and worse.
Speaker 1:The closer and closer we get, the less and less that's in the reserve, the faster we're draining the reserve or the lower the reserve is as we go along, the more draconian the steps have to be.
Speaker 1:Two things made it worse the one big bill by reducing the level of tax on social security benefits which cycled back into the social security system.
Speaker 1:The one big beautiful bill, by reducing the tax on social security benefits, increases or reduces the time that we have remaining before we hit the X date of draining the reserve.
Speaker 1:And also the step that we took earlier to essentially allow double dipping by retirees who had non-social security plans, who had contributed to non-social security plan, who'd contributed to non-social security plans and had benefits from from non-social security plan plans but also had contributed in some way to social security, the the, the step we took which was praised in alaska because we have a lot of these people up here uh, the step that allowed them to draw on social security benefits in addition to their non-social security. Uh, retirement also drained, also reduced the reserve and is shortening the time frame within which we have to deal with this problem. So the problem is there, the time frame is getting closer, the steps we have to take because we have the draining reserve, the steps we have to take are increasingly dramatic and that's the situation we face, and Alaska faces a consequence of that because of the significant level of our population which is in or will be at the time this hits in retirement.
Speaker 2:Yeah, I mean, if you're counting, if you're my age and you're counting on social security benefits as some kind of uh retirement or bailout, you're going to be severely disappointed. I think is what the uh? What the answer is? Because, again, as they've drained the reserve and there used to be what 14, uh people contributing for every one recipient, and now it's down to two, it's down to two people contributing for every one recipient and now it's down to two, it's down to two people contributing for every one recipient, and that's obviously not sustained. I mean, when they used to criticize Nick Begich for saying it was a Ponzi scheme, but that's almost the very definition of a Ponzi scheme. When you got people paying in to the people who are drawing out and that number continues to go down, that's a huge problem right there.
Speaker 1:Yeah, and, and although it's counterintuitive to some people uh, uh, the, the limitations on immigration, uh, that we're adopting, uh, not only in this administration, the last administration as well, but the tightening on immigration rules that we have is increasing the problem. Because because immigrants, even, even, even the, the non-documented ones, even the illegal ones, when they work, they contribute to social security, that that amount is deducted from their paycheck? They don't. They don't. It's not that they don't pay taxes, it's that it's that their employers are with or withdrawing the money. So immigrants, when they work, are contributing to social security and illegal immigrants can't draw from Social Security, so they're actually building the fund. As you're constricting the immigrant population, you're restricting the number of workers, and so it's having the effect of increasing the problems with social security as well. It's getting us down to that two workers for every one retiree issue that you talked about.
Speaker 2:Well, this is going to get gruesome here in the next few years. And the question is do they have the risk? But it's like Will said yesterday, like you said, they just keep kicking the can down the road. It's a game of musical chairs and everybody keeps leaving with a chair and there's one guy left standing and there's no more damn chairs. Is what's going on? He's like, looking around, the music stops and he's like there is no chair, no tracer.
Speaker 2:That's not what brad said. Did brad keithley just encourage killing off granny and grandpa over dollars? How does he propose to reduce the number of elderly? That's that. That's not what I don't think. That was the point he was making. But you know, you hear what you want to hear. That's that's what it is right there. Um, brad, this is uh. I mean, this is a, this is a big deal, because I think a lot of people are um, you know, I like I'm eyes wide open about my retirement. I know that social security will probably not be there for me, but many people are counting of it to um to be their retirement plan. Essentially, I paid into it my whole life. I should get out of it, but it's not. That's not. That's not what is? That's not what's going to happen, right.
Speaker 1:Yeah, and it's not Michael. I mean, even even you know the people who are preparing for it, like you, who say, well, I'm not going to count on social security, so I'm doing whatever. Whatever it is I need to do to prepare myself when I get to those years, prepare myself to be there without Social Security. It's going to be less money in the economy as a result of it. I mean, we've got an increasing retirement age, we've got an increasing share of the population that's retirement age. Social Security is a mechanism by which we get money to that segment of the economy and that segment of the population, and that segment of the population then largely spends it and so it generates activity in the economy. If we're going to take that out in terms of reduction cuts, you may be ready for it, the next person over may be ready for it, the next 20 people may not be ready for it, and that's its own problem. But even you, we're reducing the amount of dollars that are coming into that share of the economy. Now the flip side is to solve this problem. We're going to have to make some of that reduction anyway, we're going to have to cap benefits in some fashion anyway, and we're going to have to increase taxes on the working population, on the current, the non-retired population, to fund this, and that's going to take some money out of the economy. But the next the trade-off is because of the significant share of retirees in Alaska. The trade-off in Alaska is going to be that we're going to be net losers if we don't solve the social security problem, and it'll be an even greater net loss if we have to cut benefits deeply or if we, or if we hit the, the X date and the benefits suddenly plunge um, as as they are projected to do, um, and we have a segment of the population that's not ready for it.
Speaker 1:So it's um, it's a, it's a serious issue that that people keep kicking the can down the road. I mean, you could, you could. You saw this 15 years ago, you saw this 10 years ago. I think we talked about it on the show in the early 20-teens as one of those issues that was out there that needed to be solved. We haven't solved it. It's now seven years, it'll be six years, five years, four years, three years and suddenly it'll be a frigging crisis that we're facing and Alaska is going to get hit with it. So we need to encourage the federal, our federal delegation to deal with this issue in some fashion, so that it's not like the sort of damocles hanging over the hanging over both the retirement population and the state's head.
Speaker 2:Well, we've known it's been a problem, as you said, we've talked about it multiple times. I know we talked about it. I think that, in fact, was probably close to 10 years ago, my first conversation with Maya McGinnis from, uh, the CFRB, uh, where we talked about what was going on with social security, and at that point they were saying that it would be empty by the time by 36, which is the 10 years from now, which is, you know, my retirement age quote unquote um, that and so, yeah, that's. We already knew that that was going to be a problem. Um, but there is, just like in the Alaska, with a permanent fund dividend and the size and scope of government, there is no political will to fix what we're talking about here. There's just no they, just you know that, they, that it just continues to decline and we'll all be oblivious to it up until the point and then they'll be shocked, shocked. I tell you that, uh, that this has happened. I mean, how come we didn't see this sooner?
Speaker 1:kind of question mark, you know yeah, well, it's, it's, it's coming, and and and. For those in alaska who say, well, it's a national issue, we're not going to worry about it here. It has an impact on us here, um, and it's and it's an issue that we ought to be encouraging our delegation and and and for those who are involved nationally, at the national level, federally to address, because it's not getting better. Passage of time makes it worse. I mean, you're correct. A few years ago CRFB was projecting 2036. Now it's 2032 or 2033. Because of reduced contributions and because of the legislation that was passed, that's reduced, that's been a bigger draw on or curtailed revenues that are going into the fund. So it's coming. It's coming quicker than people imagined and it's going to be significant when it hits.
Speaker 2:Anthony's got the perfect retirement plan. He says I'm just banking on the collapse of society in the next 25 years as my retirement plan is stockpiling ammunition and fuel. I figure bullets and fuel will be the new currency once we hit the Mad Max on ice status in Alaska.
Speaker 1:Let's hope not.
Speaker 2:We joke about it, but I mean you know, if you're planning on, if you're counting on the government to help with your retirement, you may want to check yourself before you wreck yourself, because that's going to be a tough thing right there. All right, Brad, let's get on to number three of the weekly top three, which is we're going in the wrong direction, which is a commentary on this piece in the Newsminer which has got the priorities of the Fairbanks North Star Borough. They laid out their legislative priorities. This is what they want to the legislature to focus on. We start off with the long trail. I mean, this is the all right, hit me, hit me with. I just I was, my eyes were rolling so hard as I read this article all right.
Speaker 1:So so we've been doing I've been doing k-12 segments, um, k-12 funding segments, the last few shows and and it's a it's an area that the state increasingly is focusing on. I mean, that's the big battle we just went through on education funding is part of that. We've got a task force that's kicking off the latter part of this month. The governor's got proposals. I mean there's all sorts of things out there on K-12 funding and I think it's going to be an issue that we see come up in the next legislative session. Now it's going to come up now in the context of declining oil revenues and that's going to be interesting to see how we deal with that issue in the context of declining oil revenues. Funding that I'm spending a lot of time on and will ultimately get to a column on maybe this week, maybe subsequent week. But one of the aspects of K-12 funding that I find very interesting is the contribution levels between the state and the localities in terms of funding K-12. We have a combined funding system in this state Most states do where the state contributes some, the localities contribute some and the federal government sort of sprinkles a little bit of federal money, or at least historically, has sprinkled a little bit of money since the 60s. It's sprinkled a little bit of money into the mix as well and I talked a couple of weeks ago about how Alaska is really an anomaly almost an anomaly in the states, because most of the remaining 90% in average throughout the US, 45% of it comes from the state level and 45 comes from the local level and that sort of equivalency helps drive cost control because the local school boards are making decisions about how to spend money, are making decisions about how to spend money because the localities have such a significant share of the costs. People locally focus on cost containment, cost constraint at the school board level and that has the ability or that has the effect of driving cost containment in some states. Because of that high local content. Alaska is a anomaly because we have about 10%. Let's take the 10% federal contributions a little bit more in Alaska, but just think of the 10%. Of the 90% remaining, about 20% comes, 25% comes from the localities. The remainder 65% to 70% is coming from the state. So the contribution level by the state is a lot higher in Alaska than nationally and I think, as we've discussed on the show before, I think one of the pieces of the solution to our K through 12 issue is to increase the local share of funding, to increase the concentration at the local level on cost control and on finding efficiencies that exist in the K through 12 system. I think we've lost that, as I've explained on previous shows. I think we've lost that because we have too much at the state level and the localities say, ah, we contribute a little bit, but the state picks up most of that and when we have increased, when we need increased funding, we'll just look to the state to pick up that. So there's not a match between cost responsibility and cost contribution going on in Alaska and I think that's part of the problem. So I've talked a lot about increasing the local share.
Speaker 1:I was reading through the recommendations of the Fairbanks North Star Borough, the advice they were going to give their legislators, and this paragraph. These paragraphs just stuck out to me. The Fairbanks North Sarabaral Assembly involves the state fully funding education to meet basic needs and eliminating the requirement for local contributions. Municipalities with education powers are required to provide a minimum contribution based upon total assessed taxable value of property, which is subtracted from the amount that the state allocates to school districts. Hopkins, Greer Hopkins proposed an amendment moved by an assembly member to include a legislative request that the state not reduce education funding as communities grow.
Speaker 1:Hopkins argued that reduced funding places the burden on local taxpayer shoulders.
Speaker 1:It urges the legislature, the request urges the legislature, to change the way the state's basic need formula is written to reduce local contribution, if not eliminate it entirely.
Speaker 1:That's going to add I mean, let's think through the consequences that's going to add to the state's problem. Because if you reduce local contribution and you say that the school districts need the same amount, what that's doing is pushing more money, more obligation, to the state, forcing the state's contribution level to grow even higher, not because of increased funding, just because the local contribution level is being reduced. I think that goes in the wrong direction and it starts moving us to a position where the situation gets worse because localities think well, the state's going to pick up the burden, the state's going to pick up the spending. So what do we care? We don't need to find efficiencies, we don't need to find funding sources, we don't need to think about cost constraints. It's all the state's burden. Let the state deal with it and that's just. It was shocking to me to see the Fairbanks, North Slope Borough or the North Star Borough, making that recommendation.
Speaker 2:Yeah, and again you went over the details of this last week and my question was again the fair, the equity portion of it and you said that has to do with the way the money's accounted for as far as the federal equity. When they say you know that's why you have a cap on contributions in the state, local contributions.
Speaker 1:You have a cap on local contributions because in part because of the federal disparity test. The federal disparity test is that for the federal money to get the federal money in the way the state's using it, you can't have more than a 20% disparity between the lowest funded system and the highest funded system in the state. But there are ways to fix that in a way that the federal money still comes in, just doesn't count toward the state, and to eliminate the disparity test and move forward on that basis.
Speaker 2:In fact, that was the chart that you had last week. There was that chart that had the contributions with the averages. Where is that right here? There it is. This is the chart with the average contribution.
Speaker 1:That's impressive. You can call that up. Yeah, it's great.
Speaker 2:But you look at the average, the US average for state and local, according to the various sources, and you can see it right there that the local contribution is in the mid-40s, almost to the low, to mid 40s in every way, and in Alaska it's basically 20, 20, 22, 23, right in there. So yeah, it's a big deal. Now would we have to change the way that we account for the federal dollars? Yes, to make it work. But you know the idea that they are somehow saying what we need to do is eliminate the local contributions entirely. You know what that's code for, right, brad? That's code for what we'd really like to do is we'd like to spend that money on something else. They're not going to stop. They're not going to refund that back to the taxpayer. If that happened to go along, what they would do is they would take that money that they were contributing to the schools and they would then spend that on some other program in the borough.
Speaker 1:Yeah, but at the state level. I mean, what's what's? Greer was a state representative at one time. David Guttenberg was a state representative at one time. I mean, just think about what you're doing at the state level. We're already straining at the very edge of what we can. Well, we're beyond the edge. When you look at the EIA numbers, we're beyond the edge in terms of what the state can fund. We're beyond the edge in terms of the state's funding power, based upon the state's current fiscal situation, fiscal formulas. We're beyond the edge of what the state can fund.
Speaker 1:And if, all of a sudden, we do away with local contribution, which is in the 20s it should be higher, but at least it's in the 20s If you do away with local contribution, all of a sudden all that shifts to the state and so you have that additional burden on the state, even before you start the conversation about the state needing to provide even more, and the state just doesn't have the capacity. So we're dealing. I mean, one way to look at this might be oh well, they're trying to set up K-12 spending cuts, because if you reduce the local contribution, the state doesn't have the capacity to contribute more. Then you end up with less for the school system because the local contribution has suddenly walked away from it. I doubt that's what Greer has in mind, but you're setting up a situation in which the state can't handle this. The state already can't handle it and you're setting up a situation in which the state can't handle it and and you've just screwed up the incentives.
Speaker 1:The incentives, the ability to control spending, is at the local level. The ability to to find consolidation, the ability to find efficiencies, the ability to to find places to cut spending, is at the local level, because that's where the money's being spent. That's. Those are. Those are the people deciding, deciding where to spend it. And if, all of a sudden, they don't have any, they don't have any funding obligations, then then you know they don't have any constraints. They saw us all, the state's responsibility.
Speaker 2:Sky's the limit. Yep, sky's the limit. I did have to and I and I didn't mean I, just I had to chuckle because we started with a long trail. That was the first thing that they said on the whole discussion was that we need the long trail, and you know. And then they went on to educational components and everything else. It is. It's, I think it again. Nobody's checking the temperature of the room, right, or maybe they are. Maybe that's where Fairbanks is at these days, maybe it's the dependency state is alive and well in the Fairbanks area. All right, brad, we got about two minutes here. Give me your thoughts here. As the election season starts to shape up, what do you think we're going to be seeing? What are you going to be watching here for the?
Speaker 1:upcoming election. I'm going to be watching whether candidates are realistic Candidates are facing the economic situation, the fiscal situation the state's facing, whether the candidates acknowledge that there's a potential huge downside coming on the oil side, oil revenue side, and how to deal with that, and what their comments are and what their positions are with respect to fiscal plan. And I think that's to me that's going to be the big issue for 2026. I mean, we're going to have deficits, big deficits that legislature is going to have to deal with for FY26. It's going to be a lot less revenue for FY27. And I think candidates are going to need to respond to that. If they don't, I don't think they're realistic candidates. I think they're out in la-la land someplace and not realistically dealing with the issues that the state is confronting. So that to me is a big issue. And the EIA forecast, the EIA price projections, just bring that into very sharp forecast, sharp understanding, because you can see what that does to revenue. You can see what that does to state revenue almost immediately.
Speaker 2:Yeah, no, I mean, we're going to have to deal with this. It's just that you know we're going to have to deal with this and everybody wants to just kind of ignore the monster in the room and say it's all going to be fine. I don't know what you're talking about.
Speaker 1:And you got people like Will Stapp yesterday who said, oh well, we're going to have increased production. Yes, that increased production is driving down revenue. We've talked about that on previous shows.
Speaker 2:He said but Brad, wait, 10 years, it'll be fine. 10 years, it'll be fine. How do we get through those 10 years? Nobody has a clue. But don't worry, in 10 years it'll be fine, fine, just fine, all right, brad. Well, thank you so much. We appreciate you coming on board and we look forward to talking to you again next week.
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 on the Weekly Top Three.
