The Weekly Top 3 (1.12.2026)

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 January 12, 2026.

This week, we are using the segment to discuss our Top 5 fiscal priorities for this coming legislative session:

In the first part of the segment (at 2:30), we discuss our first and second priorities:

• Opposing the consolidation of the current two-account Permanent Fund system into a single account, and 
• Reforming oil taxes,

In the second part (at 18:04), we discuss our third and fourth priorities, both of which are designed to reduce the current disproportionate burden imposed by state fiscal policy on middle and lower-income Alaska families and the overall Alaska economy: 

• Restructuring and constitutionalizing the PFD, and 
• Coupled with a spending cap, adopting a broad-based tax, and

And in the final part (at 40:05), we discuss our fifth priority: 

• Reforming the Permanent Fund Corporation Board to refocus its membership on those having substantial investment expertise and experience.

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.

Chapters

• 0:00 Opening And Weekly Top Three
• 2:27 Five Fiscal Priorities Preview
• 3:33 Stop The One-Account Permanent Fund
• 7:25 A Possible Draw-Rate Compromise
• 9:20 Listener Concerns On Corpus Protection
• 9:56 Fixing Oil Production Taxes
• 14:18 Minimum Tax Myths And New Fields
• 18:26 PFD As 50-50 Of POMV
• 22:27 Economic And Fairness Impacts Of PFD Cuts
• 26:01 Broad-Based Tax Plus Spending Cap
• 31:17 Exemptions Weaken Sales Taxes
• 33:31 Creating Real Incentives To Restrain Spending
• 36:22 Reform The Permanent Fund Board
• 42:04 Will Lawmakers Prioritize Economics Over Politics
• 47:14 Nonresidents And Paying A Fair Share
• 52:13 Closing Thoughts And Where To Follow

Transcript

SPEAKER_01: 0:10

This is Brad Keithly, 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 January 12th, 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 a.m. I join Michael weekly in the first hour of Tuesday show from 6.10 to 7 a.m. 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, medium.com. 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. This week, we use the segment to discuss our top five fiscal priorities for this coming legislative session. In the first part of the segment, we discuss our first and second priorities, opposing the consolidation of the current two-account permanent fund system into a single account and reforming oil taxes. In the second part, we discuss our third and fourth priorities, both of which are designed to reduce the current disproportionate burden imposed by state fiscal policy on middle and lower income Alaska families and the overall Alaska economy, restructuring and constitutionalizing the PFD, and coupled with a spending cap, adopting a broad-based tax. And in the final part, we discuss our fifth priority: reforming the Permanent Fund Corporation Board to refocus its membership on those having substantial investment expertise and experience. Now, let's join Michael.

SPEAKER_00: 2:30

Brad, you and I were talking about this uh here over the week, and and of course, there's a lot of stuff going on. Um, but I have been telling everybody that I can talk to that they should be uh at you know listening to the Tuesday shows, talking to you, asking you um, you know, for advice, everybody from gubernatorial candidates down to legislators. Um and this is a show that they're gonna want to watch because this is gonna be a sneak peek of what you think are the important things. And I and I think you and I are in agreement on most things. So let's uh let's dive into this today and and talk a little bit about this.

SPEAKER_01: 3:06

Yeah, so what I've done is I've prepared a list of the top five fiscal priorities for this coming session, and I've tried to capture stuff we've talked about on the show before, stuff that I've written about in the landmine, but sort of synthesize it down to five key points that I think uh legislators um and others need to be focusing on as we go into this session from a fiscal standpoint. Obviously, there are other issues out there, but from a fiscal, right? From a fiscal standpoint. The first one is what we talked about last week, the most important issue, fiscal issue, um, I think uh uh this coming session is to reject the proposed constitutional amendment that's in both the Senate and the House to change the permanent fund structure from the current two account system to a single account approach. As we've talked about repeatedly on the show before, as we talked about last week, the concern I and others have is what that would do is open a backdoor into the permanent fund corpus and start allowing the legislature, if earnings aren't sufficient to fund the POMV draw, uh, allow the legislature to draw to start drawing down the corpus in order to in order to continue to fund spending. It is, I think Rob Myers puts it best, it's to protect the spend as opposed to protect the proposal is to protect the spend as a proposed as opposed to uh protect uh protect the fund. Um and it's not just me. I mean, there uh uh Joe Paskovan, former Senator Joe Paskovan from Fairbanks, probably a person as far away from me as you possibly can get politically, uh wrote an op-ed in the ADN this week that uh that raised uh raises the same same issues. I will say there's been one development on this that's worth that's worth noting and worth watching. Bruce Bruce Tangerman, who's been one of the biggest critics of the of the issue that we've raised, uh Tangerman wrote a uh op-ed in the Alaska Landmine uh that was published last Friday. And it proposed a change to what the what he suggests is a compromise to the legislation that's currently before uh the legislature. And the and the compromise would be to set the draw at the lower of 5%, which is what the which is what the constitutional proposed constitutional amendment says now, at the lower of 5% or actual earnings averaged over some period of time. And the proposal is to meet the objection that that I and others have raised about the fact that this would start draining additional amounts from the permanent fund corpus um uh over and above earnings. You got to keep in mind that the permanent fund's objective, permanent fund corporations' objective is to hit 5% on an annual basis, but they only hit that about 50% of the time. Uh the the actual earnings are lower than 5% about 50% of the time. So what Bruce's what with the what the proposal the Tanjamin put in the landmine would be is if the actual earnings averaged over a period of time is 4%, then the draw would be 4%. It's 3%, the the draw would be 3% averaged over time. If uh if they hit 6%, the draw would still be limited at 5%. It'd be 5%, the lower of 5% or actual earnings. I've I I've I've been running a bunch of numbers uh to try to evaluate what that would do. And it would create some variability in the draw. I mean, sometimes it would be as low as three point something, and sometimes it would be at five over the last 25 years, sometimes it would be uh at uh at four point something. It wouldn't it would very rarely be at five, uh, but it would create some variability in the draw, but not a huge amount of variability. So there's uh there's some uh uh something to be said for that. Now, that's not the proposal that's on the table. That's not what the legislation is, reads currently before the Senate and the House. And as those read right now, defeating that that uh the that proposal, I think, is the most important thing uh out there. But there people are beginning, as I say, Tangerman's been one of the sharpest critics uh about uh about the issues that we've raised. There are people out there that are beginning to take them seriously, and I think we may uh we may see potentially see some some progress on this as the uh as the let as the session goes on. But we have to have to keep our eye focused on it.

SPEAKER_00: 7:48

We had Jeremy Bynum on the program last week, and he had some of the same um uh resistance that uh that you're talking about in Tanjamin when I was talking about this, and he goes, I don't think they would do that, but he goes, I wouldn't support it unless there was a mechanism to protect the corpus baked into the constitutional amendment. So at least there's that. Um, because we brought up the corpus argument, and he said, Well, I don't think they'd do that. And I'm just like have you seen you know, past past performance is indicative of future results? Have you not seen what they've done in the past? But he at least said that he would not be in favor of it unless there was some kind of mechanism. And that's this sounds like that mechanism. What's your thoughts on creating a uh a one account system if there is a mechanism? Is there a benefit? Is there another danger outside of that? What are your thoughts?

SPEAKER_01: 8:36

Well, I some say that it makes uh investing easier for the permanent fund. The permanent fund corporation itself doesn't say that, but some claims it makes investing easier. If there's if there if there's a mechanism to protect the the draw at at no more than the actual earnings, if there's a mechanism to protect that, then I don't see I don't see as as much of a downside of combining the two. But there's got to be that mechanism in there, or else combining the two opens the opens the back door.

SPEAKER_00: 9:09

Okay. Um, well, at least somebody's talking about it. And like I said, between binum and tangerman, maybe we're starting to get some traction traction on this.

SPEAKER_01: 9:18

Yep. Let's go on to number two. Number two is to re restore balance to the state's uh oil production tax code. The the landmine article I wrote last week that's in that's in Friday's column, the one that's current for uh the the for this week, uh focused on uh the history of the oil tax code and and the the percent. The way to determine what the oil tax code is doing is to look at the percent of gross revenues, gross well head revenues that the oil tax code is taking. Some states just cut to the chase and say, look, the the the oil tax code, the production tax is 7% or 6% or 5% or 8% or some percent of gross uh production tax because of gross production revenues. Because we want to incentivize certain things. Back in 2013, we want to invest incentivize investment in certain areas. Back in 2013, we went away from that, Alaska went away from that and built in all of these bells and whistles designed to incentivize certain behaviors by the producers, uh, financially incentivize certain behaviors by the producers. But the goal of any oil production tax code at the end of the day should be to take a relatively steady stream of uh revenues for the state from the the gross wellhead revenues being realized by by the producer. And I went in in the Friday's column, I went in and tried to calculate uh or did calculate what what the level of gross wellhead revenues is that's being that's being taken. And it shows a very, very, very sharp difference between what's happened during the first decade of SB21 and what's projected now to happen in the second decade of SB21. In the first decade of SB21, uh the the oil tax code, the production tax code took about 6.75% of gross wellhead revenues. And that's comparable to the to the typical 7% or so that you find, just straight up 7% of gross wellhead revenues, that you find in the lower 48 production tax codes in the lower 48. So even though we had a bunch of bells and whistles and a bunch of different things going on with SB21, at the end of the day, over the span of the decade, we still averaged out at about what you would find in another state that was using uh uh a percent of gross gross revenues as a basis for its code. What happens in the second decade of SB21, the the decade we're about to enter, is a hugely different. Rather than the 6.75% average over the previous decade, we're about to enter a decade where the average is going to be 2% averaged over the decade and less than 2% averaged over the last five years of the decade. And what's happening is all the bells and whistles that got put in SB21 are sort of piling on top of each other, layering on top of each other in a way that's continuing to drive that revenue, revenue to the state from the production tax down and down and down and down and down. Um, and and the the cumulative impact is to drive that uh that those production tax revenues way down. We can't, I mean, obviously that's creating a huge deficit, contributing to a huge deficit in uh in the state's funding. It's about$500 million,$400 and$500 million, the difference between the 2% and the 6.75% is about$500 million, the amount that we've talked about all along as being how far below uh the constitutional mandate of maximum benefit uh the old tax code is producing. And so it, I think, you know, we're we're staring at huge deficits out into the future. And one of the key ways of restoring balance, of restoring that budget, of overcoming those deficits, is to get the share of gross wellhead revenues that the state's deriving through the production tax code back up. So it, I think that demonstrates, I hope that article demonstrates the need to go in and repair the state's oil uh production tax code to restore balance between the benefits to the producer and uh and what's being taken by the state.

SPEAKER_00: 13:46

This whole thing with the oil production and the oil tax, this uh this plays back into a lot and it goes back to what we were talking about with some of these new fields, right, Brad, where I mean, we're gonna be taking a lower return, higher production, lower returns. And I mean, if we get 20% of state revenues from oil in the future, this is gonna be um, I mean, it's we're gonna be lucky, right? If we get 20% of uh royal uh revenues in the future because of this increase in production and drop in actual revenue.

SPEAKER_01: 14:18

Yeah, we've got we've got a situation, we've got situations like at PICA, where the states get the state gets zero, zero production tax for the first seven years uh from the the new PICA field. I mean, everybody's, you know, oh, it's the savior, PICA's the savior. We get zero production tax for the first for the first seven years. And that's that's the effect of layering all of these various provisions. You know, at some point, and I think I've heard Will Stapp say this. Well, you know, we've got a we've got a fail safe. There's a 4% minimum tax, minimum gross uh receipts tax or gross revenues tax uh built into SB21. And that's sort of the floor, and what we're really talking about is stuff that goes on above the is stuff that's driving it down to the floor. No, we don't have a 4%. I mean, that that was one of the headlines that was in SB21 at the time it was adopted. Oh, we've got this fail-safe of 4%. But there are provisions in SB21 that allow the it's it they relate to the gross uh value reduction provision, the G VR provision, that allow credits, certain credits and certain expenditures to or to uh or certain gross re uh reductions in gross revenue to go below the cap. Um, and so it's driving, for example, again, for example, the PICA field, it's driving that to zero for the first seven years. When people say, oh, new production, new, new development is gonna is gonna save us, uh, all we need to do is to is to is to have that new production come online and we'll be back, we'll be back up and running. Not true. Because of the provisions of SB21, the way they're layering on top of each other in the second decade, the way they've the way they've sort of folded in on each other in the second decade, it's driving production taxes way down to the point where in some fields, some of these new fields, it's uh it's zero. So yeah, it's gotta it, it it's gotta be fixed. And it's gotta be fixed soon because we we're never gonna get every year that we allow Pika to go without paying taxes, we're not gonna get it back. It's not like we're deferring it to the future. These are absolute credits that wipe out tax liability year by year by year. So the longer you let those provisions run, the more years of production you have that you're never gonna tax. And it's or that you're never gonna receive tax from. So it's something that this legislature, you know, I'm I'm sure nobody wants to hear this at the legislature, but this legislature needs to address, or else we're gonna have a year of production from PICA and a year of production from setting up a year of production from Willow where we're not gonna receive any revenues from it.

SPEAKER_00: 17:00

Charlie asks, why can't we get a basic extraction tax on each barrel instead of this this complex, you know, uh, you know, it's like a it's it's like a uh abacus thing. I mean, you got to figure out 63 different provisions to make to figure out what the formula is.

SPEAKER_01: 17:17

That's what some people said they put into SB21 at the time it was adopted, the 4% minimum tax. But the problem is there are exceptions. We also build in exceptions to the to that uh to that minimum tax that drives the tax down. So yeah, we could go back, we could go back and as part of the fix, reset that 4% and and make sure that nothing penetrates the 4%. So you have 4% as a basic as a basic minimum. It lives up to the billing it had at the time SB21 was passed, but that's not what we've got right now. We've got we've got a system where you can penetrate that minimum uh uh with uh with certain provisions of SB21. And as I say, that's what's happening at PICA for the first seven years of production.

SPEAKER_00: 18:04

Brad Keithly is with us for the weekly top three this week. The three is made up of five points that Brad is going to be uh focusing on during the legislative session. Uh if any legislators or candidates want uh some talking points, here's a great opportunity. We just got through the first two, which was reject the proposed constitutional amendment to combine the permanent fund. The second one is to restore the balance with the state's oil production tax because we're behind the power curve on that for sure. Uh let's move on to number three, which is a restructuring and constitutionalizing the PFD with a POMV draw, Brad.

SPEAKER_01: 18:47

So, I mean, we we've got to get the POM, the PFD resolved. And the best way to resolve the PFD is with uh with POMV50, 50 uh a 50% sharing of the POM POMB draw, percent of market value draw that the legislature makes each year from the permit fund, sharing that 50% each to uh the PFD and to government. You know what? I we get into all these debates about, oh, it's free money, it's free money that's going to the PFD, and and there's no reason not to cut the the the there's no reason to have that free money, and we ought to cut the free money and and and use it for other things. All of the permanent fund, all of the POMV draw is free money. It the the it goes two directions. Part of it goes to the PFD, which mostly benefits middle and lower income Alaska families. And the other 50% of the free money goes to covering a share of government spending in lieu of taxes, which mostly benefits upper income families, non residents, and oil companies. What the, what the by by by protecting against, shielding against taxes that would otherwise they would otherwise have to pay for for government spending. They're beneficiaries of the free money, the up. Upper income families, non-residents, and the old companies are as much beneficiaries of free money as the PFD recipients. What Hammond did, and what the founders of the of the PFD did uh when they looked at the stream of earnings, is they said we ought to share that 50% to the benefit to what mostly benefits middle and lower income Alaska families, and we ought to share that 50% when the time comes to what mostly benefits upper upper income families and non-residents in the oil companies. What we've done by using PFD cuts is we've tilted that balance. We've tilted that balance by taking the free money, it's all free money, by taking the free money and putting more and more and more of it over on the second side of covering a share of government spending in lieu of taxes to the benefit of upper income families, non-residents, and the oil companies. And so we've gotten we've gotten into this imbalance where more than 80% of it in most years now, 80% of it is going to the benefit of upper income families, going to the benefit of those who benefit from shielding from taxes, and only 20% going to middle and lower income Alaska families. We need to take that pot of free money and go back to where we were, share it 50-50 between the portion that's going to uh middle and lower income Alaska families, mostly to benefit middle and lower income Alaska families that we call the PFD, and 50% of it going to uh going to the to the other side. We need to restore that balance that Hammond originally established. And now that we know that the legislature won't follow the law, because that's what the law currently provides, the 50-50 split is what the law currently provides. Now that we know the legislature won't follow the law, we need to constitutionalize the provision to make sure to make sure that we don't slip back into this situation where the free money is being given mostly to the upper upper income families and non-residents. So the restructuring the PFD to POMB 5050, I think is a is a is an important step to get the balance that was originally set into the PFD statute restored, to get the sharing between middle and lower income Alaska families of the free money, all free money, to get the sharing between middle and lower income Alaska families and upper income families and non-residents and uh um and the oil companies to get that sharing uh restored.

SPEAKER_00: 22:38

Well, it would also have a knock-on effect, right? As far as the impact on the economy and everything else. I mean, it's a rising tide that floats all boats. And when we say free money, I mean, obviously, Brad is using, he's got quotes on this. There's air quotes on it. I mean, this is money that's been earned. We are owners of the resource. This is earnings money. We are, you know, if this is our corporate dividend, essentially, because it's all owned, it's all owned corporately. Um, but the government has been taking an unfair share of that uh for the last uh uh six, seven years.

SPEAKER_01: 23:11

And yeah. Go ahead. No, well, the reason I use free money is because that's what people who try to attack the PFD call it. But you have to understand it's all free money. And the and the and the portion that's going to cover government spending, which is which is in lieu of taxes that otherwise would would would hit upper income families and and non-residents in the oil companies, that's free money as well. They're benefiting from this quote, free money as well. So it's not, I mean, uh, yes, it is earnings that that that we're entitled to, but those who try to categorize it as free money just want to, they try to say, oh, it's just the only free money is going to is going to the is going out the PFD. No, it's going out both ways. It's going out both in terms of being a uh uh being in lieu of taxes as well as through the PFD.

SPEAKER_00: 24:03

Um, and of course, this uh this means that this is again goes back to our position before that that that it's all a tax at this point, right? It's just a stealth tax that we're never seeing hit our bank account before they draw it back out. And so therefore, Alaskans remain subservient and quiet instead of getting all the money and then having a tax bill laid on their doorstep where they may react to that at that point. Right. Exactly right. Yeah. So restructuring the POMV, uh, you know, I know we've we've talked about this. There's been a couple proposals on this, Brad, and it really hasn't uh um it really and I don't think Brad is trying to normalize the term free money, folks. I think he's using it with the quotes as far as pointing out how duplicitous that that phrase is. But I mean, we've we've tried to do this a couple times, and there doesn't seem to be a lot of uh appetite for it. What do you think?

SPEAKER_01: 25:00

Well, it it it it is what what we're allowing to happen is is to take the money, whether you want to call it free or not, but to take the earnings from the permit fund and increasingly go to the benefit of upper income families, non-residents, and the oil companies. We're allowing that that division increasingly to flow uh in one direction. And that has bad economic effects. I mean, the it is it is this approach to revenues, uh Icer told us in 2016, as far back as 2016, has the largest adverse impact on the overall economy because you're taking the money out of families out of the hands of families who would who would otherwise spend it. So it's in in the local economy. So it's it's it's something from both an economic standpoint, from both a fairness standpoint in terms of making sure that the benefit of that commonly owned wealth is split evenly between the two classes. It's it's it's a fairness point, it's also an economic point that uh that we need to adopt. People say, oh, we've got all this outmigration problem. Well, the out-migration is in the middle income families. We we've got we've actually have in-migration among the among the the upper income, among upper income families. Outmigration is among is among the middle income families. We are taking money out of the pockets of middle income families, the very people who are out migrating, we're taking money out of their pockets uh in order to supplement the income, basically supplement the income of up of upper income families. And and we don't we that's working against us in terms of the out-migration issue. We're supplementing the income of people who are already coming here, right? And we're taking money out of the pockets of people who are leaving.

SPEAKER_00: 26:47

All right, that's number three of Brad's five big points. Uh, we're gonna continue on, Brad. Uh number uh number four of your five big points for the uh for the legislature to look at under fiscal issues.

SPEAKER_01: 27:00

Well, Michael, we've got it, we've got we've got a huge uh uh deficit in the state. And the question is, how are we gonna close the deficit? We've been closing the deficit deficits through PFD cuts, which have the the are the most regressive tax ever proposed, hit middle and lower income Alaska families hardest of all of the alternatives, have the largest adverse impact uh on the economy of all of all of the proposals. We've got it we've got to close the deficit in some in some way. Some people say, oh, do it all through spending cuts. Dunleavy tried that in 2019, didn't work. He's not tried it. No one's tried it again since. And all of that argument, all that argument is about, oh, we got to close it through spending cuts, it's just ignored by the legislature year after year after year. And all it's doing is extending PFD cuts. Because if we don't have substitutes for the to close the fiscal gap, the legislature's just using PFD cuts. So we've got to find some way, some economically efficient way to close the uh to close the to close the gap. And a broad-based tax is the best way to do it. It has the lowest adverse impact, a broad base, an ultra broad-based tax, um, uh uh, like some have proposed, would have the lowest adverse impact on the overall overall economy. It'd be the most economically efficient way of raising revenues in terms of the economic impact. It would be the fairest way because it would have all Alaskans and non-residents contributing to uh contributing to uh closing the uh fiscal gap instead of by using PFD cuts. We're just mostly limiting it to middle and lower income Alaska families. Uh it's the fairest way to do it. It's the most economically efficient way to do it. Um and it's the and it's the way that uh would uh uh uh drive, I think, incentives to push back on spending. Right now, the top 20%, the old companies, and certainly the non-resident industries don't care about spending because they don't have to pay for it. It's all being pushed downhill to middle and lower income Alaska families through PFD cuts. Having a broad base tax that they would have to contribute to as well would create an economic incentive for them to push back on spending, also. But we can't just do a broad based tax alone. I mean, we've seen that that with a with the tool of a broad broad based tax, legislatures will continue to increase those. So it needs to be coupled with an effective spending cap. We have a spending cap in the state right now, we have a constitutional spending cap in the state right now, but it doesn't work because it's just sort of it was set on premises, sort of like oil taxes, right? It was set on premises that are that are no longer valid. So we need to go in and we need to adopt an effect effective spending cap as part of adopting a uh a broad based tax as a way of uh dealing with the fiscal gaps that we've got.

SPEAKER_00: 29:57

This is where you and I, this is where you and I have always diverged uh because of the fact, you know, the factor of the broad base tax or any kind of new taxation. My my stance has always been, of course, Parkinson's principle's rule, which is government spending expands to consume all the available money. So if we put new broadbase tax in, they would just spend that as well. But if there is some kind of constitutional or effective um enforceable spending cap, that would in fact force them then to move those monies to somewhere else. If they got the money from a tax, then they couldn't take it from the PFD because they would basically be bumping up against the spending cap, right?

SPEAKER_01: 30:38

Yep, exactly right. Exactly right. And and if you constitutionalize, I mean, all of these sort of go together. If you constitutionalize the PFD, you take PFD cuts off the table in terms of in terms of being a revenue source. So once you do that, once you take PFD cuts off the table as a revenue source, you've got to find another way, a more efficient way, economically efficient way, a more fair way uh to raise the revenue. And that's what a broad-based tax would be. And and you know, I'm not talking about an income tax. I mean, some people say, oh my gosh, he's talking about income tax. I'm not. I mean, what what uh uh uh what what what analyses have proven is that a broad ultra broad based sales tax would be almost as fair to middle and lower income Alaska families uh as any other approach, um, an ultra broad based sales tax, because you would have you would have everybody contributing to it as opposed to just focusing it on one narrow slice uh of the uh of the of the of the populace. So it is it is an economically efficient way, uh, reduces the impact on the adverse impact on the overall economy, spreads the burden broadly, brings everybody into the game, creates an incentive for everybody to uh to push back on spending, and then with the comp being combined with an effective spending cap, it limits the ability of government to use that to raise uh uh excess revenues.

SPEAKER_00: 32:05

One of the interesting things that I've seen so far about the four points that you've made so far is that they hit on both sides of the political aisle uh to where it's kind of a mixed bag. This is this is targeted at both conservatives and business as usual Republicans and the Democratic minority, where number one, with the constitutional amendment to change a permanent fund, that's a mixed bag of both Democrats and Republicans who are in favor and opposed to it. Restoring the balance of the tax code, Republicans are going to be fully, you know, uh, you know, probably fully uh entrenched against that. The restructuring and constitutionalized uh contact constitutionalizing the PFD, the left doesn't necessarily want that as well, as well as the you know, business as usual Republicans. And now you've got this spending cap uh and a broad-based tax, which of course Republicans are going to be vehemently opposed to. Um and and especially when we're talking about um uh especially when we're talking about having some kind of uh of spending limit on top of it. There's something for everybody to hate here, but these are all the points you're making.

SPEAKER_01: 33:08

Well, and and Michael, what's driving this is economics. It's not, I'm not trying to achieve political objectives here. I'm trying to achieve economics. PFD cuts have the largest adverse impact on the overall economy. They target the middle income and lower income Alaska families. They target the very Alaskans that are leaving the state. They're taking money out of the hands of the very people, the working Alaska families, the very people we're trying to keep, we're trying to keep in the state. Um, and and so it's economically driven. All of this is economically driven to try to try to maximize the Alaska economy as opposed to having these these revenue approaches and these various uh uh tax approaches that that drive the economy down. Broad basing a tax levelizes the tax across uh across a broad base. Everybody pays a little bit, everybody has an incentive to push back on excess spending. It it levelizes it across the economy. No one segment, to use Governor Dunley's words at one point, no one segment pays more than it should. So it's echo, it's the most economically efficient way to uh to solve the problems that we've gotten ourselves into.

SPEAKER_00: 34:20

Brick makes a valid point. He says uh doesn't work because legislators don't follow the law. Also, they have a difficult time keeping the people's best interests at the top of their plan. They just have to spend. And that's the thing. That's the that's the uh impetus for these folks, is just it seems to continually spend. You can give us your thoughts on this, Brad. I have to go run and get my sweater real quick while you're while you talk about this. It's a little chillier than you thought, huh? Well, I just you know, I thought I, you know, you know how it is. Sometimes I was I was uh I was very optimistic about how warm I would be. Uh all right. So anyway, you can answer uh Rick's question here uh while I go grab that real quick.

SPEAKER_01: 34:58

Well, legislators do have uh an impetus to spend because that's what gets them re-elected. They people go down to Juno and they lobby for uh lobby for spending, and legislators want to be responsive to to their constituents who are lobbying for that additional spending. So, yeah, that's that's something they do. And and so that's why we need to do two things. One is to create an incentive on people to push back, on legislators themselves and on their donors uh in the upper in the upper income brackets and the oil companies and the non-resident industries to push back on spending by taxing them also, by including them uh in the revenue base. We need to we need to create economic incentives for that for that pushback. And then we also need to put it in effective spending cap because that that ultimately limits uh the the degree to which they can be responsive to to those special interests that come down and uh and and lobby for uh lobby for more money. It's both a both an economic incentive approach of of limiting uh uh of creating pushback on additional spending as well as a structural approach of creating a cap on that additional spending.

SPEAKER_00: 36:16

You know, it uh Corey asked the question that I think a lot of people are asking as they hear more and more about sales taxes and and various forms of taxes, et cetera. She says if a sales tax is incorporated, would it would applying it to non-essential items only be enough? Or would this impact us? Uh, you know, would that would there, you know, what would the exemptions be in your book as you look at this?

SPEAKER_01: 36:41

The problem with exemptions is that they take away revenue, right? So if you need to, if you if you're trying to raise$100 million and you have a sales tax of a broad sales tax, and everybody may need to pay you know 1% or a fraction of 1%, I'm sure whatever the math is. But if you limit it and you say, oh, 20% of that tax base is exempt in some fashion or excluded in some fashion, then you need to raise the tax on the remaining 80% to get to get the same amount of revenue. So the broader, the broader the tax, the broader the applicability of the tax, the lower the rates for everyone. And and those who have those who otherwise argue that they need exemptions get lower rates because the because the the tax uh the tax is broader. Once you start bringing in exemptions, once you start, I mean it's like an income tax. Once you start bringing in exemptions, once you start trying to build tax structures that incentivize certain things, or like the like the production tax, once you start trying to incentivize and favoring certain uh certain groups, you start screwing up the tax in a way that ultimately, in the case of the production tax, uh, we don't get the revenue that we thought we were going to get because we've created all these exemptions and exclusions that sort of pile on top of one another. Same thing with the sales tax. You need the more exemptions and exclusions you put in there, the lower the revenue you get, and the more screwed up the the tax gets.

SPEAKER_00: 38:12

Uh Rick's Rick says, Do you think that the day will come where they campaign on we have to cut spending? I don't think I'd I don't think I'd hold my breath on that.

SPEAKER_01: 38:21

But uh yeah, yes, because if if the top 20% non-residents and the oil companies have to pay for a portion of that additional spending, I mean keep in mind they haven't done that. So if they have to do that, then yes, I think there will be pushback by those, and that's the donor class, there will be pushback by those people on increased spending. And they will say, yes, we need to cut spending because you need to you need to cut our taxes. Unlike the federal government, we don't we have to have a balanced budget. So we can't, you know, shove all this out to future generations through bonds by selling, by, by running huge debts, deficits, and selling bonds. We have to pay for it. So if you make the the everybody, all Alaskans, have a broad base and make all Alaskans pay for it, yes, I think there is a situation in which you start having pushback about it about uh pushing back on spending.

SPEAKER_00: 39:15

Uh Randy says, please don't slap a sales tax or income tax on hardworking Alaskans just so you can hand out their money to new arrivals and non-working people. Yeah, but what about the out-of-state working people? I mean, there's a lot of money that that is left on the table on that. You got about 30 seconds here, Brett.

SPEAKER_01: 39:31

Uh, Randy, Randy doesn't, Randy will never accept that the biggest burden of PFD cuts is falling on middle income Alaska families. 60% of Alaska families, they are working. We're taking money out of the pockets of working Alaska families. And through PFD cuts, we're taking more out of their pockets than we would through a broad based tax. So Randy's trying to protect a class, uh is trying to punish a class, middle income families who are working. Trying to punish them just because there's a fringe out there that may not be working.

SPEAKER_00: 40:05

All right, Brad Keithley, Alaskans for Sustainable Budgets, our guest. We're on the weekly top three, which is made up of five fiscal priorities. We've gone through the first four. Now we're on to the uh final uh one and any other extra issues. Number five of your big fiscal uh issues, Brad, has to do with the permanent fund corporation board.

SPEAKER_01: 40:29

We've talked a lot on the machine on the show, Michael, about the permanent fund not earning, not keeping up with the SP 500 and other other passive measures, not earning what it could, that were not using the earnings base, the earnings potential of the permanent fund to its maximum. And that's having a boomerang effect uh in terms of creating additional fiscal gap. It is you part of the part of the way to close the fiscal gap is by increasing uh uh uh oil taxes, reforming oil taxes to make sure we're getting the maximum benefit, the constitutional max, the required maximum benefit uh for the people out of the development of the state's resource. That's part of closing the fiscal gap. Reforming the permanent fund corporation board, getting the maximum out of the permanent fund, getting the maximum return out of the permanent fund, which is then drawn through the POMV, then comes into the into state income through the POMV, 50% uh to go to uh to state government. That is part of closing the fiscal gap as well. The problem, the problem with the with the the the permanent fund, the problem with the deficient returns of the permanent fund, I think, is that we have a permanent fund corporation board who's non non-experienced, has no experience, no, no substantial experience or background or understanding of the investment world, don't know the questions to ask, don't know the the points to make in terms of directing the permanent fund corporation staff on how to invest the dollars. And so we've sort of fallen into this safety first approach uh of the uh of the permanent fund corporation of, you know, we'll get earnings, but we're not going to expose ourselves to any risk. I mean, we just sort of want a risk-free return uh along along the way. And those are those are deficient returns. We could be doing well if we had a more aggressive uh investment strategy. And I think the beginning and end of that is with the Permanent Fund Corporation Board. If you have people who are experienced in the investment world, if you have people who understand the investment world, understand the questions to ask, and the permanent fund board is who makes the allocations between various investment categories if we have people knowledgeable making those decisions about the allocations between various uh investment categories. They would also be the ones to decide whether or not we go to a more passive investment, reduce the billion dollars in expenses we're currently running on an annual basis in the permanent fund corporation, um, uh to pay for all these advisors with the to to that are that are that are necessary to the management approach, to the active management approach that the permanent fund corporation is currently taking. If we had a board that was more experienced, more understanding, more knowledgeable about the investment world, I think a lot of those issues would would be resolved. I don't want to see the legislature, you know, some people have said, well, we're just gonna mandate that the that the permanent fund invests in the S ⁇ P 500. We're gonna mandate that the permanent fund invest in this or invest in that. I think that's I think that's the wrong approach because the investment world changes and you need to, you don't want to have some sort of static mandate that the permanent fund corporation needs to be doing this or that, uh, depending upon uh as the investment world changes. So I think the solution to this, the solution to getting better permanent fund returns, is to have a permanent fund board that, like in other states, and we've talked about this on previous programs, like in other states, is required to have permanent fund corporation board members that are required to have um a substantial experience, investment experience and understanding uh before being appointed to the to the permanent fund corporation. Well, what we've what we've fallen into with the permanent fund corporation board is sort of friends, friends and neighbors. I mean, we we've got a we pot we've got a permanent fund corporation board that are friendly to the administration, are you know have served in prior roles the administration, non-investment roles, but have served in prior roles the administration are favorable to the administration and and are and are sort of sold as they understand Alaska. That's not what we need on the permanent fund corporation board. Maybe on the AIDC board or the ADA board uh or the AGDC board, maybe that's you know, we need people who understand Alaska on those boards. But on the Permanent Fund Corporation Board, you want people with green eye shades who understand investments and who understand how to maximize investments. They may not understand much about Alaska, but if they understand investments and understand how to maximize uh investment returns, they're gonna produce the type of returns that then allow us to have a better, balanced, uh, better balanced budget. So going forward, I think, I think reform of the Permanent Fund Corporation Board is the key to beginning to get the returns from the permanent fund more in line with uh what's what's available out there in the market.

SPEAKER_00: 45:37

All right, just under three minutes here, Brad. So you've laid out your five big uh your five big uh ideas here, your fiscal points. Give me a scorecard here, the top five fiscal priorities. What what what do you think the chances are that people are actually going to listen? Are are legislators gonna look at this list and and buy into it? Gubernatorial candidates, what what do you think?

SPEAKER_01: 45:59

I think legislators and gubernatorial candidates are truly concerned about the Alaska economy and are truly concerned about about achieving a balance in the Alaska economy and achieving a balance between what government takes and what the private sector takes. I think in in in doing that on a fair basis, a balanced basis across all. I think I think legislators who are concerned about that will see these and start to focus on them and start to start to work on them. Legislators who are more concerned about, oh, I've got to deal with this special interest or that special interest, and I don't really care where the revenues come from. I just need to get money so I can increase K through 12 spending or I can increase this, increase construction spending, or I can increase spending over here. I really don't care about the revenue side, and I really don't care about the economic effect that the revenue side is having. I think legislators who take that attitude won't spend much time worrying about these. But those who understand the overall economic situation of Alaska, those who understand that this that the revenue side, how you draw revenues and the level at which you draw revenues, has as much impact on the overall Alaska economy as the spending side. Those who understand that the revenue side plays a coequal role in uh in the impact on the Alaska economy will pay attention to these and uh and and start to you know think about incorporating them in their campaigns or in their in their legislation. I think I think we're gonna see a big uh a big part of that around the first issue, the con the proposed constitutional amendment to change the permanent fund. Are we gonna see people who understand the permanent fund structure? Are we gonna see people, are people going to understand that they're robbing Peter to pay Paul? They're robbing Peter Peter out of future gener robbing the future generations by by combining the two accounts without regard to earnings levels. I think we're gonna see whether people understand that uh uh in that issue, and then that will play into additional issues as well.

SPEAKER_00: 48:03

I think uh uh Frank makes uh I think Frank makes a uh a good point here. He says, it's odd how many other boards have member qualification language in the statute, but the permanent fund board does not.

SPEAKER_01: 48:18

Um qualifying language, they have to be you know experienced in business or something like that. But it's that's not enough. I mean, Ralph Samuels is experienced in business, he's experienced in government, he understands Alaska probably better than 90% of the people out there. But Ralph Samuels has never been in the investment world, and Ralph Samuels doesn't understand, and Jason Brunney don't understand the investment community, the the the investment alternatives, dealing with a passive investment fund as opposed to an active investment fund. That's so the type of language that we currently have in the Permanent Fund Corporation Board statute doesn't match up to what you see in other states about focusing on the investment world.

SPEAKER_00: 49:03

So with these five, these five uh points, these five fiscal points that you have here, um, again, what are the what are the possibilities that the I mean, are are gubernatorial candidates going to be talking about these top five things, do you think? Or are I know some legislators have expressed an interest in kind of understanding some of this stuff, but I mean, what what do you what do you think? Are we gonna get down into the weeds like this or are we gonna be stuck in the press op? Um, you know, it's for the children. I mean, all the other things. I mean, what do you think is gonna happen here? Give me some predictions.

SPEAKER_01: 49:38

It it depends on it, as I said, it depends on whether the gubernatorial candidates or the legislative candidates really are concerned about the overall Alaska economy, or whether they see their opportunity to be elected in focusing on a narrow group uh like the K-312 industry and and just promising, you know, whatever it takes, we'll get revenues for wherever we need to to spend to spend in this category. And it's going to be telling. I mean, do we have do we have candidates that that have a broad view understand the economics of Alaska? Or do we have candidates who are just going to appeal to narrow segments? I'm concerned that one of the fallouts of ranked choice voting is that we've got candidates focused on narrow categories. Shelley Hughes should be a candidate who talks about all five of these things. This was the all five of these were touched on to one extent or another in the legislative fiscal policy working groups 20 the 2021 legislative fiscal policy working groups uh uh proposal for a comprehensive fiscal plan. Shelley was a key member of that of that working group, and I would think would would would be good to run on that as a platform. She's not. She's focusing instead on a fairly narrow segment. If you listen to Shelly's discussion of economic issues, if you listen to Shelley's discussion of revenue issues, spending issues, she's focusing on a fairly narrow segment. And I think that's the result of ranked choice voting. I think people say, oh, I need 15%. I just I need 15% to get to the final four, and then I'll figure out what I'm gonna do for that from that. Um but but I need to get there first, and I need that 15% uh to vote for me to get me into to get me into the final four. And and I think what we what what that's doing, what ranked choice voting is doing, is focusing people on these narrow segments. So I'm not sure. I'm not sure in the in the initial run that we get a candidate who focuses on the big picture, who focuses on on the Alaska economy as a whole and what it takes to rebalance the Alaska economy and get Alaska's fair share out of the oil industry. Um, I'm not sure of that because I think we I think rank choice voting has created this situation where people are just sort of the opposite of what the of what the defenders of it or the proponents of it said at the beginning. It is it is narrowing the focus of candidates as they try as they try to get that 15%, as opposed to broadening their perspective as they try to as they try to you know build a coalition to uh to ultimately win the election.

SPEAKER_00: 52:15

Um I think Frank said, you don't think that non-residents are paying enough for our to our state? Well hell no. What are they paying? They're paying almost nothing. I mean, I don't think a bed tax for non-residents for visitors, and of course, non-resident workers are not paying anything.

SPEAKER_01: 52:32

That's not a state tax. Bed tax is a local tax. I mean, they're paying, they're paying local sales taxes, but but to the state, uh you're exactly right, Michael, they're not paying anything to the state. Jeff Hildebrand, uh, by incorporating as a as a as an S-corp as opposed to a C Corp, isn't even paying the the petroleum corporate income tax that others are. He lives down in Texas and he's not paying the petroleum corporate income tax for the Hill Corp production. So yeah, no, I don't think non-residents are paying enough at all uh paying their contribution to the state. Alaska, unlike any other state, doesn't have a sales tax, doesn't have a statewide income tax to reach non-residents. I mean, that's what those two types of taxes do. That's what a broad based tax does. It reaches non-residents. In Alaska, we could reduce the burden on Alaska families by 15% if we had a broad-based tax, because 15% of that revenue would come from non-residents. Right now, we're making Alaskans pay 100% of that through PFD cuts. If you had a broad-based tax that picked up non-residents, you'd reduce that burden on Alaska's on Alaska families by 15%. That's a big part of why PFD cuts are the worst economically for Alaska, because you're you're making only Alaskans bear the cost. You're not bringing in anything from non-residents to help bear the cost.

SPEAKER_00: 53:56

Speaking of Hildebrandt, I saw he made a bunch of comments about Venezuela. You got less than 60 seconds. Any any snapshot thought on that on the way out the door?

SPEAKER_01: 54:05

I think Venezuela, I think the the deal with Venezuela is it's going to be an attractive opportunity for people who otherwise might invest in Alaska. So yeah, I think there's I think that we're seeing the first crack in the door uh with the statements he made.

SPEAKER_00: 54:20

Yeah. And I and I'm I'm a little I'm a little concerned about it uh because uh he was just one of many that started talking about how what they could do here in the future as well. All right, Brad Keithley, Alaskans for Sustainable Budgets. You can find him at ak4sp.com. Go argue with him on Facebook and Twitter. If you want to talk about your PFD, Randy, there's a place to go. All right, Brad, thanks so much for coming on board. We appreciate it. Michael, as always, thanks for having me. We'll talk to you again next week. Thanks for being on the program today.

SPEAKER_01: 54:53

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 Keith, Managing Director of Alaskans for Sustainable Budgets. We look forward to you joining us again next week for another edition of the weekly top three.