The Weekly Top 3
The Weekly Top 3
The Weekly Top 3 (1.19.2026)
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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 19, 2026.
This week, our top 3 issues are these: 1) we explain what we will be looking for in the Governor’s proposed fiscal plan he is preparing to roll out as part of his State of the State address Thursday (2:12), 2) we explain why this year’s version of Jansen & Schierhorn’s annual “don’t change SB21” op-ed is missing a paragraph, and discuss why the absence is hugely meaningful (18:20), and 3) we discuss our thoughts about how the Legislature should construct a government spending cap; it is a much different approach than how the current spending caps are constructed (37:00).
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.
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 19th, 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 projects 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, our top three issues are these. First, we explain what we will be looking for in the governor's proposed fiscal plan when it's unveiled at his state of the state address on Thursday night. Second, we explain why this year's version of Jim Jensen's and Joe Shearhorn's annual don't change SB21 op-ed is missing a paragraph. We discuss why its absence is hugely meaningful. And third, we discuss our thoughts about how the legislature should construct a government spending cap. We take a much different approach than how the current spending caps are constructed. And now let's join Michael.
SPEAKER_01:All right, Brad. Well, today's the day. Today is the day, the beginning of the of the second half of the 34th session of the legislature. This ought to be interesting. And of course, the main question on everybody's mind is that this is uh, you know, this is Mike Dunleavy's final chance to deliver, to deliver on everything that he's promised over the last eight years. I know. Uh and the question, of course, is will there be a fiscal? I mean, I just spent the last two days talking with everybody about how not a single candidate at any of the last two forums has mentioned anything about a fiscal long-term fiscal plan being a priority at all. In fact, when they were asked about the big things that that were going to face us in the next five years, it was energy and housing and jobs and not a single discussion or talking point on how we needed a long-term fiscal plan. So this is the governor's final point here.
SPEAKER_00:What what what what say you, Brad? Yeah, might as well cram eight years into one final one final effort. So I understand they're the veto over Isay. I understand they're important, but to me, the big event of the week is going to be the governor's address to the legislature, now scheduled for Thursday, I think, um, at which it's expected that he will finally roll out the fiscal plan that he's been promising for most of the eight years. Um, certainly for the last year, um, uh he's been promising a fiscal plan. And I'm not sure I would have done it this way. I'm not sure I would have, you know, brought it all down to the to my final state of the state address. I think I would have rolled out pieces of it before and sort of let people sort of chew on it a little bit before I put it all together. But hey, he's doing what he's doing. So this is this is to me, where this is going to be the the final evaluation of whether the governor truly has uh a grip on the fiscal issues, uh fiscal issues facing the state. To set the stage, let's keep in mind that in the OMB 10-year plan, uh the governor uh included a line that said new revenue measures. That was to that was to offset the deficit, so he didn't show red all the way across the 10-year plan as he did last year. New revenue measures that reach uh$1.9 billion by FY30. Uh and by FY36, you're still at$1.6 billion. New revenue measures. Now, for those who say spending cuts, spending cuts, spending cuts, the governor in the 10-year plan already incorporates significant spending cuts because the spending increases that he's using for the spending line in the 10-year plan don't even equal inflation. So he's already assuming that there are significant spending cuts that are going on throughout the 10-year plan. His own words, his OMB's own words, uh, on line 38 of the 10-year fiscal plan, uh, table two, is new revenue measures um in those amounts. So uh the word is that he's going to, the current word is, is that he's gonna roll those out uh on Thursday. Here's the question are they gonna be real? I mean, we've been through, remember the year that the carbon credits were going to be the be-all and end all? And it was gonna, we're gonna balance the budget through carbon credits by opening up a uh poor space uh in uh in the cook inlet. Uh used up caverns in the cook inlet or reservoirs in the cook inlet. Uh the the the real question to me is gonna be are these gonna be real revenues? Is it gonna be a real fiscal plan uh that uh that he's gonna put out? To me, to get there, it's gotta be it's gotta have three parts. One part has got to be oil tax reform. And there is some some indication in some of the rumors that are circulating that he will propose changes in the oil tax code. Um the question is, will they be significant enough to raise the type of revenue from oil tax reform that he needs to get to the to the$1.9,$1.6 billion? Uh part of that, uh, there's there's been some rumors that he's going to raise the minimum uh the tax. The minimum tax under SB21 is currently 4% of gross revenues. The problem with the minimum tax is that GVR, gross value reduction, new oil, uh, doesn't uh credits for new oil can go below the minimum tax. So we actually, over the next 10 years, have a tax rate, an effective tax rate of something like 2% of gross revenues. And so raising the minimum tax itself, the the 4% uh uh uh standard itself isn't gonna do it. He's gonna have to address GVR credits and and their ability to penetrate uh the the the minimum tax uh in order to uh in order to have effective revenue out of that. He should close the the the the sub the subcorp S uh loophole. That'd give him$150 million. Uh, but he needs he's gonna need to raise a significant amount from all tax reform. The second piece of that can be restructuring the PFD from uh from its current statutory method, which takes about current statutory approach, which takes about 60% of the POMV draw because of the mismatch between the way the POMB draw is calculated and the PFD is calculated. If he if he would re if we restructure the PFD to be 50% of the POMV draw, which I think is consistent with Hammond's original vision, if we restructure that, we free up$500 million a year uh for uh additional revenue for uh for UGF. So that can be a part of it. So we got$500 to$600 million. Let's assume that he does what he needs to do on oil taxes. We got$500 to$600 million out of oil taxes, we got$500 million out of uh out of uh restructuring the PFD. That still leaves a big gap, leaves another$500 million to, you know, depending upon whether it's$1.6 or$1.9 you're trying to trying to drive for, it leaves another$500 million or to another uh uh uh uh uh$800 million. He's gonna the the only way to close that, seriously, the only way to close that, and remember he's already got spending cuts structured in, structured in the in the 10-year plan. The only way to close that's gonna be through some sort of tax. Um uh and and the question is, is he gonna step up and do it? He said before that he thinks a sales tax is the way to go, that a sales tax is fair, that a sales tax uh is the approach that uh that you can take. If you do an ultra broad base tax that along the lines that Ben Carpenter proposed, you can close that remaining gap, that remaining five to eight hundred million dollar gap, with about a percent and a half sales tax. It's not a big number that you need to close that. It's really not a big number. You look at other states like Idaho, for example, has a six, you know, everybody thinks Idaho is a very conservative state, it has a six percent statewide sales tax. So he he it's not a very big number if you use a broad enough base, if you do the ultra broad base, it's not a very big number uh on that on that piece. And I think through that, and he said before that he thinks sales taxes are are an appropriate way to raise revenue, through that he can close the gap. If he if he does it in those three parks, I think he gets there. And I think he gets there in a way that's not very painful. Oil companies will, you know, will you know feign pain and they're gonna pull out of the states and all that sort of stuff.
SPEAKER_01:Yeah, they're already squawking over it.
SPEAKER_00:They won't. The the the you know, people will say, oh, you're you're giving up on this on the statutory PFD. Well, the statutory PFD is an over given what we've done with draws from the permanent fund earnings, the the the statutory PFD currently takes more than than than 50% of the POMB draw, what we're taking out of the out of the the permanent fund earnings. So getting that back to 50-50, which is where Hammond intended, uh, I think 50-50 share between basically middle and lower income Alaska families and and the and upper income families, getting that back to where Hammond intended, I think is a is a good step, a defensible step. And again, the final step, closing it through the remaining sales tax is uh or through a remaining tax, and sales tax is an ultra broad base tax, is a good way to go. Closing it through that, I think is a is a reasonably defensible. And it can be a low number if he if he has a broad enough base. So I think there are steps there. The question is whether the governor is realistically gonna try to do it, um, or whether we're gonna hear about carbon credits again, or oh god forbid, we're gonna hear LNG. Oh my God, the LNG line is gonna save us. It's not. You know, it's the question is whether the governor is gonna be realistic in laying out a fiscal plan that does it. If he does that, if he if he says he's gonna try to do that, I think that opens the door to this legislature, even though it's the second year of a two-year legislature. I think it opens the door to this legislature actually being uh creating a major step forward for Alaska and Dunleavy ending his term on a very big, on a very big step, on a on a major governing uh step. But, you know, it it remains to be seen whether he will do that. Big, big, big speech from the standpoint of fiscal policy on Thursday. The steps are the the realistically, the steps are there, just to question whether the governor is going to step up to it and uh and take it on.
SPEAKER_01:What about uh the you know, the one thing not mentioned in any of this was of course the spending cap? I mean, it's all well and good to uh to create new revenues, you know, in an increase in oil taxation or sales tax or whatever. But the of course we all know that the the tendency of government is to spend every dollar that's laid in front of it. So do you think that there's gonna be a spending cap component that he talks about in this or not?
SPEAKER_00:Yeah, I think so. I mean, if if he's gonna have a complete fiscal plan, it's gonna need that. Uh and Dunleavy certainly comes from the side that would think a fed uh a spending cap is is is important. I'm gonna talk about, we're gonna talk about spending caps and sort of how I think about that in the in the third segment today. But yeah, I think that'll be a part of it as well.
SPEAKER_01:All right. Well, that's the number one of the weekly top three. Will the governor actually produce uh a fiscal plan, which as we talked about yesterday, I I keep wondering if we're in the wrong here. Maybe we're just not thinking about this right because nobody else is talking about uh a fiscal plan. There's a lot of discussion on uh uh spending, you know, creating jobs, getting new energy, getting affordable housing, all these things that every one of these candidates talked about. Not a single one talked about a long-term fiscal plan, which uh is uh again very disheartening on this. I know, Brad, you've been traveling and doing stuff, so I don't know if you caught yesterday's show, but boy, I just I gotta tell you, I'm so so disappointed in uh every candidate thus far. Uh, there was two forums over the last couple weeks. Um one forum with the young Republicans and another one on the School of Governance, um, where they had six to twelve, six to ten candidates there. And not a single candidate, Brad, talked about a long-term fiscal plan. Not a single candidate when offered the opportunity to talk about the biggest things, you know, that are going to affect us in the next five years, or the most important things, or the the pivotal things, not a single one of them talked about getting the budget of Alaska in hand and under control. It it's I mean, it really yesterday, my my the the the plug line for the show yesterday was am I wrong? Am I just am I just wrong? Am I just I mean, are you and I just are we just the outliers here uh talking about this where nobody else really cares? It's it's it's amazing.
SPEAKER_00:It is. I mean, I've got to say that I my disappointment in all of the candidates is big because for that very reason. But I've got a huge, huge, huge disappointment in Shelley Hughes. I mean, Shelley Hughes was part of the 2021 legislative fiscal policy working group. That working group took on the issue of the state's fiscal situation and and outlined a plan, which basically is the plan that we're still talking about. I mean, it's basically a little bit here, a little bit here, a little bit here, a little bit here, and you sort of mesh together a plan. You spread the burden in a way that reduces the pain uh on any one segment. And I think that is a gr that would be a great platform on which to run. Shelley was part of that, and uh I think it's a great, a great opportunity for her. And she has just run away from it um in a way that I just um I just I'm just so disappointed uh in her. Other candidates, Nat Hertz had a um had a poll or had a had a questionnaire uh in his latest column um in the Northern Journal, I think he calls it. Um and it was asking the candidates two questions. It's gonna, he's gonna do this over time. Um one question was about how you prepare fish, but the but the other question, the substantive question was what's your position on closing the Hill Corp loophole? What's your position on on closing the subchapter S loophole? About$150 million. That's that's the easiest revenue in terms of fairness, in terms of in terms of approach. It's the easiest revenue on the table. And and none of the candidates, well, the the uh Begich endorsed it, but I think the rest of the candidates ran away from it. Click Bishop had this long answer that I swear I've read 20 times and I can't understand what the man's saying. And I think it's intentional that you're not supposed to understand what he's saying. But candidates like Shelly Hughes and candidates like Edmund DeVries, candidates that you want to be realistic, you want them to step up uh and um and take hold of the state's fiscal situation, they ran away from it. They said, no, I wouldn't do that. And I that's the easiest revenue out there. If you're not gonna do that, what the hell are you gonna do? And basically, all these candidates, what all these but by running away from a fiscal plan, what all these candidates are saying is we're gonna ride the PFD down. They're not saying it in in uh affirmatively in words. Out loud, right? But but that's what they're that's that's their plan. Their plan is we're gonna ride the PFD down to the end. Maybe I'll get through my four years and it'll still be there. And I'll talk about the PFD a lot, like like Bernadette, but I won't have a plan for saving it. I mean, I'll just I'll just I'll use it like Dunleavy has, like this, you know, this cannon fodder that I throw out there and then I give up on. And when when they're not talking about when when candidates don't talk about a fiscal plan, basically what they're saying, and this includes Shelly Hughes and includes Edna Devrees and includes other candidates out there that you would think are gonna that would step up behind it, they're basically saying we're gonna ride the PFD down. So it's uh it is disappointing, hugely disappointing, uh, especially since um especially since uh we're facing such a such a cliff uh in the next few years.
SPEAKER_01:Brad Keithley continues with us, the weekly top three. Number two actually ties back into number one because Brad was talking about one of the one of the legs of the new stool of long-term fiscal plans, of course, is an increase in the discussion, is an increase in the oil taxation. And we're already seeing um different uh articles and bills out there. Um the Alaska story had a had a uh uh had a new piece out talking about how Apache is gonna join Aoga as Ayoga goes down to fight the the possibility of new oil taxes. And of course, we got the uh biennial um opinion piece from uh the folks over there at the uh uh at the Keep Alaska Competitive Coalition, Jim Jansen and Joe Shearhorn, who are gonna talk about how we shouldn't touch oil taxes. But there's something missing this year, Brad. What what what are we talking about?
SPEAKER_00:Yeah, it's it's not biennial, it's annual. Uh that uh Shearhorn and uh Jansen have uh have rolled out an opinion piece somewhere during the legislative sessions. Sometimes it's before the legislative session if they think that oil taxes are going to be addressed at the beginning. Sometimes it's during the legislative session as oil taxes heat up. Um sometimes it's in the fall uh as the election cycle uh uh peaks uh in the fall of election years. But but every year since the mid 2000s, 20 teens, Sherhorn and uh and uh Jansen have rolled out some opinion piece uh talking about uh oil taxes and how it would be horrible to change uh Alaska's uh Alaska's oil taxes. Interestingly, this year there's a difference in all. Of the previous pieces, and in all of the ones that other people have written in support of oil taxes, there's always been a paragraph that says something like this. And this was in this was in Sheerhorn and uh Jansen's piece last year. Uh, our current oil tax, this is what they said. Our current oil tax regime is a result of many years of work with detailed analysis by internationally recognized consultants and is working the way it is intended. This is the key paragraph. Over the next five years or so, new production will bring significant new revenue to state and local governments and maintain the viability of the Trans-Alaska pipeline further into the future. That second paragraph isn't there this year. That paragraph that talks about and Alaskans are going to benefit through oil tax reform by new revenue as production starts to ramp up. That paragraph has been in every, some version of that paragraph has been in every article they've written, every op-ed they've written since the mid-20 teams. SB21 is going to deliver new production, it's going to deliver new investment, it's going to deliver additional field development, it's going to deliver new production, and that's going to deliver new revenues to Alaskans, and Alaskans are going to benefit as production ramps up. That's been in every of their arguments throughout, up and through last year. It's not there this year. This year, it's all about, oh, jobs. You know, that we have all this new development going on on the North Slope, and that's resulted in jobs, and it's resulted in investment, and it's resulted in contracts, and it's resulted in, you know, businesses getting new investment. They don't talk about the outsiders that are coming in to do the work, but it's it's resulted in all this sort of in sort of all this uh all this benefit. But the benefit to Alaskans in terms of new revenues, not even they have the guts to lie like that uh this year. They've left that paragraph out. So here's the question. If we're if Alaskans have taken the hit in terms, and they did in 2020, 2013, they were asked to take a hit in terms of reducing the oil taxes from what they were under ACES in order to spur investment, in order to spur product, in order to spur development, in order to spur production. Because at the end of the rainbow, there was going to be more revenues for Alaskans. We are going to pay you back, essentially, through through more revenues. Make this investment now, take this cut now, and we will pay you back when there's new production out there. If that's not going to happen, and it's not, if you look at the next 10 years, oil volumes go up by 40%, revenues from production taxes goes down by 40% because of all the credits that are that are now sort of layering on top of each other under SB21 and its second decade. If new revenues aren't going to happen, why the heck did we do this? Why why the heck did we make the sacrifice in 2013 of reducing the tax rates that we had then in order to increase the investment or recurrence? Is is it because did we do it to have a few jobs, some of which are going to outsiders? Did we do it to have a few jobs? Did we do it to have a few contracts? Did we do it to have to be able to say, oh, Alaska's producing oil again? No, we didn't do it for that. We did it for the increased revenues that that that SB21, the proponents of SB21 promised. SB21 isn't doing that. And Sheerhorn and Jansen and others are admitting that by leaving that paragraph out of the arguments making they're making now. SB21 isn't doing that. It isn't delivering the additional revenues that that the proponents of it promised back in 2013. So if it isn't doing that, we need to change it. That was the payoff for all Alaskans. That was that was the benefit we were going to get out of making the sacrifice in 2013 of stepping the ACES rates down to what we what were determined then to be competitive worldwide levels to encourage the investment to come in. That was the payoff. If we're not getting the payoff, we need to go back in and restructure SB21 to do it. And it's not hard to do. It's not hard to do. Part of it is closing the subchapter S, notwithstanding the fact that all the gubernatorial candidates are running away from it. Part of it is closing the subchapter S loophole, and part of it is restructuring uh uh SB21 with a focus on getting uh uh a share, a share of the of the well head revenue equal to what we've historically gotten. Historically, we've gotten about 7%. In the first decade of ACEs, uh in the first decade of SB21, we got about 7% of wellhead revenues. In the decades before ACEs, we got about 7% of wellhead revenues. Now, as we as we get into the second decade of SB21, we're getting about 2% of wellhead revenues. So it isn't hard to do it. You just restructure it to go back up to the historic level of about 7% um of wellhead revenues. And that's you know, that's fairly easy to do. You can do it straightforwardly by saying the new tax structure is 7% of wellhead revenues, or you can put in a bunch of bells and whistles, but targeted at getting you 7% uh of uh of wellhead revenues. But that's uh it's it's simple to do. And that as production would climb then, and as oil prices sort of stabilized, which is the projection, what the projection is out in the future, as well head revenue, as well head uh volumes uh increased and as oil prices stabilized, and thus wellhead revenues increased along with production, Alaskans would share in the benefit by just getting the 7% of gross revenues. SB21 doesn't do it. And as I say, Cher Hornen and Janssen are admitting it by leaving that paragraph out of this year's this year's uh op-ed.
SPEAKER_01:It's interesting to see the verbiage that goes in that piece, the opinion piece in the ADN, and also over at the Alaska story, this discussion on Apache joining Aoga and everything in here. And and you see this littered throughout all the articles about how um this sudden turn, this sudden shift. Um, what was the thing? Um uh the answer is not to burden our industries with new taxes or sudden policy shifts. We've been under this tax scheme for over, like you said, we're into going into our second decade of SB21. There's nothing sudden about letting something go for 10 years and then say, hey, we might need to make a change now. I mean, it's it's they're acting like we're yanking the rug out from underneath of them that, you know, this is a promise that went into infinity. And now anything you do now is a sudden policy shift. Uh, when you find something's not working, you've got to change it.
SPEAKER_00:The sudden there is something sudden, Michael. And the sudden is the drop-off in the state's share of revenues. I mean, 2020 fiscal year 2025, we're getting about 6.7% of revenues near the 7% historic mark. But when you look at what happens from here on in over the next decade, and this comes straight from the fall revenue sources book. When you look at what happens over the next decade, that drops down to 1.9% by FY35 or 36. I mean, that's the sudden change. All these articles talk about, oh, we need stability. We need stability in the oil tax structure, we need stability in how we treat all companies. Well, what about stability for Alaskans? What about stability for Alaska families? We've had that 7%. I mean, I would say that the last decade of SB21 has been pretty good. I mean, there's been ups and downs, but I would say that in terms of the share between Alaskans and the companies, it's been pretty stable and it's been pretty good. What's the what's sudden, what's changing, what's not stable is the share that Alaskans are getting as the industry uh reaps the benefits of new production, the share that Alaskans are getting out of that, out of that new revenue. So, you know, when when the oil companies say, oh, we need a stable structure, well, so do Alaskans. And that's what Alaskans were promised back in 2013 when we made this change.
SPEAKER_01:For our finite non-renewable resource, that's what it is. I mean, this is not a this is not something that's going to come back. It's a one and done. We have to take what we can get for this resource every time. And when our take on it drops by, well, what is 7% down to 2%? What is that? 65%? When our take starts to drop down like that, we have to do something. I mean, it's in it's incumbent on our legislators as the board of directors, quote unquote, of our corporation. It's it's on them, the onus is on them to protect us as shareholders from that.
SPEAKER_00:Yeah, exactly right. So DOR's analysis, I mean, this is it, it gets egregious. DOR's analysis is that is that PICA will not pay any zero in production taxes for the first seven years of its of its life. And that, you when you look at the peak peak of production curve, we're well past the peak by the seven-year point. It's not a deferral. That doesn't come back at some point. We don't get it in the next decade. It's gone. We didn't tax those barrels, and they're never going to be taxed. Alaska got no benefit in terms of production tax from those barrels. That's what SB21 is doing in its second decade as these credits sort of pile up on top of themselves, as the provisions of SB21 pile up on top of themselves.
SPEAKER_01:And you and you have to remember, too, that the the the that the groups, the people, the individuals, the organizations that are pushing for this kind of stuff are all saying, uh, are all saying this because they're trying to protect their industry. They're trying to protect their take. I mean, Aoga uh or the Keepa Alaska Competitive Coalition, these are all made up of oil companies. They want to keep as much as they can for their shareholders. That's what they're doing. They're protecting their shareholders. Where is our board of director protecting our shareholders? Yeah, that's the legislature protecting us. Where is it?
SPEAKER_00:They've got a windfall. What SB21 in its second decade is doing is creating a windfall to the oil companies. They've got a windfall and and they want stability. My God, we want stability. Now that now that we're creating a windfall, we want stability. We don't want to change this sucker. You know, back in 2013, when ACES was was the one that was taking too much, it was, oh, we got to change this. If we don't change this, you know, the world's gonna end. But now that now that the shoe's on the other foot, and now that the windfall is going to the producers instead of the state, as it did under ACES, uh, all of a sudden we got to change it. Stability.
SPEAKER_01:Now we got to have predictability and stability. That's what it, you know, as long as we're making the money, it's stable and don't change a thing. That's what it comes down to. As Brad mentioned, the new find in Texas in the Permian Basin. No, I don't we haven't mentioned that yet. But um again, in light of new oil there, of the opening of Venezuela and everything else. Yes, we have to walk a line, we have to be careful, but at the same time, you're only talking about taking us back to where we've been the last 10 years. They've been they've been innumerably happy with where we've been the last 10 years. Why can't we just take it back to that? Right, Brad?
SPEAKER_00:I mean, yeah, that's that's that's the thing. I mean, that's the thing. There is a sudden change, there is a sudden development, there is a sudden problem. And it's the drop in the revenue share to Alaskans. The oil companies want to overlook that. When they want to say, oh my gosh, you know, well, this is what this is what SP21 intended. No, it's not. Go back to 2013 and read all of the op-eds, read my op-eds from 2013. And and and they had one theme. The theme is we've been taking too much, we've been driving the industry away. We've had a windfall. We need to step back, we need to reduce our take. We need to incentivize the industry to come back here. We need to incentivize the industry to development. And as the end, as that pays off in terms of increased volumes, we may not get as much now out of SP21 as we got out of ACES, but as industry develops the volumes, as productions, production rise, we will benefit in terms of in terms of increased revenue. What's happening under uh what's happening under uh SP21 is the exact opposite. As we get to these increased volumes, our share, the state's share of uh of the revenues are dropping. You know, and some people say, well, royalties are going up. You know, we we got more volumes, so we got royalties. Well, that's true only with respect to half the volumes. Most of the volumes, most of the new volumes are out in MPRA, are going to come from Willow. And there is no state royalty with respect to those volumes out in Willow. So, you know, yes, we may get, we may get some royalty increase, although there's not revenue increase associated with royalty. We're staying about even uh in terms of um in terms of revenues from royalty, but we're not getting anything. The only way we get we get dollars out of the MPRA uh volumes, out of the federal lands volumes, is through production tax. We're not getting anything out of those uh uh under SB21.
SPEAKER_01:Are you getting uh and you don't have to name names here if you are, but are you getting any inquiries from any of these candidates to tap you for your expertise in oil and gas and to talk about these things? Are you getting any kind of, you know, people saying, hey Brad, you've been talking about this. How would that work? I mean, is anybody talking to you about that?
SPEAKER_00:Not from the gubernatorial candidates, no. No. I get it from legislators uh and have and have good uh conversations with legislators about these things, but not from the gubernatorial candidates. They're off in their own world.
SPEAKER_01:Obviously, because they're talking about things like affordable housing and uh and and creating jobs and all these things that are not government's purview or shouldn't be government's purview, since we're broke and uh and they're talking about all these things. I I I I'm uh so frustratingly disappointed in everything that's going on. How much go ahead. I'm sorry. No, and what are we up to? 15? 15 15 now. I mean, and and and at what point, uh, you know, at what point did do they just tell me, oh, it's just pol, it's just a political game because we've got to get through the primary, and then we'll have a plan. Uh, I mean, you're talking about the primary's the end of August, and then what you've got two months to pitch your plan. You should be setting yourself up now as the fiscal guru. You should be setting yourself up now as a person who's got the plan, even if you don't give all the details because you don't want to let the cat out of the bag because of the jungle primary. I mean, it just seems like it it it Brad, it's just so I just feel like we're just running headlong off this abyss and nobody's bothering to pull the brake handle, you know?
SPEAKER_00:I mean, maybe it's Pollyanna-ish, but if Dunlevy, and there's two big assumptions in here, if Dunleavy on Thursday night actually lays out a workable fiscal policy, a real fiscal policy, if he actually tries to close to produce the revenues that he says in his own OMB 10-year plan that he's gonna produce. If he actually tries to do that, that may open the door to some of the candidates. It's certainly gonna create an issue. It's gonna be do you candidate X support what the governor's proposing? It's certainly going to create that issue. It may open the door to the candidates being more forthcoming about it. They may feel now that if Dunleavy doesn't have the guts to talk about it, then why should they talk about it? I mean, he got elected twice. Why should they, you know, break the mold? But if Dunleavy steps out there and does that, if he actually tries to govern over the last year of his of his term, um, maybe those candidates will start talking about it.
SPEAKER_01:Why change now? I mean, really, at this point, why change now? Uh Lisa says if nobody has a plan, nobody has to be held accountable. I mean. They all get held accountable. They have they all they're all accountable at this. I mean, it you're not wrong, but at the same time, ooh. I mean, that's just not right. Wow. I'm more frustrated than what I started. I don't, I don't know. Uh, we're gonna continue here. Uh, Brad Keefley, Alaskan's for sustainable budgets. You can find him at ak4sb.com, but he really likes it when you go out and argue with him on Twitter and Facebook. That's what he really, that's what he really, right, Brad? You you live for that. Uh more arguments on on social media. Uh anyway, akforsb.com. We're on to the number three of the weekly top three, which has to do, you mentioned it earlier, spending caps. Spending caps, um, spending cap is gonna a spending cap, a constitute, a real one is going to have to be the cornerstone of any spending plan. Because um, you know, if we create new revenues or generate new revenues or do something else or make some cuts, that money will just be spent wherever they want to spend it because that's their nature. It has to have there has to be something in there that holds back the spending and forces them to do more with what they have right now. What's your thoughts on spending caps here?
SPEAKER_00:Spending caps are are an interesting issue, Michael. We actually have the state actually has two spending caps. One's constitutional and the other is statutory. Um and you can find a discussion of them in the in Ledge Ledge Finance's overview of the governor's budget uh that it published uh a couple of days, published over the weekend, I think. Um, and we actually have two spending caps. One of them is the constitutional limit, but and the constitutional, and this is what it provides, the constitutional appropriate appropriation limit is equal to$2.5 billion times the cumulative change in population and inflation since July 1, 1981. Well, that seemed like a good idea at the time in 1981, uh, when they established the 2.5 billion base. But the combination of population growth, significant population growth in the state since that time, plus inflation since that time, has just sort of spun that spending cap out of uh out of uh uh well beyond uh uh what we what we've been spending or what we are capable of spending. The in FY27, the limit, and this is UGF numbers largely, the limit would be$11.1 billion. We're spending about five and a half, six billion. The limit would be in the nature in the neighborhood of$11.1 billion. So that's just become constitutional uh spending cap has become unrealistic. The statutory um uh spending cap is a little more realistic. It actually, you know, sort of adheres a little more closely to uh current spending levels. That provides that appropriations in the fiscal year may not exceed the appropriations made in the previous fiscal year by more than 5% plus the change in inflation and population. So instead of a base amount 2.5 adjusted by inflation and population going forward, this is you can't exceed what you spent in the prior year. Year by more than 5% plus inflation and population uh growth uh over the uh over the succeeding year. Uh that that limit sort of comes into play every once in a while. Uh but during the 20 teens, for example, uh spending was uh spending was well below well below that limit. Here's my problem with the spending caps that that we've had and that we talk about. I mean, people sometimes talk about, well, we'll just limit spending to the the inflation, uh, the rate of inflation, and and basically adopting the statutory, the current statutory spending cap, just eliminating the 5% uh out of it, the 5% adder out of it, and saying we'll adjust uh uh the spending cap by prior appropriations plus uh plus uh inflation plus uh population growth. Um the the problem with these with those spending caps is they're all they all are tied to previous spending amounts. Constitutional one was the$2.5 billion that seemed reasonable back in 19 in the early 1980s. The statutory one is tied to the previous year's appropriations. They're all tied to spending amounts and adjusting spending, future spending based upon current spending. What we found in the mid in the 2010s, the problem was revenues went away. Oil revenues went away. Um, and and oil revenues dropped. And so, and so the spending caps kept going because they were tied to spending levels while revenues were dropping, dropping through the floor. And the legislature was entitled under the spending caps to keep spending because the spending caps kept growing by inflation plus population plus 5% in the case of the statutory spending cap. Spending caps kept growing even as revenues weren't there. So the legislature just said, oh, well, you know, we can continue to spend, so we're gonna do that. We'll just start taking from uh savings. We'll just start taking from the SBR and then the CBR. And as we got into the late 20 teens from the PFD, we'll just start cutting the PFD and using that uh as a as an additional revenue source. Uh we'll stay within the spending cap, but we'll offset the revenue drop uh by uh by these additional by by glomming onto these additional these additional revenues. In essence, the spending cap encouraged that by continuing to grow. And you had these revenues, these these this these pots of money laying around in terms of the savings and in terms of the PFD, and the legislature just grabbed those and said, Oh, we're we're keeping within the spending cap. So going forward, when you think about a new spending cap, I think about it frankly, in terms of revenues. I think about tying a spending cap to the revenue side, something that would work to maintain control on spending like we had in the 2010s as revenues drop away. That would say you can't spend this additional amount. I mean, yes, we have reserves laying around, but you can't spend this additional amount. You have to track revenues, you have to, you have to realistically keep up with what the real world world is giving us in terms of revenue as your cap. And things that strike me as I think about that, and I'm gonna write a column about that here at some point as I sort of get these thoughts together, but things that strike me as I think about that is you can only, you know, in terms of what your spending cap is, it's calculated in part, it is calculated by what your revenues are, and revenues are limited to the average of the last five-year oil, average laverage of the last five years oil revenues. So as oil revenues start dropping away, your spending cap starts going down with it uh to match what's going on uh on the revenue side. And maybe on the sp on the on the in the cap you start thinking about things like 50% of the POMV draw. You can only use 50% of the POMV draw for spending. Um and so your as as the POMV draw sort of evens out, as a permanent fund corporation doesn't do its job, as the permanent fund doesn't grow, but sort of permanent fund earnings don't grow, but they sort of even out, then you have to you you have to maintain um your spending at at no more than you know 50% of what the POMV draw is giving you. And then the final piece of it, the lesson from the 20 teens, is don't let them spend all of the savings in big chunks. Limit, include in the spending cap like 10% of the of the of the savings amounts. You can only you can only spend 10% of the savings amounts in any given year. Force the legislature to spread out, force the government to, if we're gonna go to, if we're gonna go to reserves, force the government to spread that out over time. So I think the big takeaway is spending, when you think about when I think about spending caps, I think in terms of revenue, spending caps tied to revenue as opposed to spending caps tied to previous spending levels that just keep escalating out there into the future, regardless of what revenues are doing.
SPEAKER_01:Uh less than two minutes here. What about Kaufman's new spending cap based on a percentage of GDP? I mean, it's better than what they were doing before, but does it reach to where you're at?
SPEAKER_00:No, because it's because we don't we don't have any revenues that are being generated off GDP. And so it's just another artificial way of growing spending limits without regard to what your revenues are. Yes, it may be a little bit better than than than the current spending base, you know, it's escalated spending base that we're using. It's just some it's some other measure out there, not tied to spending, but it's still not tied to your revenues. And so GDP, I mean, when oil prices go up, GDP just sort of escalates away. But as we as we know from from the way SP21's operating, that doesn't mean revenues are going to go up. Right. Revenues may go down, as they're doing with SP21. And so I I GDP is just another artificial thing that we're just trying to trying to glow up.
SPEAKER_01:We need to be looking at revenues, just like we've advocated on the program for years, that the budgeting should be done on a five-year rolling average of past revenues instead of pie in the sky, we think this is where we're going to hit. We need to be looking at where the money's coming from. And nobody wants to do that because the gravy train would be over immediately if that happened. I mean, that's the thing, right, Brad? I mean, we're always basing something is always based off of, again, the spend or what we think it's going to be. It's never based on real, you know, historical numbers. That's why I've never understood. Why wouldn't the governor base his next year's budget on the last, on an average of the last five years of revenue? Because the revenue is so volatile. Why wouldn't you say, okay, well, we need to be, you know, if you were a business, you'd do that. You know, we'd be cautious. Okay, what was our last five years of revenue? Take it, take an average of that, and that's how we're going to build our budget. If we're going to do a spending cap, don't do it on what we spent last year because it's inevitably going to increase. What is our revenue stream look like?
SPEAKER_00:Yeah, I mean, the spending caps we have are built by people who want to preserve the spend, right? They're built by people who say, oh, we've gotten this far in terms of building spending programs and of building, you know, policies and all this sort of stuff around this spend. We want to preserve that and adjust it going forward to preserve that spending and grow it as as population grows or as inflation grows, or in the case of the statutory budget cap, you know, 5%, an additional 5% on top of that. We want to preserve the existing spend and grow. And what we saw in the 20 teens, it became totally disconnected. That spending growth that uh that we were engaged in became totally disconnected to revenues. And we started, we started preserving the spending, because my God, we had to preserve the spend. We started preserving the spending by just grabbing grabbing from savings accounts. First C SBR, CBR, and then uh, and then the permanent fund, uh, permanent fund dividend. And it just encourages the wrong type of behavior. When revenues start dropping, that's when you start needing to be realistic. You start need to be you start need to can control programs. I mean, you don't need something that says, oh, you can continue to spend our spending caps continue to grow so we can continue to spend. You need something that says, what, hang on, revenues are dropping away. We need to, we need to, we need to restrain spending down to the level of of revenues. And so that's why I think I think that's why I think a spending cap based on revenue uh uh adjustments is is the right thing to do. I mean, if people if a if people want to grow government at more than what the current revenue base enables them to pays for, then they ought to grow revenues, then they ought to go out and pass additional taxes to pay for that additional growth. It forces people to pay as you go, as opposed to spend, spin, spin, spend, build more spending programs. Right then, oh, revenues are back there somewhere. We'll let them catch up at some point.
SPEAKER_01:And that savings component is also important. That 10% cap on savings or whatever, that is, I mean, that that is a critical part because again, we saw in the 20 teens we drew billions of dollars out of savings. I mean, we were filling, you know, 20, 30 percent of our budgets with savings, and that's just not sustainable. And anybody with, you know, anybody with half a brain knew that, but they were just continuing on doing that. And if there had been some kind of restriction on that, they would have been like, okay, well, we have 15 billion and that we can only draw 1.5 billion out. So how do we make up the additional 1.5 billion or 1.6 billion? I mean, it never would have happened that way. But but but again, there it's this is all about uh, as usual, protecting the spend.
SPEAKER_00:Yeah, and and the spending caps we've gotten and the spending caps we've talked about uh are all artificially driving spending by saying, oh, the spending we've done is okay, and we can grow spending by a little bit more, or in the case of Kaufman's GDP, we can grow it by you know, whatever GDP is going up, even though we're not getting revenues from GDP, we can grow it by whatever GDP is going up. And they're just sort of artificially growing spending, you know, encouraging people to think that the spending's okay, even though there isn't revenue underneath to support it. So I think, you know, as as we go forward, as we think about spending cap, it shouldn't be tied to previous spending levels. It should be tied realistically to previous revenue levels and the level of spending that we can afford that we can maintain, as opposed to us digging ourselves deeper and deeper and deeper and deeper into the hole as we go along by just increasing spending without regard to what revenues are doing.
SPEAKER_01:And of course, no candidate, no gubernatorial candidate is talking about any. I mean, you know, god damn it, Brad. I mean, this is where we're at. This is, I mean, nobody else is talking. I just I feel like we're the little town criers out in the wilderness, you know, and everybody's looking at us like we're retarded. Uh, because, you know, why why wouldn't we want to talk about, you know, uh cheaper energy and affordable housing and jobs? I mean, again, nobody else is talking, and not really, not even hardly anybody in the legislature is talking about this.
SPEAKER_00:Oh, Rob is. I mean, some of them.
SPEAKER_01:Yeah, Rob is. I mean, there's a handful. Don't don't, I'm not trying to paint with a too broader brush here, but I mean, for the most part, but they're again, they are the lone voices in the wilderness. And nobody, and you know, in hindsight, everybody will go, oh, hey, those guys talked about that. We should have listened back then. But by then it'll be too late. I mean, we'll be run off the fiscal cliff at that point.
SPEAKER_00:Here's the problem, Michael. That's it's the governor's job. I mean, all these legislators have a little district that they're looking after. We found that out in 2019 when the governor tried to cut spending, and all the legislators said, Oh, you cut everybody else, just don't cut my district. They all have this little district they're looking after. The governor has the responsibility of looking over the big picture and maintaining the ship's direction going in the right direction. And and frankly, we've just had a governor who's been AWOL the last the last eight years. Maybe he will show up on Thursday night. And I, you know, fool me 20 times and I'll believe it. You know, maybe I'll hope I'll hope when the 21st time is going to come true. Maybe he will show maybe he will show up on on Thursday night, and I'll be there with him, by God, if he does.
SPEAKER_01:Boy, you are really you are. I have a bridge that I'd like to sell you, Brad. It would be awesome. Some lakefront property in Arizona. Uh, anyway, um, all right. Well, I guess we'll see. We'll know next week what the governors propose, and I'm sure you'll have the full breakdown on that. Um, I wish uh we're gonna have Ben Carpenter on the program on Thursday again uh for a full hour uh in the second hour. So maybe he'll give us his thoughts on what's happening there, but we're not gonna know until next week. Uh, but we're already, we're already seeing the the the lines are already being drawn on the sand. It's gonna be more spending no matter what. I can tell you that for nothing. That's that's what's coming. All right, Brad. Thank you so much. Appreciate you coming on board. Michael, as always, thanks for having me. All right.
SPEAKER_00:Well, that's a wrap for another week's edition of the weekly top three from Alaskans for Sustainable Budgets. Thank you again for joining us. Remember that you can find past episodes on our YouTube, SoundCloud, Spotify, and Substack pages, and keep track of us during the week on Facebook and Twitter. This has been Brad Keithley, Managing Director of Alaskans for Sustainable Budgets. We look forward to you joining us again next week for another edition of the weekly top three.
