The Weekly Top 3
The Weekly Top 3
The Weekly Top 3 (3.2.2026)
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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 March 2, 2026.
This week, our top 3 issues are these: 1) we explain why the Legislature should use the rolling 10-year average oil price in preparing the FY27 budget, rather than whatever will come from the snapshot of the current futures market being taken this month in the midst of what’s happening in the Middle East (2:26), 2) we review two slides included in Permanent Fund Corporation advisor Callan’s presentation last week which undermine both the claim that the PFC is doing “well” compared to its peers, and that even a 4% POMV draw rate adequately protects the Permanent Fund corpus (17:35), and 3) we discuss why a distributional analysis of who pays under any given revenue approach is critical to both the legislative process and the long-term well being of both Alaska families and the Alaska economy (39:10).
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.
Opening And Weekly Top Three Setup
SPEAKER_01This is Brad Keithley, Managing Director of Alaskans for Sustainable Budgets. Welcome to the Weekly Top Three, the Top Three Things On Our Mind here at Alaskans for Sustainable Budgets for the week of March 2nd, 2026. 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 podcasts 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 why the legislature should use the 10-year average oil price in preparing the FY27 budget rather than whatever will come from the snapshot of the current futures market being taken this month in the midst of what's happening in the Middle East. Second, we reviewed two slides included in Callan's the PFC advisor's presentation last week, which undermined both the claim that the PFC is doing well and that even a 4% POMD draw rate adequately protects the permanent fund corpus. And third, we discuss why a distributional analysis of who pays under any given revenue approach is critical to both the legislative process and the long-term well-being of both Alaska families and the Alaska economy. And now let's join Michael.
Oil Price Volatility Explained
SPEAKER_00Let's get started, shall we, and take a look at uh at what everything's going on. We're gonna start off with number one of the weekly top three, which is um, what should we use for oil prices? Because we've got all kinds of stuff. Uh it's gonna be uh it's gonna be an interesting discussion. And of course, uh the the war with Iran is uh throwing a whole new wrinkle in. So let's get to it.
SPEAKER_01Yeah, I would say that I've gotten more calls and texts and emails over the past few days um than I've gotten. I I can't remember the last time I got this many uh on a given subject, and they've all been about oil. You know, where what's oil doing? Where's it gonna go? What's what's what's up with oil. Um and it's um it's interesting. Um so oil is up, you know, right now. It started this morning at$79. The market's opened at$79. It's up to$83 now. It was up to$85 at one point. It's just bouncing all over the place. But but but what you see when you look at the futures market is it is it is staying, it's declining fairly evenly over a period, and then it just sort of drops off um uh after you get past a certain point. So it's$83. Uh, the market for May is$83 right now, the market for December um is$71. Excuse me. The market for market for May is$83. The market for July is the beginning of the fiscal, that's the beginning of the fiscal year, is$77 right now. The market for December is$71, which is usually the the the average for the year, the midpoint of the year is usually the average for the fiscal year. The price for June of next year is$68, and it and it keeps going, keeps on going down. What the market is saying, at least so far, is this isn't a structural supply issue. They don't see a structural supply issue. They don't see a long-term shift in supply, and they and they certainly don't see a long-term shift in demand that is that is repricing the entire market across the entire complex because something dramatic has happened. The markets, the futures markets right now are acting more like a prediction market, uh, prediction markets that are saying this is how long we think this is going to last, and this is how long we think it's gonna take to recover from whatever damage is done uh as a result uh of the war. So basing any decision uh, and the volumes are very thin. I mean, you don't see that many, that you don't see that many trades going on out in the future years. Uh so the prices are being determined by a very thin market, by very few players in those in those future months. So any any decision you make on on going forward uh based on oil prices is is really very uh it has a very thin base. I mean, what you're saying is that is that you're you're basing it on whatever the hell the futures market is saying at any given point, which is really a prediction of how long this thing's gonna last and and what's uh what's going to how how much damage there's gonna be to re to recover from. The problem with Alaska, Alaska fiscal, has always been that we base our oil, we base our budget on what our prediction of oil prices are. We don't base it on what they've been, um uh, as I think almost every analyst would tell you we should. Uh they base it, we base it on what our prediction of the oil prices are. And we're coming up, March is the March is the day that the Department of Revenue updates the revenue forecast for the spring revenue forecast, and we'll look at and we'll make a prediction about oil prices going forward that we that then traditionally we use as the basis for the for the next year's budget. But I it it it's not gonna be whatever Department of Revenue says, it's just gonna be a sh uh a slice in time. They base it on 10 days trading, uh, five days that ends price five days prior to the date they publish, or something like that. Whatever they say is just gonna be that slice in time and is gonna be what the prediction market that is now the futures market, uh, whatever the prediction market is saying. And that's just that's a hugely thin basis upon which to uh predict oil prices. We could have a situation in which uh uh they base it, we we assume that it's gonna be in the low 80s, high 70s as it is right now. They they could they could base it on that, and then you know, 10 days from now, Trump declares victory uh or Iran gives up or whatever whatever scenario you want to you want to look at. There hasn't been that much damage. Uh to my knowledge, so far, there hasn't been huge damage to the oil facilities anywhere in the Middle East. There's been, you know, we've hit a few luxury hotels and and things like that, but and few airports, but there's not been huge damage to any of the production facilities, oil production facilities. So 10 days from now we declare, or 20 days from now, somebody declares victory, it's over. There's not been huge damage to the production market to the production facilities. Oil prices are going to plummet. And if we have have based our our night the next year's budget, the FY27 budget, on whatever that slice in time was, what the futures market was saying it during that slice in time before before the the cessation of hostilities, uh, we're gonna be in a world of hurt because we will have based it on very high prices. Again, there's been no structural change, fundamental change in the market. There's not been a loss, absolute loss of supply uh that's going on in the market. So it's uh it we're we're faced with we're faced with a decision, a very important decision about what to what to use for the FY for the next year's budget.
The Case For A 10-Year Oil Average
SPEAKER_00But you're you're already seeing this reaction though. Oh the uh the Senate finance, they adopted a supplemental budget substitute yesterday, which I can't tell exactly how much it was. It's supposed to be three. One part says it's 320, the other one says it's 475, so I'm not sure which one it is. But Bert Steadman says he highlighted improving oil prices. I'm optimistic that line 16 is going to dissipate. I'm not sure about line 17, but also it could disappear or get substantially impacted. So they're already counting on this new review on the 13th of March when the the new oil prices are supposed to come out and saying, oh, look, it's gonna be fine. But again, they're basing it on projections of a snapshot in time that in just a couple weeks could change totally.
SPEAKER_01Yeah, absolutely. This this brings me back to something that I've long advocated. I've written several pieces on it in the landmine and and elsewhere over time. We ought to be basing every analyst when they look at Alaska says, why don't you base it on an average of your historical prices? Why don't you base it on what you know as opposed to what you don't know? Um and this brings me back to the to the you know to that point again. We ought to be basing next year's budget on, I use the 10-year average because we've got a lot of variability in there, and 10 years tends to smooth it as much as you can. Uh we we ought to be basing it on the average oil price that that we've had. And if we have an overage, if prices stay up, stay elevated, then fine. We can put them in some account and use them when prices are lower. Or if we need them as a as a CBR draw in future years, we can use them, use them for that. But we ought not to be basing spending levels going into FY27 based upon these oil prices. The average price uh over the last 10 years is$68. I do a chart every Monday morning where I try to keep track of this stuff. And on the left-hand side, uh I've got a rolling average by year uh of what the uh of what the oil prices have been and what the average has been over the 10 years. And the average, uh the current average is$68 uh a barrel. And that's not that's not bad. I mean, the the prediction in the in the fall revenue forecast for FY27 was something like 63. Um and so 68 wouldn't be that far from that, and it wouldn't be that far from what the markets were telling us the structural price was. The price was, futures price was based upon the structural supply and demand uh uh forces uh prior to the uh the invasion of or the the uh operation of hostil hostilities, whatever the heck we're supposed to call it. Um uh the hostilities that are going on uh over uh over in Iran. Um and so it 68 wouldn't be a bad price. Well it we wouldn't miss it, we wouldn't miss it that much on the downside. It would be unlikely that prices would would would drive that much below 68, although the uh Energy Information Agency has predicted prices in the had predicted prices in the 50s uh before this started. But 68's sort of a reasonable landing point on which to base and on which to base the the forecast or base the budget. And and it has the advantage of it is the historical average, the rolling 10 uh historical average over the over the last 10 years. To base it on something higher than that, uh to on the on the snapshot in time that we're gonna get out of uh out of this particular period, I think is uh is legislative malpractice. And and I think the governor has a role to play in this. I think the governor ought to step in and say, look, you know, here's what the Department of Revenue says, but I think we ought to be basing it on 68. And, you know, this governor won't, but he should say, look, I'm gonna veto anything where you guys are gonna be spending more than than based upon uh$68 oil. Because all that's gonna do is unless this, unless this hot these hostilities extend over a long period of time, or they do significant long-term damage to production facilities in the Middle East, which I don't think anybody wants to do, um, unless they do one of those two things, these prices are gonna come back down because the fundamentals, the fundamental of supply and demand out there is telling you these prices ought to be a lot lower than they are right now. So I the the the situation uh that I think that we're faced with uh from a budgeting standpoint is we should not be basing the budget on uh the assumption of higher prices going forward than what what the structural dynamics, the supply and demand dynamics, uh long-term supply and uh demand dynamics are uh are telling us. You know, if if if there was a a situation where um for some reason uh the US and Israel and whoever decided to take out Karg Island, which is Iran's uh uh principal export port. Um, or if Iran decided to take out a significant share of Saudi's production facilities uh and were and was able to do that, uh, I think we would be we'd be in a different circumstance because then you fundamentally changed the long-term supply and demand dynamics. You changed the you changed the the long-term supply, or at least the intermediate-term supply until they can get those facilities back up. That was part of what happened with Kuwait when uh Saddam uh uh retreated from Kuwait in the early 1990s and burned all of the all of the uh wells, uh set all the wells afire, and essentially did long-term damage, significant damage to Kuwait's productive capacity. That was the type of damage that I think lingered over the markets for a significant period of time because you had structural change uh on the supply side. But right now we're just not seeing that type of, we're not seeing that type of structural change. We're just seeing a lot of concern about whether we're gonna be able to get oil out of uh out of the Middle East and potential uh short-term shortages as a result of not being able to get oil out of the Middle East and driving up the price because of that concern. It's not there's not a concern that the oil isn't there or the oil isn't going to be able to be produced. The concern is whether we can get it out. Um and and that's a that's a short-term consideration, unless there's unless there's some more significant damage along the way.
SPEAKER_00Saudi Arabia did turn down, voluntarily turn down production for sh uh for a period of time. Uh one of their facilities did get hit, but they said there was no major damage or no death uh and no major damage to it, but they've taken it offline as a precaution as they check everything. So it's not it's not like they torch the fields and burn the production facilities to the ground, right?
Legislative Reactions And Risks
SPEAKER_01Yeah, no, it's it's it's not nothing like that. And Saudi has Saudi has spare capacity, um, spare productive capacity. It it it's sort of spread out, so it's not if one field gets hit, there they have an ability to turn up other fields to maintain the overall deliveries. And somebody asked yesterday, you know, well, Saudi doesn't Saudi go all the way, doesn't Saudi's oil go through the Strait of Hormuz, doesn't it all go through the Strait of Hormuz? And Saudi does have uh uh uh east to west, east to west pipeline across Saudi Arabia where they can deliver directly on the Red Sea. They can bring their oil, some of their oil, significant amount of their oil, uh, over to the Red Sea and deliver there if they have to. So it's not, I mean, UAA UAE doesn't have that alternative. Other uh elements of the Middle East don't have that alternative, but uh Saudi does. So it's not um uh you you have to have huge damage to the Saudi facilities in order to uh in order to start dragging on the markets.
SPEAKER_00Brad Keithly, Alaskans for Sustainable Budgets, the weekly top three. I think we've gotten all the gremlins out of the way. I mean, no camera, no audio. I mean, you know, again, this is a low-dollar radio show. What do you expect? Uh we're we're gonna we're just gonna make this happen. Anyway, it's gonna be interesting to watch. Uh, we're seeing some of the death spasms here of Iran. Uh, where will they lash out to next? We don't know. And of course, it makes all these oil prices unpredictable, but to base it again on this small snapshot in time, I think is definitely part of the challenge and part of the problem. We need to be looking at a larger picture. Welcome back, Brad Keithly, Alaskans for Sustainable Budgets, joins us, the weekly top three. Uh, we're uh had a little bit of a technical, I mean, it's been a technical day all day today. Uh anyway, Brad Keithly takes us to number two of the weekly top three. We move on from the oil futures and forecasting market to uh the presentation last week from Callan, who's a big advisor to the Permanent Fund Corporation. And uh they've given us not only did we look at the the thing where it shows that their real return over 10 years is 4.8%, which is problematic if you want to take a 5% draw, but there was more, Brad, more on this.
Transition To Permanent Fund Performance
SPEAKER_01Yeah, so Callan, who is the uh Permanent Fund Corporation's general advisor, general consultant, made a presentation to the legislature uh last week. And and my immediate reaction was there were a bunch of headlines, including the like this one from the Alaska Public Media, that says Alaska Permanent Funds performance compares favorably to peers evaluators tell lawmakers. And and my reaction to that was okay, so the permanent fund cons permanent fund corporation's consultant tells lawmakers that the permanent fund corporation and thus the consultant are doing a good job. That it was sort of like it was sort of like a lobbyist getting up to testify and saying, hey, my client's doing a great job. And by the way, I'm doing a great job because my client's doing a great job, and I'm its consultant. It was it was a little bit of uh a theater uh in that regard. But but when you look beyond the headlines, even the headlines uh uh don't stand up. There are a couple of charts in particular from the Callum presentation that I want to focus on. Uh the first one, Michael, if you got it, we're on the same page. The first one is an analysis that compares the permanent funds returned over certain over select time periods against against the returns of its peers. Um and the peer group that Callum's using in this slide is large endowments. And the permanent fund corporation talks about itself as being an endowment uh fund these days. So it's the it's the relevant peer group to look at. The way you look at the way you read this chart is to look at the numbers underneath. Uh they're divided into over the last year, over the last three years, five years, 10 years, and 20 years. And then you look at the percentiles, 10th percentile is the top 10%, 25th percentile is the top 25%, median is the middle, 75th percentile is the is the lowest 25%, and the 90th percentile is the lowest, uh, lowest 10%. And then at the bottom, they have the APFC, the Alaska Permanent Fund Corporation, total fund return over those same periods. So you look at the at the at the APFC's total fund return and you compare that, you put it in the uh in the mix and see where the permanent fund corporation stacks up uh over these time periods. The bars above that's doing exactly the same thing. The bars are showing the array of returns uh uh uh by uh large endowments over those time periods, and the dot in the bar is showing uh the APFC's place uh in that in that array. So you can you can tell the same thing. But here's the interesting thing. So over over the last year, for example, the APFC's total fund return has been 12.47 percent, 12.5%. You look at where that ranks in terms of the peer group, in terms of large endowments, it ranks in the lowest 25%. Uh, in fact, if you look at if you look at the bar above it, it says 81%. And so uh what that's telling you is the APFC ranks in the 81st uh percentile of uh of the array. But that's not I mean that's not a great return. It's it it's in the lowest quartile of the um uh of the peer group. You look at the last three years, same thing. The 9.58 uh over the last three years that's that's given for the APFC total return is in the lowest quartile um over the last five years. Uh well it's it's near, it's it's above. The lowest quartile, but it's above it's below the median. So it's ranking somewhere between uh the 50% range and the 75% range. And when you look at the bar above, you see it's in the set the 72nd uh quartile. And then last 10 years, a 9.02% return against a median return for the peer group of 9.19. Uh the APFC ranks in the 56 percentile. And then over the last 20 years, and the APFC always tells us you got to look over the long term. You can't look over the short term, you got to look over the long term on these things. Over the last um uh 20 years, uh a 7.27% return uh on investment uh against a median of 7.47, which puts the APS APFC again below the median uh and into the um uh in I think the bar says the 64th uh uh uh percentile. So we I'm not quite sure how you get a headline that says uh as the as the uh public media ran, Alaska Permanent Funds performance compares favorably to peers. I don't know, I mean it's in the peer group. It it didn't it didn't fall below the the range of the peer group, it it wasn't last, but it was in the bottom quartile in the in in in the last year and in the last three years, and below the median in the five, 10, and 20 year uh looks. So I don't know how you get a headline that says APFC doing good.
SPEAKER_00That's like saying you got picked last for dodgeball, but you're still on the team, right? I mean you you know I mean 64th, 81st, 81, 72, 55. You never even busted over the 50 percentile median in 20 years. You haven't gone over and done better than the median average in 20 years, and in fact, in the last two years, you've been in the bottom.
SPEAKER_01So the last the last three years. I mean the last three years.
SPEAKER_00I'm sorry, the last three years you've been doing you're in the bottom. I mean, come on. This is uh again, let me pat myself on the back for doing an adequate or less than adequate job.
APFC Vs. Peers: What The Data Shows
SPEAKER_01Yeah, it's um uh it is. I mean, what this is telling you is the APFC has the potential. If this is its peer group and its peers are producing these types of returns, the APFC has the potential to produce better returns than it's doing. In fact, more than 50% of its peers in every one of the periods, and more than 75% of its peers in two of the periods, uh, are producing better returns. The APFC has that potential, but it's not what this chart is telling you is it's not achieving that potential, not only in the short term, not only in the in the one and three-year time frame, it's not produce, it's not living up to that potential in the 5, 10, and the and the 20, the 20-year time frame. There was a second, there's also a second chart uh that that is very telling. And remember the the current statute provides that we will have a 5% draw, the the POMB draw, percent of market value draw will be 5% from the average of the of the preceding five years. Um and and the constitutional amendments that people have put out there, uh the ones currently pending before the legislature also say uh that the draw would be constitutionally set at 5% of the average market value over five years. Well, there's a second chart that Callan included that that has what the PFC's returns have been uh over various periods of over various periods on a rolling basis. So, and this is this extends 30 years. It goes back to 1995 and carries forward to 2025. And it shows the the returns on a one-year basis, on a three-year basis, on a five-year basis, rolling average five years, and on a and on a 10-year basis. So I've looked at the I've I've focused on the five-year, the rolling average five-year basis, because that's the basis that we're using both for the statutory POMB draw and what some are proposing with the what the legislation is proposing for the for the constitutional provision. If you look down the five-year, the the red, by the way, the pink on the chart uh in each of these categories is the years that you that they didn't achieve a 5% return. If you look down the five-year chart, they have achieved a five uh uh five percent return in 14 of the 31 rolling five-year periods on the chart. They have not achieved it. They've been below 5% in 17 of the 31 periods uh over the uh the rolling five-year periods uh on the chart. Less they've achieved 5% less than half the time.
SPEAKER_00Significantly less, by the way. I mean, and and the amount is significantly less than 5% in about half of those that they didn't uh that they didn't hit the mark on.
SPEAKER_01And and and some say, okay, well, we'll we'll we'll lower that down to we won't say 5%, we'll say 4.5%, 4.5%. Well, you look at you look at the chart, and there's a lot of those entries that are lower than 4.5 percent. Uh they haven't achieved uh the even 4.5 percent on a on a rolling average. You can look at just you know, starting from the bottom up uh in in the five-year period ending in FY23 and six uh June uh 23, five-year period in uh June 24, the those two returns, those are two rolling average returns, are 4.05 and 4.09, not even 4.5 percent return. So there's a new article out by uh uh Josh Church um uh in the in must read that says, okay, well, we'll lower it down to 4%. Well, you can look back through this chart, and there are a number of periods, for example, 20 starting back in 2013 when the return is 2.8 percent minus 0.5. These are five-year average returns: 2.8%, minus 5.9%, 2.5, 2%, 0.68%, 0.24. And then you can look above that and you can see other periods where we didn't achieve, we didn't even achieve 4%. Yeah.
SPEAKER_00So so 10 of the 14 years you didn't achieve 4%, and only in two of the 14 years did you get over 4.5%. That's a I mean, that hello, that's a real problem.
SPEAKER_01And this isn't, I mean, this isn't made up. This isn't looking forward, this isn't using projections as the chart we talked about last week is. The APFC's projections are they're not gonna, they're not gonna hit 5%, they're gonna hit 4. whatever it was. They were gonna be over 4, but they but they weren't gonna hit five. This isn't a projection. These are actual historical rolling five-year averages using the APFC's own numbers and the APFC's own uh uh investment uh approach uh producing producing these numbers. So I think I I think what you see uh is you know is a history where we don't hit 5% even 50% of the time over the last 30 years. Uh we don't hit 4% a lot of the time, we don't even we don't hit 4.5% a lot of the time, we don't hit even hit 4% uh a lot of the time. I think I think what this tells you is that if we're gonna make these amendments, the condition that you and I have talked about on the show a lot, which is that it ought to be the draw ought to be the lower of the actual experienced return over the previous five years, or uh uh if if high if if it's above that, not not to exceed 4.5% or 5% or whatever the cap number is. But having a condition that it cannot exceed the lower of uh the actual experienced return, I think that's an important condition. And interestingly enough, uh uh Josh Church's and Bart LeBon's article in Mustry doesn't have that, doesn't include that condition. They just say, oh, let's go to four. It's like people are picking numbers out of the out of the air. Well, 5%'s not good. Oops, we didn't hit it, you know, 17 out of out of 31 periods. Let's let's pick 4.5. Oops, that's not good either. Let's pick four. And it's just like, you know, is there a number that you will stop complaining at? And the answer is no. The answer is no. There's not a number we will stop complaining at. We need to we need to base whatever draw we're doing, both statutory, frankly, as well as and certainly constitutional. If we go to a constitutional amendment, we need to base those draws on the lower of the actual or whatever the, you know, whatever the Dart uh target uh is.
SPEAKER_00Well, but just imagine, Brad, what that would be like. Imagine we were in fiscal year 2013 on a five-year rolling average, and the return was only 2.8 instead of the four. I mean, there would be utter pain. I mean, they they wouldn't know what to do with themselves, let alone the previous year at a negative 0.59 return. I mean, that's the problem. You've got 10 of the 14 are not even hitting the four. You would be in the hole every year, and we'd have to live within our means. Why would they want, I mean, God forbid that should actually happen.
The POMV Draw Problem
SPEAKER_01Yeah, what this is telling you is without the condition of the lower of, we're there, there's almost an absolute certainty. If we set it at 5%, there's almost an absolute certainty we're gonna be into the corpus, what is currently considered the corpus, uh, to make that five uh to make that 5% draw. I mean, more than 50% of the time they've been below 5%. So there's if if we set the draw at 5%, uh, we're gonna be uh into the corpus. There's no other way to to uh to handle it. Even if you set it at 4.5% or you set it at 4%, we're gonna be into the corpus some of the time. We're gonna be eating the seed corn some of the time. And that the current constitution says we cannot do that. You not you are not permitted to do that. So what the what's the constitutional amendments are trying to do is set up a situation in which they can do that, to open the back door uh into the corpus and start draining it down. These two charts are telling you, are telling you two things. One, they're telling you the PFC is not keeping up with its peers, they're telling you that the PFC has the potential to do better, that its peer group, uh more than half of its peer group, has found ways to do better uh and are and are consistently producing returns that are better than the PFC. But the P the PFC, our investment arm, the people we trust to make the investments of the permanent fund, are not keeping up, are not are not matching their peer group. They're not even doing what they're what their peer group's doing. So it's telling you that, and it's telling you don't trust these guys when they tell you, oh, 5% or 4.5% or 4% or whatever Dart number they want to pick out, that that that's fine.
SPEAKER_00We'll we'll we'll be safe with that number. And again, remember folks, these aren't Brad's numbers that he plucked out of the air. These are directly from a slide from Callan, which is the advisors to their permanent fund themselves. I mean, it's right there in black and white, or in red and black and red, bloody red, right there. That's what's gonna happen if they combine the funds and set it at a 5% draw. You're eating into the permanent fund 14 of the last 30 years. All right, we got to continue the microphone. 17 instead of five years. Frank, who's always uh full of sarcasm, he says, uh Brad, you missed the show on the constitutional cap. Why stated? But here's the problem. Let's go back to that chart real quick. Uh that chart. Um, if you look at the chart, you realize that um even if we had a constitutional cap, it wouldn't matter because even if they spent upwards, let's just say the constitutional cap would include somewhere between four and a half and five percent, they're still in the hole. Every one of these years in red, every one of those years on this third column here, the five-year rolling average, they are in the red for every one of those. I mean, it the cap doesn't matter at that point because we're not earning the returns that we need, and they're digging into the seed corn the whole time, right, Brad?
SPEAKER_01Yeah, I mean, some people say, well, it's a cap, and the legislature in its infinite wisdom would not draw any more out of the permanent fund than what the permanent fund has earned. If there's not a provision in the constitutional, in the in the constitutional provision, or there's not a provision in the statute that says that, that you can only draw the lower of uh those two numbers, yeah. You're funny yourself, you're misleading yourself if you think the legislature voluntarily is going to go in and say, oh, well, we wouldn't do that. We know it's a cap, but we're gonna draw less because we've earned less. No, they're not. Once that constitutional amendment would pass with that cap in there, they will draw up to the cap because those who depend on spending, government spending will insist on having the revenues to support the spending they've they've built up.
SPEAKER_00And look at the look at the very top of this graph for those of you who are looking on the screen there. You see that where it says the periods are less than 5%, 12 in in a one-year rolling average, 13 in a three-year rolling average, 14 in a five-year rolling, even the 10-year rolling average, 11 of the 11 of those years, it doesn't make enough of a return. To to I mean, they oh don't worry, trust us, we will never overdraw it. That's what we hear. Oh, we would have the we would have the common sense not to overdraw. Really, really, that's what you're saying here.
SPEAKER_01Didn't we hear about hear that about the permanent fund? We would never, we would never cut the never ever do that. I mean, that's just you know in the early 20 teens. We that's the third rail of Alaska politics. We would never do that. Oops, we don't have enough money for spending. Ah, we'll just start cutting the cutting the permanent fund and then we'll cut it a little bit more, then we'll cut it a little bit more. I mean, it's yeah, you're you're kidding yourself if you think that that a cap approach and and depending upon the legislature to operate below the cap without without an absolute restriction that they do operate below the cap to match whatever the the earnings level is. You're kidding, you're kidding yourself if you think that's gonna operate.
SPEAKER_00It's um it's astonishing to watch. Astonishing to watch. Um, let's see here. Uh what else everybody's talking about Iran now. Um uh Senator Myers said something. Of course, dropping to 4.5% would nearly eliminate the rest of the PFD. Right? I mean, it it based on what we're doing now, he's right. I mean, if there was some kind of spending cap or something like that, or it was enshrined in the constitution, that's one thing. But if we all things being equal, everything was exactly the way it was today, and they dropped it to 4.5 adios PFD.
SPEAKER_01Yeah, I Alaska has this death wish because cutting the PFD is the has the largest adverse effect on Alaska families, has the largest adverse fact effect on the overall Alaska economy. And yet people think that's the first thing we're gonna do. We're gonna hurt ourselves. You know, it's like it's like Alaska is is that teenager or or whoever that you know cuts themselves because they because they they like the pain. I mean, that's what we're doing to ourselves. We're using the absolute worst approach. Uh uh, we assume that we're gonna use the absolute worst approach to meet to meet our revenue needs.
SPEAKER_00Rob just said, I tried dropping the draw for government in 2022 when oil prices spiked after the Ukraine invasion. I was shot down 7 to 12. Of course we couldn't do that. Of course, and then Charlie says, Senator Myers, the PFD would only be cut if the legislature continues to prioritize government spending over sharing proceeds with their God love you, Charlie. But what do you think they're doing right now? I mean, do you think that they're gonna change anything? Past behavior, past you know, future performance is indicative of uh of of uh uh or past performance is indicative of future results. They've this is what they've been doing. Do you think anything's going to change? You think they're going to not prioritize government spending?
SPEAKER_01Yeah. The spending is going to continue. The the issue is how we fund it. The issue is on the revenue side. And and that's where cutting the PFD is the worst thing we can be doing ourselves. It's we're kidding ourselves to think that we're gonna that we're gonna be able to reduce spending in a way dramatically in a way that would uh that would restore the PFD through spending cuts alone.
Why “Lower Of” Must Guide Draws
SPEAKER_00Yeah, Brad Keithley, our guest, the weekly top three, continues. On to number three, the question of who pays? That's the distributional analysis, right? Brad, it has to be part of any discussion that we have on revenues slash taxes, whatever you want to call them. There has to be a who pays.
SPEAKER_01Yeah. So HB 152, which is uh Representative Elise Galvin's um education tax, what she calls the education tax, uh, which is uh an uh a modified income head tax um uh combination, uh is making its way through the legislature. It's in it's in House State Affairs now, uh and it uh uh I'm I think the next committee of reference is finance. Maybe not, maybe there's another committee in there, but it's in House State Affairs right now, and it is um being considered uh by the legislature. There's an astonishing thing going on from the standpoint of, and I and I talk to people in other states and I talk to people at the at the federal level when about revenue measures and how you analyze revenue measures. And to a person, every person, every every person I talk to says, well, when we consider a revenue measure, we have we we require a distributional analysis. We require an analysis of who's going to pay by income bracket and by uh uh residents, non-residents, corporations. We we we require a full distribution analysis because we want to see who we're taxing. We want to be open and transparent about who we're who we're raising this revenue from. Alaska doesn't do that. And Alaska is all is unique, as far as I can find out, uh, is unique in not requiring a distributional analysis when they have uh have a revenue measure. Um, and so you don't know, you're flying blind. I mean, that's that's the thing. We started with PFD cuts, and the legislature started with PFD cuts in 2017 in the legislative session of 2017. They never did a distributional analysis. There were distributional analyses out there, but the legislature never did a distributional analysis itself of who was going to be affected by by using PFD cuts. They never focused on who they were going to be taking that money from. Turns out it was middle and lower income Alaskans only because non-residents weren't going to share in any of the burden. You were focusing that burden entirely on middle and lower income uh Alaska families. That's that's what the distributional analysis told you or uh would tell you. Now we're going down, now we're starting down the road, both the governor in terms of the sales tax that he proposed, Elise Galvin in terms of the income tax she's proposed, we're starting to go down the road of new revenue measures that don't have distributional analyses. So we don't know who is paying uh for these uh for uh paying the revenue, who's going to be affected by the revenue. Elise Galvin did, in the background materials that she submitted uh with uh with with the bill, uh with her proposal, did include a study from ITEP from the Institution of Taxation on Taxation and Economic Policy that was done in 2021, I think, uh, of flat taxes and uh an analysis of what the distributional impact was uh of that flat tax. But that's not what she's proposing. None of the all none of the alternatives that were in the 2021 analysis are what she's proposing, even on the tax side, even on the on the on the income tax side. And there was no analysis in there of in the 2021 proposal or the 2021 analysis of what p of what head taxes do, uh, which are you know, which is what she's proposing to raise a significant amount of revenue, share of the revenue that she's raising uh uh through head taxes. And there was no and there and there was no analysis in the 2021 uh uh analysis. There was no discussion of if you didn't raise enough to close the gap, what was going to be the impact of the other measures you were gonna need, the the funding gap? What was the impact of the other measures you're gonna have to use to flows to close that funding gap? At least Gavin's bill, according to the fiscal note, raises three 330, roughly between 300 and 350 million dollars, according to the fiscal note. The deficits we're facing are$1.5 billion plus. So what's going to close? Yeah, okay, let's assume we pass her bill, and that's the bill we got. What's going to close the remainder of the gap? Well, it's going to be PFD cuts because she's not proposing anything else with the bill. She's not proposing a package that closes. The fiscal gap entirely. She's just proposing to close a piece of it. And what's the remainder is PFD cut. So if you look, if you analyze what this bill's really doing, it's raising a little bit of revenue from income from families with incomes above 150,000. Well, individuals with incomes above 150,000, families with incomes above above 300,000, a little bit of income from that, but the rest of it's a head tax. Some of it's explicitly a head tax that's in the bill. The rest of it is a head tax that comes through PFD cuts to close the remainder of the fiscal gap that uh that we've got out there, the remaining what,$1.2 billion uh of fiscal gap that would that we've got out there. So it you to understand any revenue bill, to understand the impact of any revenue bill, you have to have a distributional analysis that analyzes the full impact of the bill. She's not got it. So we're flying completely blind into these discussions. I mean, I don't know how state affairs is even talking about this. We're flying completely blind into these analyses because we don't know who it impacts. We don't know, we don't know what the impact on Alaska families is going to be. We don't know what the impact on the overall Alaska economy is going to be. We don't know what the distributional impact of the bill is. And if that's the way we're going to do it, we're we're just setting up for a train wreck. I mean, other states, my understanding is some other states tried to do that in the past. They figured out that they were going into a train wreck, and so they've required the distributional analyses since then. Uh if Alaska tries to do this without doing a distributional analysis, without knowing transparently and upfront who we're affecting by these revenue measures and to what degree we're going to be taking money out of the pockets of Alaska families, um, we're going to be uh we're we're just setting up for an economic train wreck.
Distributional Analysis: Who Pays And How
SPEAKER_00Doesn't this go back though, Brad, to that problem with the disconnect between the public and the private economy? Because they don't really care. Uh again, they don't really care who pays. As long as somebody's paying and the government spend is protected, it doesn't matter if it's the lower or the middle or the upper income or who pay. It doesn't matter. As long as they're getting their shekels, they don't care because they just want to spend it.
SPEAKER_01Yeah, she claims to care because she, you know, she makes this point that she's that that it's an income tax. It's a you know, an income tax that's only falling on falling on upper income families, high-end upper income families. And she claims to care by saying, oh, well, we're gonna focus the the much most of the revenue burden up there. And yeah, we got this head tax that's gonna that's gonna be regressive for everybody else. She doesn't even mention the PFD cuts, but but yeah, we got this head tax that's gonna be regressive for everybody else. She claims to care by saying, look, we're trying to focus the revenue burden on upper income families, with the implication that we're lessening it on middle and lower income Alaska families. But the numbers, but she doesn't have the numbers, she doesn't put out the numbers that shows that's the actual impact and what the actual effect of the tax revenues are. So yeah, I think I think you're probably right, Michael. It's it's this thin veneer of I claim I care, you know, of a of a claim to care layered on top of I really don't care, I just want the money. Just give, just give me the money. Um, and I'll get a portion of it this way, and I'll get the rest of it through PFD cuts and and we'll just continue on down the road.
SPEAKER_00Brad Keith Lee, Alaska's force sustainable. I mean, we should we've been asking this question for years, who pays? But nobody, again, seems to care. It doesn't matter. There's no distributional analysis on any of those things. You're lucky to get a fiscal bill on half this stuff. I mean, that's really what it comes down to, though, right, Brad? I mean, they just this is it's an afterthought. I mean, she pays lip service too. I care. I care about it's a Brad. Why do you hate the children? Why do you hate the children? Where we we should have a head tax because that's but I mean, again, in the end, it's just what does it matter? Who what does it matter who it affects as long as our spend is protected, we're good to go. I don't care if it craters the private economy and more middle income Alaskans flee the state, uh, or or it puts more people on the in the lower incomes on on uh you know on uh some kind of welfare program or whatever. As long as the spend is there, we're good.
SPEAKER_01Yeah, well, it it it's you don't know what you're doing to yourself. You don't know what you're doing to the economy, you don't know what you're doing to Alaska families, you don't know what you're doing to outmigration. You've got no analysis of that. It's not like you can't do it. Heck, I do it on a lot of Fridays when I when I write the column. You build a spreadsheet, you you you take census data and you take uh uh federal income tax data, both of which are are broadly available, uh, and you you fill in the spreadsheet with that, and then you calculate the impact. And I'll probably do that with her bill uh one of one of these Fridays. But it's but it it's not like it's difficult to do it. Alexi told me, Alexi Painter, who's the the the legislative uh uh uh advisor, the fiscal advisor for the legislature, told me that at one point he had a program that that enabled a software program that enabled him to do it. It's not like you can't do it, it's not like it's rocket science, it's just building a spreadsheet. God, if I can do it, anybody can do it.
SPEAKER_00Well, because they don't they don't want to see it. That's the bottom line, right? I mean, kind of, I mean, in the in the end, they don't want to see it because it's an inconvenient truth that this is going to disproportionately affect a certain sector of the population, and they don't want to see that. They just want to see what's the end result. The end result is we got more money to spend on education or whatever else their special dog whistle is at the point, at that point. Yeah.
SPEAKER_01I I I I have hoped that the press would would pick up on that point and would talk about it. Uh, but but there's not even people, not even the Republicans in in House State Affairs have talked about it, at least as far as I can tell, have talked about it uh yet to this point. I mean, you're accepting if you don't ask for a distributional analysis, you're just accepting whatever the sponsor says about the impact. And and they have no backup for it because they've not done a distributional analysis that shows what it is. I mean, Elise will say, oh, it's affecting high-income families. We're only we're targeting high-income families. No, you're not. You're targeting high-income families for a very small share of of your overall revenue requirement. You're targeting working Alaska families for a big share through the through your head tax, and then you're targeting an even bigger share of working Alaska families out there that out there through the remainder that you're not closing, uh, that would be closed through uh through PFD cuts. You're not. You're telling yourself and you're telling you know your committee members that that that's what you're doing, but the analysis wouldn't show it. And and frankly, I think that's why you're not showing the analysis because it wouldn't back up your statement.
SPEAKER_00Right. Well, again, we get a lot of pie in the sky stuff from these folks, and this is just the first go-around. And what have we been saying on this program for years, folks, with Brad here, right? We've got to talk about taxes, even though it's distasteful, because if we don't, somebody else will. And look at what's happening. Um, I think it was who was it that was yesterday? Was it Sarah that said that there's something like 112 revenue bills floating around the legislature right now on various forms? There's going to be a tax. There, there's it's going to happen. It's inevitable. Charlie's commentary, which was sarcasm earlier, um, but Charlie's commentary earlier about, you know, if they would only prioritize, if they they would cut, if they stop prioritizing government spending, you know it's not going to happen, right? And so we have to talk about how it how it affects us, Brad.
SPEAKER_01And Michael, we already have a tax. I mean, that's what PFD cuts are. They are a tax on middle and lower income Alaska families. They're a diversion of income to government, the involuntary diversion of income to government, which is the classic definition of a tax. And we've not done it, we've not done a distributional analysis on that. Why? Because it would show that it's affecting only Alaskans and it's affecting largely middle and lower income Alaska families.
SPEAKER_00Um we need that information out there. HB 152, the head tax. 49 out of 51 written testimonies support the head tax. Of course they do. Of course they do, because they've they've worn us down to this point. Because I mean, they they've got they've got all the special interests ginned up, right? They've got all the teachers and all the all the ed people and the NEA folks, and they're all out there. They're they, yes, they curate testifiers, as Barbara says. They know exactly how to motivate their special interest. And we're just so tired of the whole thing, we just don't even know what to do at this point. Um, which is why we can't grow weary in well-doing. Uh there you go. Um, Brad, thank you, my friend. I appreciate you coming on board uh and joining us. As always, it's good to hear from you. Thank you for uh being part of it today.
HB152, Head Taxes, And PFD Cuts
SPEAKER_01Michael, as always, thanks for having me. We appreciate you. 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.
