A Republican state senator from Anchorage is proposing major changes to Alaska’s state spending cap, in the first step toward a long-term plan to balance the state’s budget that multiple legislators say is a priority.
The proposal from Sen. James Kaufman, R-Anchorage, received its first hearing in the House Judiciary Committee on Friday, where it was sponsored by Rep. Will Stapp, R-Fairbanks. Additional hearings are expected in the coming weeks.
Kaufman’s proposal — sometimes called the Kaufman-Stapp plan, though Kaufman is the principal author — would create an annual state-government spending limit that’s based on a five-year average of the state’s nongovernmental gross domestic product — the sum of all private-sector goods and services created in the state.
The goal, Kaufman said, is to prevent state spending from surging when oil prices spike and to avoid spending from plunging when oil prices fall, something that could cause double-dip harm to the state economy.
“A five-year average will moderate the boom-and-bust-type effects,” Kaufman said.
In years when oil prices spike, Kaufman envisions the windfall being saved, then spent in future years, spreading the impact of that price spike long after prices have returned to lower levels. That would mean years of reliable construction work, instead of mass hirings and layoffs depending on the boom and bust cycle.
“If we can avoid the booms and the associated spending, and then the busts, what we’ll have is more reliable, predictable funding, so that we can get caught up on capital project work, maintenance, and, importantly, the workforce retention that goes with this,” he said.
Other states have spending caps based on economic indicators, but if the proposal were passed by the Legislature and approved by voters, Alaska would be the first to base an appropriation limit on GDP.
Alaska already has an annual spending limit — it was installed in 1982 and remains in the Alaska Constitution — but it’s never been reached and a bipartisan, bicameral working group suggested a lower limit in 2021 as part of a long-term fiscal plan.
Other parts of that plan include spending cuts, new revenue (possibly from taxes), and constitutional amendments to both limit the size of the state government’s annual draw from the Permanent Fund and guarantee a Permanent Fund dividend.
Under Kaufman’s proposal, there would be a much tighter cap, according to estimates provided by the senator’s office.
In fiscal year 2023, which runs through June 30, the state’s existing spending cap is above $11 billion. The new hard cap would be a bit over $6.2 billion, more than the $5.8 billion in cap-covered spending that legislators approved last spring.
Kaufman’s plan also creates an even lower soft cap — currently about $5.1 billion — that can be broken only with the support of two-thirds of the Legislature’s 60 members.
The hard cap is proposed as a constitutional amendment; the soft cap is proposed as a state law, which might allow bare majorities of legislators to bypass it as they do the existing Permanent Fund dividend formula.
As currently envisioned, the Permanent Fund dividend, disaster spending, bond proposals, and federal grants would fall outside the cap, while most services, such as K-12 education, the university, roads and the ferry system, would fall under the cap.
Even with those exceptions, legislators would find themselves constrained. Members of the public are advocating increases to state funding for K-12 schools and for the restoration of a state pension plan open to new employees.
At present levels of spending, either idea could become impossible if spending is capped at levels proposed by Kaufman and Stapp.
“Some people are just inherently fearful of caps because a cap is often equated with a cut and say it’s a Trojan horse for a cut. This isn’t it,” he said.
In a separate piece of legislation, Kaufman is proposing strict management plans and process controls for state agencies. If spending is reliable, better planning could improve efficiency, saving money and enabling additional spending under the cap.
Rep. Cliff Groh, D-Anchorage and a member of the House Judiciary Committee, ran for office last year on the importance of a spending cap, which he envisions as part of the “five-legged stool” proposed under the 2021 fiscal plan.
He said he could be open to Kaufman’s proposal but said he’s not sure whether the size of the cap is correct. And he questioned whether the time is right — can the proposal advance without the other pieces of the fiscal plan?
“There’s a number of technical questions about Kaufman’s proposal, as well as the central timing question that I have,” he said. “I think there’s a number of legislators who have similar sentiments.”
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