In a comment on the story about Standard & Poor’s warning Alaska to get its fiscal house in order or risk a credit-rating downgrade, reader Garand Fellow argues that not only are the credit ratings agencies urging Gov. Bill Walker to make tough choices, Alaskans have given him buy-in to do so also, if he chooses to go that route. If he doesn’t? The agencies, which are watching Walker closely, will take note. “If there is a credit rating downgrade it will come not from lowered oil prices but from lowered expectations of this still new governor,” Garand writes.
He/she drives the point home: “This is a strong governor state. The governor can take action without having to convince an elected AG and an elected state treasurer. An Alaska governor who would rather not lead has no place to hide; no one else to blame.”
Read on:
The credit rating agencies are not surprised that a credit has challenges, and even a triple-A credit is expected to have them. But there are additional expectations. Cash is king, but the agencies expect to see more leadership, and decisive leadership, out of say a triple-A credit than they might out of a double-A credit. They expect no games; no hide-the-peanut, no razzle-dazzle, no Hail Mary action. They expect quick, organized, decisive action explained very well to Alaskans and to the agencies. I cannot imagine that anything would be a higher priority right now for Governor Walker.
What does this mean? It means that Governor Walker must bring agreement early in the legislative session to some plan that matches revenues and expenses before the CBR and SBR are exhausted. Counting on higher oil prices coming to the rescue, selling bonds (including pension obligation bonds), and making proposals that the legislature is unlikely to accept would not be appropriate for even a single-A credit (although downgrades are done in small increments over time, otherwise the agencies look like they may not have been paying attention).
The best and arguably the only tool Governor Walker has for the remaining half of FY2015 and for FY2016 is reducing expenditures. Programs need to be furloughed or eliminated. Again, from a triple-A credit the agencies expect to see a high level of leadership, and they understand Alaska very well. This is a strong governor state. The governor can take action without having to convince an elected AG and an elected state treasurer. An Alaska governor who would rather not lead has no place to hide; no one else to blame.
This rating agency action, and these outlook changes (Moodys lowered their outlook, and here S&P has done that without doing that) and concerns formally stated are both actions and warnings, should not be ignored. However, the dollar cost is minimal if no new debt is sold. At the same time, a credit rating downgrade would markedly reduce prospects for the state having an equity interest in large new enterprise projects.
The Walker administration has lots of positive information to give the agencies. Alaskans recognized the situation and turned down Ballot Measure 1 last August. Governor Walker ran on quickly balancing the budget which was at that time $7 million per day in the hole and now is $12 million per day in the hole – so he can say that Alaskans expect him to reduce spending right now. In fact, we do expect him to reduce spending right now, not waiting for the legislature and not deferring to the legislature. Governor Walker has the cover to take action.
Where the agencies depart from Alaskans is that the agencies would applaud Governor Walker for putting the Permanent Fund earnings reserve in his FY2016 budget and ending the PFD. Governor Walker needs to reduce real spending and end real programs in order to gain sufficient buy-in from Alaskans but the agencies would buy into that right now. Still, the agencies expect to see real reductions in per capita state spending because state spending is so high in Alaska.
Governor Walker said time and again during the campaign that he is up to this job. While Alaska media have mostly failed to do so, the credit rating agencies have now put Governor Walker and Alaska on notice that it’s time to end the talking and take action. If there is a credit rating downgrade it will come not from lowered oil prices but from lowered expectations of this still new governor. You can take that to the bank.
The answer to your question is; yes, if Governor Parnell had been re-elected, and if the credit rating agencies had similarly responded to the operating deficit then I would urge him to now take decisive, prompt action in balancing expenditures with expected recurring revenues. Every Alaskan has every reason to expect Governor Walker to be even more likely to perform because during the campaign Governor Walker repeatedly and rightly criticized Governor Parnell for spending $7 million per day more than the state was receiving in revenues. Governor Walker could today be reassuring Alaskans that he meant what he said, that he will balance the budget, and that overspending today of $12 million per day will be eliminated. The credit rating agencies need to hear that if the state credit ratings are to be be preserved and he needs to have a credible plan to do that.
Governor Walker should introduce a balanced budget. That would put the credit rating agencies in a wait and see mode. It would bring 60 legislators into helping solve the problem. It would put Alaskans on notice that recovering from the current petroleum revenue situation with the same huge state and municipal governments we have today is entirely unlikely. It would give some hope that campaign rhetoric had something behind it. Any later proposed draw-down of the CBR and SBR would not then have been proposed by Governor Walker.
I am not politically smart or experienced but it occurs to me that introducing a balanced budget – yes, honestly and arithmetically matching expenditures with forecast FY2016 revenues – before January 20 when the session begins. That would deflect some of this ongoing credit rating concern and any possible concern from other quarters about potential gas line financing and construction impact yet an organized response from House and Senate majorities would be unlikely given the holiday and travel status of legislators. Interest groups such as the education lobby and the medical industry might flee to individual legislators.
Actually, the decline of the oil price and decrease of revenue (free money) to Alaska is a good thing. It has, or will, bring budget and fiscal discipline to our elected officials. Nothing else will. All our elected officials are responsible for this out-of-control spending that has gone on for years. Democrats, Republicans, governors, mayors, school officials, non-profits, crony capitalists, and bureaucrats. Now all of them either need to lead or get out of the way and let those who will lead do it. I might add that the first thing the governor/legislature needs to do is end the school construction reimbursement program by which a school district is reimbursed 70% for its bonds. Anchoragites need to vote down both school bonds this spring because the state probably will not reimburse for these new bonds. Remember, those past reimbursements from the state have to be appropriated every year.
John Q,
Your comment makes sense because, as you point out, the courts will side with those who expected to see the funds spent as appropriated. There is the concept of “legislative intent” and doesn’t that principal also extend to budget appropriation?
While I suppose he or she has some flexibility within the departments of the Administration, the Governor’s power over spending appears to be limited once the budget becomes law. He or she is not given a pile of cash to spend (or not spend) as he or she sees fit nor does it appear that the line item veto power exists after the budget becomes law.
While it may be too late for this budget cycle, perhaps Governor Walker should consider future use of a special session to force the legislature to deal with future fiscal reality.
While that may be true, my recollection is that in around 1986- with oil prices plummeting and long after the budget was signed- Governor Sheffield impounded 10% of state school district funding weeks before school was going to start. While some may have questioned the legality, using the separations of powers and legislature’s power to appropriate- and in fact took it to court and won- the legislature later agreed and enacted legislation to support Sheffield.
My recollection is also that when oil prices spiked upward in he spring, school and other findings which had been impounded were restored in large part.
Governor Walker is faced with a number of options- none of that good- and each sure to piss off a certain constituency. For example, why should the state continue to “share revenues” with municipalities when there isn’t any revenue to share- and when the program subsidizes and masks the true cost of local government? Etc. etc. etc.
Lynn: Once the budget’s signed, it’s signed. However, the governor can tell departments not to spend unused funds–or limit that spending of such funds through both formal and informal directives. Formally, he can direct departmental action with both administrative and executive orders.
Individual budget line item vetoes can, I understand, be defeated by the legislature; however, is the inverse also true? After the state budget is signed into law can the Governor exercise his or her constitutional line item veto authority retro-actively or would he or she have to call a special session to create a new budget?
Gov. Walker – This is priority #1, 24/7. Now, not January, not June 30.
Note to Shattered and Fred Flinstone:
It’s time to be realistic. It’s time to quit pointing fingers and casting blame. With regard to the state’s fiscal problems, thank goodness that Parnell and the legislature passed SB 21. Thank God, the public didn’t repeal it. Fact is, SB 21 is bringing substantially more money into the state coffers than we would be getting under ACES. Also, SB 21 eliminated the crushing and costly tax credits. Thank you Governor Parnell for this. What part of this reality are you unwilling to accept. Unfortunately for these two uninformed commentaries, facts are facts.
Today’s problem has nothing to do with Governor Parnell, nor Governor Walker. The problem is global economics and the declining price of oil which is not controlled by anyone in the governor’s seat.
The problem (this is reality too) is that it needs to be dealt with and now. It is a crisis of tsunami proportion that will never be convenient or timely. Regardless if this hits 3 days, 3 weeks, 3 months or 3 years into the governor’s term it needs to be dealt with with immediacy and as a crisis. Mr. Fellow’s comment is indeed accurate and seems to be based in reality. Unfortunately, you two guys’ emotional state seems incapable of addressing complex problems based in reality or from an intellectual approach.
Parnell, Walker or whoever is governor needs to immediately take steps to stop the bleed. This is what a real leader would do.
I will agree that Parnell wasn’t much of a leader. Unfortunately, Walker is looking like Captain Zero 2. Too bad for all of us.
Well, said Jon K.
@Shattered – I didn’t say he should have it “all figured out” by now, and clearly it takes time to put things together, but I would expect at least some general ideas and plans. I keep reading stories in the papers where he and his people say they are asking for business leaders, state employees, and the general public to help generate cost saving ideas. Being open to input is great. I just hope there some eggs in other baskets, also, for all our sakes.
I can make suggestions about cost savings, but I’m not the guy sitting in the big chair.
Well, said Jon K.
@Shattered – I didn’t say he should have it “all figured out” by now, and clearly it takes time to put things together, but I would expect at least some general ideas and plans. I keep reading stories in the papers where he and his people say they are asking for business leaders, state employees, and the general public to help generate cost saving ideas. Being open to input is great. I just hope there some eggs in other baskets, also, for all our sakes.
I can make suggestions about cost savings, but I’m not the guy sitting in the big chair.
Shattered,
True enough – up to a point.
As an initial matter, it is really time to retire the line about Parnell giving away resources. SB 21 brings in more money than ACES when oil is below $105. It brings about the same amount until $110 or so, and then aces starts bringing in more. This is just a fact.
But more importantly, anybody that cares about the deficit and sustainable budgets knows what the drivers are: health care, pensions, Medicaid, and education – capital spending certainly contributed to the deficits and we should have saved more during the Parnell era by not pursuing so many dumb projects. But the point is: if you are running for office with cutting deficits at the heart of your platform, we should expect (hope?) that (i) there is a plan to deal with issues like health care costs, education, pensions, and Medicaid, and (ii) the politician has surrounded himself with people that have enough familiarity with the operating budget – which are on the state’s website – to know what they want to cut.
I certainly agree that we need to be patient and give Walker some time to get acclimated, but given that bringing down the deficit was a top priority, I would hope that he has a plan in place. And to echo what Garand said, Alaska’s constitution vests the governor with extremely broad powers to accomplish his goals.
@Shattered, Governor Walker Is well aware that the state is operating in a deficit to the tune of 3.5 Billion. His response was a proud announcement that he was ‘more fiscally responsible’ than the previous administration and to prove it he had cut 113 million from the Capitol Budget.
For perspective, A Billion is equal to a thousand million.
For you folks out there who like to think, Think about this: that 113 million dollar cut amounts to about 1/10th of a percent of the deficit. It leaves the state still in a deficit of 3.387 Billion. While I hate to say this and admit that I’ve excoriated others for doing so, 113 million does not amount to a hill of beans in this case.
My thoughts exactly. If Parnell were to have won the election, I’m sure that there would be a hundred excuses as to why this situation could not have been avoided. Hell, we handed our resources over to the Big Three on a silver platter. What else could he have done to avoid this?
That said, I did vote for Walker (both times that he ran for governor) and had little expectation that much would change until the 2016 legislative session. I suspect that it will take at least a year or more for the administration to get a handle on where we are and what can be done to reduce our spending and increase our revenue.
A user named Straitlaced Radical seems to think that the Walker administration should have this problem figured out by now. In my mind, that is an unreasonable expectation. The permanent commissioners and directors haven’t even been named yet. Having worked trough four administrations, I have seen it take up to six months for this to happen with the exception of the Parnell administration. He left most of the directors in place for over two years after he assumed office. Many of them needed to be let go immediately, but he said that he felt that they had signed on for four years when Palin appointed them. A few of the most embarrassing appointees below the commissioner level were let go right away, but most stayed in place until after the 2010 election.
Walker’s people have only had access to the books for three weeks now and there is every possibility that the interim holdovers from the Parnell administration aren’t going to hold their cards pretty close to their chests during the transition and be less than forthright with the oncoming staff. I’ve seen it before and I have no reason to think that it will be different next time around.
So, I really wouldn’t expect too much to happen for a year. It will take that much time to get a handle on what is going on and determine what course of action to take.
@Fred – Not much happening at the quarry today but if Mr. Slate catches us reading blogs he’ll surely fire us. As for your comment, Parnell is old news. Time to move forward with the Walker administration. Today’s problems belong to Walker. He wanted the job, He said he would deal with deficits. It’s his time to lead.
Don’t forget that we’re meeting up at the Bedrock Bowling Alley tonight. Bring Wilma!
Interesting that Garand and others never seem to mention that a huge portion of the mis-match between revenue and expenses is a result of budgets from the Parnell years.
One has to ask Garand if he would be posting the same comment if Sean had won re-election?