This piece appeared in the Journal of Commerce on 5/10, and in the Voice of the Times on 5/13.
Anyone trying to understand Alaska's state budget soon learns that it's hard to see where the money comes from and where it goes. Whether you think the budget has gone up or down depends a lot on what your definition of "budget" is.
The problem is compounded by financial jargon. "Off-budget," "statutorily designated funds," "restricted funds," "constitutionally dedicated funds," "maintenance of effort expenditures," ... the words threaten to turn the Capitol building into the Tower of Babel.
That's why the Alaska State Legislature has been working hard to present the state's budget picture in a more complete and understandable way, known as "Truth in Budgeting." We have worked with the Knowles Administration to develop a cross between a cash-flow statement and a balance sheet, that shows all sources and uses of state funds, and demonstrates the magnitude of Alaska's $1.2 billion fiscal gap.
Truth in Budgeting starts with the Legislature and Administration agreeing to stop debating terms, and to start using the same spending and income categories, budget numbers, and assumptions on inflation, oil prices and production forecasts.
Truth in Budgeting continues with a comprehensive look at Alaska's expenses. Because the $993 million in Permanent Fund dividends and $227 million in inflation-proofing projected for fiscal 1999 must be classified as a state expenditure, the Permanent Fund is Alaska's single largest annual expense.
The federal government will deliver a projected $1.43 billion to Alaskans in fiscal year 1999, comprising the second-largest state expenditure. By federal mandate, this money must be used only for specific programs including welfare, Medicaid or other health services.
General-purpose funds, at $1.2 billion in fiscal 1999, are the third-largest state expense. No changes to Alaska's constitution or laws are necessary to reduce spending from these funds.
Nearly 11 percent of the budget, or $724.4 million, is spent as statutorily-designated funds and cannot be reallocated. Interest from Alaska's $242 million Public School Trust Fund, for example, can by law only be spent on public schools.
Truth in Budgeting also consolidates state expenditures into just 11 general categories. These include agency operations (e.g. state departments), formula programs (e.g. K-12 funding) capital funds (e.g. roads, sewers), Permanent Fund dividends, and others. In total, the state will spend a projected $7.58 billion in fiscal year 1999.
Truth in Budgeting then provides for clarification of all sources of state funds, combining dozens of different income sources into seven easily understood categories, totaling $5.04 billion in fiscal 1999. With the addition of $1.43 billion in federal funds, Alaska's total income is projected at $6.47 billion.
Expenses of $7.58 billion, and income of $6.47 billion - a fiscal gap of $1.11 billion. While the facts are not pleasant, thanks to our Truth in Budgeting initiative, they are much clearer to everyone. Once integrated into the Governor's and Legislature's budget software, the benefits of this initiative will be fully apparent in the next budget cycle.
Truth in Budgeting means better, more complete disclosure of state income and expenses. It provides Alaskans with a clearer picture of the causes of our budget shortfall. It helps us define the terms we must use in evaluating the state's finances. And it points the way to crafting a sustainable, long-range balanced budget plan that works for Alaskans.