1. Completing the Task Delivering Long Term Fiscal Sustainability Randall J Hoffbeck, Commissioner Department of Revenue

2. Is a Long Term Fiscal Plan a Sisyphean Task? 2 In mythology there was a king named Sisyphus who was cursed in Tartarus (a place darker and worse than Hades) by Zeus. The nature of his crime is immaterial but suffice it to say he is tasked to roll a boulder up a hill but always, just before the boulder reaches the top, it will roll back down again and Sisyphus would be forced to repeat the task again and again for eternity. Essentially, a Sisyphean task is a task doomed to fail - a punishment meted out for an eternity in frustration.  NSAP

3. Is a Long Term Fiscal Plan a Sisyphean Task? How can I incentivize a decision-maker to take action NOW that prevents an unfortunate outcome later in the FUTURE? (How can I incentivize someone to take an action to prevent a crisis when the public reaction to taking the action is universally negative) Detlef Sprinz Ph.D. Postdam Institute 3

4. Is a Long Term Fiscal Plan a Sisyphean Task? The Key is Education. The public needs to understand the decisions the Governor and Legislators are facing if we hope for the public to accept the decisions once they have been made. What are we facing What has been done so far What is left to do 4

5. Where We Are Now FY17 Operating and Capital budget$4.4 billion FY17 Permanent Fund Dividend$0.7 billion Total FY17 UGF Expenditures$5.1 billion FY17 Permanent Fund earnings Draw $0.7 billion FY17 Non Petroleum Revenues (UGF) $0.5 billion FY17 Petroleum Revenues (UGF) $0.7 billion Total FY17 UGF Revenues $1.9 billion FY17 Funding Deficit $3.2 billion 5

6. Where We Are Now 6

7. The Fiscal Cliff is Here CBRF balance 7/1/16 = $6.5 billion FY17 CBRF revenues = $0.2 billion Total FY17 CBRF = $6.7 billion FY17 draw from CBRF = ($3.2 billion) CBRF balance 7/1/17 = $3.5 billion CBRF reserve allowance = ($1.5 billion) CBRF available for FY18 = $2.0 billion 7

8. Sisyphus Revisited 8

9. Boulder 1: There’s no need to Panic. We’ve Seen This all Before. 9

10.  billions (real)  State Budget Petroleum Revenue Boulder 2: We Only Have a Spending Problem 10

11. Boulder 3: We Must Cut Spending First 11

12. Boulder 3: We Must Cut Spending First Commerce, Community & Econ. Develop. Education & Early Develop. (non-formula) Military & Veterans Affairs Labor & Workforce Development Fish & Game Natural Resources Governor Environmental Conservation Revenue Transportation & Public Facilities Administration Law Legislature Health & Social Services University of Alaska Corrections Public Safety Education & Early Develop. (formula) Judiciary 12

13. Boulder 3: We Must Cut Spending First Expenditures:FY13FY17 Operating -28%$5.9 B$4.2 B Capital -95%$1.9 B$0.1 B PFD Check +11%$900$1,000  “Expenditures have been cut 44% ($3.5 billion) since FY13….”  Legislative Finance Revenue: -82%$6.9 B$1.2 B 13

14. Boulder 4: Alaskan’s Don’t Understand and Aren’t Ready? Take action now, not later:  Government must be cut further  Protect essential services Use of Permanent Fund earnings is acceptable if:  Protect the Permanent Fund Corpus  Preserve a Dividend Program New Revenues are acceptable if:  They are not supporting a “bloated” government  The burden is shared equitably 14

15. Boulder 4: Alaskan’s Don’t Understand and Aren’t Ready? Understand Over 80 meetings with public groups. Numerous radio and TV discussions. 400+ individual meetings with legislators. Rasmussen poll 90% recognition of states fiscal situation in the state’s general public. Ready ? 15

16. Boulder 5: We Can’t Because They Won’t Rise of Ideology: “Political polarization has increased nationally, and that trend has bled through to Alaska…. The increased power of ideology clearly makes legislative compromise and coalition-building more difficult.” Cliff Groh Other Factors Influencing the Handling of the Fiscal Challenge 16

17. Boulder 6: Reducing the Dividend is Unfair? 17

18. Boulder 7: Passing APFPA Would Remove the Incentive for Making Other Changes? FY17 Operating and Capital budget$4.4 billion FY17 Permanent Fund Dividend$0.7 billion Total FY17 UGF Expenditures$5.1 billion FY17 Permanent Fund earnings Draw $2.6 billion FY17 Non Petroleum Revenues (UGF) $0.5 billion FY17 Petroleum Revenues (UGF) $0.7 billion Total FY17 UGF Revenues $3.8 billion FY17 Funding Deficit $1.3 billion 18

19. Alaska Permanent Fund Protection Act A fiscal framework for using our wealth to:  Help resolve this year’s fiscal challenge  Sustainably fund government operations into the future  Provide the maximum benefit to the broader economy Main components of the framework:  Royalties into the Permanent Fund  POMV draw  Royalty/Investment dividend  Periodic review 19

20. Alaska Permanent Fund Protection Act 20

21. Boulder 8: No New Taxes/We Must Tax More First 21

22. Boulder 9: We can wait until next Year  FY2014: $12.8 B  FY2015: $10.1 B  FY2018 $0.0B  FY2017 $3.5 B  FY2016: $6.2 B 22

23. We can’t wait until next Year Less money, fewer services, and higher taxes; Further credit downgrades; Degraded confidence and less private sector investment; The CBR will be gone next year; And the budget deficit will still exist. 23

24. 24 Alaska Has a Choice

25. FY18 Budget and Future Spending Reductions Revenue Increases Alaska Permanent Fund Protection Act The New Sustainable Alaska Plan 25

26. The New Sustainable Alaska Plan New Sustainable Alaska Plan Existing Revenue New Revenue Past Deficits Lowest taxes in the nation. Receive a dividend. Grow our savings. Continue to provide essential services. Invest in future 26