Even that understates the free ride Alaskans have gotten from their oil bounty. Every Alaskan resident is eligible for an annual check from the Alaska Permanent Fund, an account funded by some of that oil money. That amount, despite dwindling in recent years, has been at least $1,000 per person, or more than $4,000 for a family of four, for most of the past few decades.
But last week, Alaska Gov. Mike Dunleavy (R) told his constituents that the gravy train is over. Oil prices and production have been down for many years, and there is little prospect of either increasing significantly. That means oil and gas tax revenue no longer supports what the state pays for its services. And rather than levy new taxes or cut the dividend, Dunleavy showed the leadership that many conservatives contend is lacking in Washington and proposed slashing state spending by nearly 25 percent.
Those cuts are real, not some phony accounting scheme against “projected” spending. The state’s K-12 schools would see their basic state aid cut more than 23 percent from last year’s appropriation. The state’s Medicaid program would get slashed by about a third. The state general fund subsidy for the University of Alaska would drop by more than 40 percent.
Some conservatives have long said that government spending could be significantly cut primarily by eliminating government waste. There surely is fat to be trimmed, as there is in any large entity. But the simple fact is that the bulk of government spending goes for services that benefit large numbers of people, and Alaska’s budget cuts would also damage thousands of people working for government who would either lose their jobs or see their pay cut.
Keeping the dividend high and taxes almost nonexistent would have serious consequences. The cuts to K-12 education would mean suburban parents see teachers and aides laid off, activities curtailed and significant changes made to teacher compensation. Will they want to bear those costs? About 200,000 Alaskans — more than 20 percent of the population — are insured through Medicaid. The massive cuts would reduce benefits, as the governor acknowledges, and more than 40,000 people who gained Medicaid coverage in 2015 might lose their health insurance. Will Alaskans be willing to do this? University of Alaska in-state tuition is less than $9,500 a year, significantly below that of the University of California (roughly $12,600) and the University of Virginia (roughly $16,000). How much more tuition will Alaskan students and parents be willing to pay?
Taxpayers already know they will have to sacrifice to keep current levels of spending. The legislature has balanced the budget in each of the past three years in part by cutting the Permanent Fund dividend by about $1,000 per person. Alaskans would likely have to make those cuts permanent or give up the dividend entirely, given that the state has already appropriated money from reserve funds in recent years to keep spending up. There just isn’t enough money left in those accounts to keep filling the gap between taxes and spending without cutting the dividend even more.
So Dunleavy’s budget is forcing Alaskans to decide how much government they want and how much they are willing to pay for it. That’s precisely the debate small- government conservatives have wanted to force for decades. Now that the debate is in the open, however, they might find the result isn’t as clear cut as they would like.
A similar experiment in Kansas didn’t turn out like many conservatives expected. In 2012, then-Gov. Sam Brownback pushed a supply-side income tax through the legislature, cutting income tax rates and entirely eliminating state income tax on income from privately held businesses. Brownback said this would spur growth, but growth was never strong enough to make up for greater-than-expected revenue losses, leading to cuts in government programs.
Moderate Republicans finally had enough. During the 2016 GOP primaries, they defeated a number of pro-Brownback lawmakers in the statehouse, and together with minority Democrats, they repealed the tax cut and overrode the governor’s veto.
The speech that propelled Ronald Reagan to national attention was called “A Time for Choosing.” He asked Americans to choose freedom over what he labeled the “soup kitchen of the welfare state.” Alaska is a red state with a libertarian streak, so we might expect that it would eagerly choose freedom. Then again, maybe it will be Kansas all over again.