A System Failure and An Idea

On the last day of the legislative session the Alaska Legislature passed House CS for CS for Senate Bill No. 230(FIN) am H also known as the capital budget. Its largess rivaled any other capital budget in the history of the State of Alaska. Some said they were being good stewards. Others likened the passage of the bill to irresponsible spending. What is clear is that in Alaska where the Permanent Fund Dividend is sacred and a proposal to tax the people to pay for public services might be cause for a revolt, members of the legislature are not rewarded for exercising fiscal restraint, especially in an election year. Did the system fail or did it produce the results it was designed to produce?

In years where there are not enough funds to balance the budget, legislators are rewarded (by reelection) for cutting the budget and minimizing the pain to their constituents. This usually means cutting special programs with limited constituents and cutting or miminizing the increase in administrative budgets.

In years of plenty politicians get elected for obtaining funds for their communities. If there are no short-term negative consequences, there is generally no opposition to spending, even excessive spending, so long as the legislator’s constituents receive a portion of the benefit of that excess.

In the legislature’s defense, they did pay back the remaining funds that had previously been borrowed from the Constitutional Budget Reserve, and they did forward fund education. So what is the problem with spending a little extra when you have it?

Perhaps that question should be asked of the Alaskans who may be most impacted by excessive spending. Perhaps we should ask the Alaskans who are not at the table and who cannot defend themselves against the poor decisions of this generation. Perhaps we should ask the Alaskans who will bear the costs of such a decision. The costs will be borne by those who are not at the table: the future generations of Alaskans. The financial impacts of excessive spending in the short term and the failure to spend in the context of a long term plan are not borne by the present generation. They are borne by future generations when the poor decisions of this generation finally come to roost. The decision makers of future generations will be blamed for the failure, for the failure to plan, for the failure not to forsee the collapse. But it is the current generation of legislators that should be held accountable.

Luckily there is a balance of power in the Alaska political process. The governor has a right to veto those appropriations he feels are inappropriate or excessive. The governor, unlike the legislature, is not accountable to a small group of constituents from a specific district. The governor can provide the leadership necessary to protect both the present and future generations. The governor can examine each appropriation with an eye to the benefit it will provide to the people of Alaska. The governor can examine each appropriation with an eye to the increased maintenance burden placed on this and future generations. The governor can examine each appropriation with an eye to understanding that perhaps saving in years of plenty is a logical choice to meet the needs of those years when there will be budget shortfalls. Perhaps the governor can provide the balance and leadership that was not available during the legislative process.

But this is an election year. Will election year politics affect the governor’s decisions? Will the governor calculate the number of votes lost by every line item veto? Will the other gubernatorial candidates cherry-pick the line item vetoes they think were wrong in an effort to gain advantage over the governor in the election? Will good decision making by the governor be sidelined in an effort to get reelected?

In light of the pressures of election year politics on good decision making, I have a proposal to make that should balance the field between the candidates and should provide a snapshot of how each gubernatorial candidate would lead the State over the next four years.

I call this proposal The Red Pen Challenge.

I propose that every candidate for governor should review the capital budget and identify those items they would veto and submit them to the people of Alaska at the same time the Governor submits his signed capital budget bill, with appropriate vetoes if any, to the people of Alaska.

Rules of the Challenge

1) The governor agrees, in advance, to the date and time he will make public his decision on the capital budget.

2) Each candidate will submit their proposed capital budget to the public on the same date prior to the governor’s submittal to the public.

3) Governors Rules apply. – Each candidate will be required to provide the public with a copy of the budget with the specific “vetoed” items lined out and initialed, just like the Governor is required to do.

4) All newspapers will be encouraged to post on their web pages all responses so the Alaska public can compare the “decisions” of each of the participating candidates and add this information to their overall evaluation of who they want to support for governor.

I believe the above proposal will provide the appropriate scrutiny that was not applied during the legislative process to each and every appropriation in the capital budget.

Since the capital budget has not been transmitted to the governor there is still plenty of time for each of the candidates to comply with the above challenge. They will have the same amount of time to review and analyze the capital budget as the governor has.

I am also certain that if a candidate needs more information about the value of a specific appropriation, the recipient of that appropriation will be glad to provide the candidate with as much information as the candidate needs to make their decision.

I will be contacting each candidate and the governor over the next week to see who will be willing to rise to the challenge. The governor is the only candidate that will automatically participate because he is required by law to make a decision on the capital budget. The governor still needs to agree to a specific date and time when he will communicate his decision on the capital budget to the public.

I am looking forward to sharing their responses to the challenge in a future article.

The Point Thomson Unit - The Next Step in the Process.

In September 2005 the Director of the Division of Oil and Gas, Department of Natural Resources disapproved the Point Thomson Unit (PTU) owners’ 22nd Plan of Development (POD) because “it did not set out a plan to bring the PTU into commercial production within a reasonable time frame.”

The Director believed that the pace of prospecting and development for the PTU should be more aggressive than what the PTU owners proposed; so he rejected the POD. Ultimately the Superior Court upheld his decision rejecting the 22nd POD.

After several years of appeals, and after the current appeal to the Alaska Supreme Court, the next step in the process will be for the Director to explain what he considers necessary to diligently develop the PTU. As a part of that explanation the Director can state that if his determination is not accepted by the PTU owners, the unit will be terminated. This explanation would normally take the form of a proposed POD that would be agreed to by the PTU owners. Once the Director explains what he believes is necessary to diligently produce the PTU, the Director will give the PTU owners at least 30 days notice for an opportunity to comment on the proposed POD.

After the hearing the Director will make a final determination regarding the rate of prospecting and development for the PTU. If the PTU owners disagree with the Director’s decision, they can once again appeal that decision to the Commissioner and to the Superior Court.

The PTU owners’ obligation will be to convince the court that what the Director proposed is “in excess of that required under good and diligent oil and gas engineering and production practices.” Because the decision involves substantial agency expertise and not merely an application of the law, the court will apply the reasonable basis test and give deference to the department in its review of the Director’s decision.

To quote the court “Under the reasonable basis standard of review for administrative decisions involving complex issues involving agency expertise, the court is to give deference to the agency’s determination so long as it is reasonable, supported by evidence in the record as a whole, and there is no abuse of discretion.”

This means that unless the Director grossly oversteps his authority, the Superior Court will uphold his determination. The PTU owners understand this and will not risk losing the PTU over an appeal unless the PTU owners believe the Director clearly overstepped his authority in what he required of the PTU owners.

Once this step in the process is completed the PTU will be back on track moving toward development.