Alaska legislators to look at how they’ll fund the budget

JUNEAU — With just under a month left in the legislative session, Alaska lawmakers are trying to figure out how to pay the bills given a steep drop in oil revenue that’s left the state mired in deficits. There are a plenty of ideas, but there’s no clear consensus on a path forward.

A lot of pieces in play would impact the budget. Taxes. A restructuring of the Alaska Permanent Fund that, as proposed, would affect how the annual dividends Alaskans receive are calculated. Bills aimed at cutting costs in Medicaid and reducing the prison population. Changes to the oil and gas tax credit program. Legislators also have hinted at looking at other areas, like state pension systems.

So far, the state has been using savings to help cover costs.

With the discussion on revenue expected to begin in earnest, some legislators are interested in a restructuring of the Permanent Fund that would provide an annual draw from earnings to help pay for state government. But there’s interest, too, in ensuring there’s a broader discussion, with some legislators concerned with the impact that a change in the Permanent Fund Dividend would have on rural Alaska and wanting a balanced approach to whatever is done.

Some legislators aren’t interested in raising or creating taxes at this point but others say that everything needs to be on the table. Some would like to see a smaller budget. Minority Democrats contend some cuts proposed for next year are too deep.

This past week, Senate Finance Committee co-chair Pete Kelly, R-Fairbanks, said he doesn’t think tax proposals will get a lot of support while Senate President Kevin Meyer, R-Anchorage, said he wouldn’t be surprised if some tax bills reach the floor and pass.

“I think that what I’ve heard to a great extent is that people are looking for fairness in whatever has to happen,” said Senate Finance Committee co-chair Anna MacKinnon, R-Eagle River. Emails she’s receiving are trending toward “cut and cut more,” she said, a task she says legislators have taken seriously in recent years.

Gunnar Knapp, director of the Institute of Social and Economic Research at the University of Alaska Anchorage, said there is urgency for legislators to take significant steps toward addressing the deficit. He told a House committee last month that fully closing the deficit this year — doing “everything all at once” — would have a big impact on an already-weakened economy. But not making major progress toward addressing the deficit this year also would have implications, he said, including the risk of further credit downgrades.

Gov. Bill Walker wants a fiscal plan in place this year. MacKinnon said that’s something she’s wanted for a long time.

“But to put the pieces in place I think that we need to be diligent, we need to be strategic and we need to understand the implications,” she said.

House Speaker Mike Chenault, R-Nikiski, wouldn’t say what his preferences for addressing the deficit might be. “But I certainly think that we can’t afford to do nothing,” he said.

Rep. Sam Kito III, D-Juneau, said there probably should be a discussion on use of excess earnings from the permanent fund and whether to cap dividends. But he’s concerned about trying to take too much out of the Permanent Fund earnings reserve. While there’s been little apparent interest so far in Walker’s proposal to reinstitute a personal state income tax, Kito thinks there needs to be a discussion on an income tax or a broad-based tax to generate further revenue.

He said Rep. Paul Seaton, R-Homer, has an interesting plan. The proposal, which has gotten little attention, would combine an income tax with a Permanent Fund Dividend that is converted to a refundable tax credit.

Sen. Peter Micciche, R-Soldotna, said that while looking for greater government efficiency, there needs to be a discussion on oil taxes and credits as well as other tax bills in conjunction with some sort of sustainable draw from the earnings reserve.

He wants to try to insert into any tax bill that has a chance of passing trigger points, similar to one inserted in his transportation committee to a proposed motor fuel tax hike. In the motor fuel bill, the proposed tax increase would be lifted if during the previous calendar year the average price per barrel for North Slope crude was more than $85. The increase also has an end date of July 1, 2018, which Micciche said would force a look at whether it’s still needed.

“The message to Alaskans is, ‘We need help right now, but if we don’t need your tax revenue, this tax is going to discontinue,” he said.

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