Dunleavy weighs a statewide sales tax amid broader push for fiscal plan

By James Brooks, Alaska Beacon

In a pair of closed-door meetings with members of the Alaska Legislature on Tuesday, Gov. Mike Dunleavy said he is prepared to introduce a statewide sales tax as part of a long-term budget plan for the state.

In his first term, the governor said he would not approve new taxes without a statewide vote – he didn’t include that caveat Tuesday.

Legislators said the governor also did not immediately dismiss an income tax as he has in the past, but a spokesman for the governor denied that the governor would support one.

“He said that everything is open for discussion,” said House Minority Leader Calvin Schrage, I-Anchorage. “And I can say that he did not mention the need for a statewide referendum. And that indicates, to me, willingness to potentially sign or allow to go into law those pieces of legislation without a referendum.”

Dunleavy’s communications office declined an interview request seeking to confirm legislators’ accounts of the meetings, and the office did not answer a detailed list of questions.

Jeff Turner, the governor’s deputy communications director, said by text that the governor did not talk about an advisory vote. And Turner said by email that “Governor Dunleavy will not support an income tax bill.”

Rep. Ben Carpenter, R-Nikiski, has already proposed a 2% statewide sales tax as part of a long-term state fiscal plan, and Dunleavy said Tuesday that he intends to introduce a similar idea.

Neither Turner or legislators provided details.

“He did indicate that he would be filing some bills of his own. And the bill that he is going to be filing will be a sales tax bill,” said Speaker of the House Cathy Tilton, R-Wasilla.

“I believe he did indicate he would be introducing a sales tax proposal,” Schrage said.

Rep. Will Stapp, R-Fairbanks, said that from what he was able to glean, “it was the South Dakota-style sales tax with exemptions — let’s say on WIC stuff and food — but it also applied to services. So it’s kind of a strange tax.”

WIC refers to a federally funded program that provides free or discounted food to women, infants and children.

Many states exempt at least some services from sales taxes.

Stapp said he had not seen the text of the governor’s proposal, and his impressions could not be independently confirmed.

Legislators who attended Tuesday’s meetings — one with the House and the other with the Senate — differed on small elements of the governor’s talk but agreed on the broad details:

“Anything around taxes has to be encapsulated into a fiscal plan,” said Rep. Julie Coulombe, R-Anchorage. “That’s kind of how I took it with the governor: If we feel like we need to pick up one of these tax measures, that he would be open to it.”

The spending plan approved by the Alaska House this week contains a deficit of almost $600 million, according to figures from the Legislative Finance Division that are based on the state’s current revenue forecast and an estimated figure for the state’s as-yet-unwritten capital budget, which pays for construction and renovation projects.

The final deficit could be as much as $200 million higher once all spending proposals are included, senators suggested in a news conference Tuesday.

The House plan calls for covering the deficit with savings from the state’s Constitutional Budget Reserve, but a significant number of lawmakers are opposed to that idea and have called for new taxes to address the situation.

They’ve introduced a variety of proposals, including a statewide sales tax, an income tax, and increases to oil taxes.

Those proposals have been resisted by lawmakers who say that new taxes must be accompanied by a new state spending cap and a firm new distribution formula for the Permanent Fund dividend, all items identified by a bipartisan, bicameral working group in 2021.

During this year’s legislative session, the governor has not publicly joined those fiscal debates, but he has repeatedly spoken to legislators in closed-door meetings.

In the latest meeting, the governor said he is preparing to go public with his ideas.

Asked whether it’s accurate to consider a tax bill as a “big lift,” Tilton said it is, but the “really heavy lift in my mind has come with an entire plan.”

Requiring a tax to be part of a broader package that includes other bills will add complexity and difficulty. It’s been 54 years since a state that didn’t have a sales tax added one.

Legislators who attended the governor’s meetings said passing a package is theoretically possible but practically improbable, given that only four weeks remain in this year’s regular legislative session.

Coulombe said the reluctance of the House minority to accept a new spending cap is a significant obstacle.

Senate President Gary Stevens, R-Kodiak, said he believes the resistance of some House majority members to a tax bill will be an obstacle.

The governor’s influence could be decisive in the House, Stevens said.

“I’m just hoping that he, in the end, will provide the leadership we need from a governor,” Stevens said.

Coulombe said it’s also up to the Legislature.

“We can’t just stay in our corners. I’ve seen the majority struggle with the sales tax and the minority struggle with the spending cap, but it’s not gonna happen separately,” she said. “So we’re gonna have to figure it out.”