JUNEAU — A dour revenue forecast brought with it a warning from Gov. Bill Walker that state legislators need to deliver a plan to address Alaska’s multibillion-dollar deficit this year or face a special session. Legislative leaders say Walker has a role to play, too, in building support for his proposals.
House Speaker Mike Chenault, R-Nikiski, said it’s not his job to get support for other people’s bills. But he said he also believes that the state needs to start figuring out new sources of revenue.
Here is where things stand with just a few weeks left in the scheduled 90-day session:
How did the budget get this bad?
Alaska has long heavily relied on oil revenues to help pay for state government. But Alaska for years has struggled to stem a trend of declining oil production, and it’s been feeling the effects of low oil prices the last two years.
Since July, North Slope crude prices have only fleetingly topped $50 a barrel. The state Revenue Department’s revised forecast for the rest of the fiscal year, ending June 30, is about $40 a barrel.
The oil price in recent days has hovered around $40. This same time in 2014, it was about $108 a barrel. Oil prices began to skid in the late summer of 2014.
Oil and gas revenues have continued to provide most unrestricted general fund revenue, though at a lesser level than they once had.
The preliminary estimate for unrestricted general fund revenue for the coming fiscal year is $1.2 billion — about $560 million less than what was forecast last fall. Such revenue totaled $5.4 billion two years ago and about $2.3 billion last year. The department also lowered its estimate for anticipated revenue for the current year.
So what now?
Walker says he wants three things this year: spending cuts, a restructuring of Alaska Permanent Fund earnings and the dividend program, and new revenues that include some form of a broad-based tax. These are needed, he said, to achieve a sustainable, balanced budget. He acknowledges, though, that even under his plan, draws from savings would be needed to help cover costs the next couple years as the various pieces take effect. What he’s seeking from lawmakers is a similar plan.
He has proposed increased taxes on booze, cigarettes, motor fuels and on various industries, including oil. He also has proposed reinstituting a personal income tax.
His proposal to change the oil and gas tax credit system also called for raising the minimum tax on North Slope producers and disallowing use of credits to go below that. The plan was scaled back by a House committee, which rejected raising taxes on an industry also affected by the low prices. Work on the tax credit bill continues.
Some minority Democrats see a tax credit bill on par with what Walker proposed as important if state officials are also going to want Alaskans to accept a change in their annual permanent fund dividend.
What’s going to happen to the dividend?
Legislators are looking at ways in which money could reliably be drawn from the earnings of the permanent fund to help pay for state government. Since money for dividends currently is drawn from the earnings reserve, the plans being considered would change how dividends are calculated.
One of the proposals, from Sen. Lesil McGuire, calls for a minimum dividend of $1,000 per year.
Walker’s plan calls for that the first year but after that it would be based on half of the state’s resource royalties.
Is everyone on the same page?
No, and there are a lot of pieces in play that could affect the final outcome.
Some legislators have said they aren’t interested in raising or creating taxes at this point and still see room for budget cuts. House Minority Leader Chris Tuck said his caucus doesn’t want to go to the permanent fund’s earnings reserve first or by itself.
A Senate committee has spiffed up a resolution, originally drafted last year, calling for any special session to be held in a community that is on the road system. Juneau, the state capital, isn’t on the road system, meaning lawmakers would likely meet in Anchorage. Even that comes with questions after a state court judge this week ruled that a lease on existing legislative office space in Anchorage violated state contracting rules and should be tossed out.