We are way behind the curve in diversifying Alaska’s economy and sources of state government revenue. It’s too late to get ahead of this situation, but let’s at least get even with it. There are tough decisions to come, made more painful by delays and lack of foresight, but we cannot wait any longer to take action. I beseech the state’s lawmakers to please resolve the situation this year. We live with too much uncertainty already.
It is my strong belief (as an economist with 30 years of professional experience in Alaska) that the state fiscal situation can be best fixed by a combination of actions, thus spreading the pain and the risk. Those actions include restructuring and using part of the Permanent Fund earnings (but not above 5 percent, lest we deplete it), re-establishing an income tax (for its progressive and inclusive nature), budget cuts and efficiencies (but not so much that it further impacts the economy through more job losses), and judicious increases in other taxes, such as fuel taxes and taxes on oil and other resource-extraction industries.
While considering these decisions, remember that Alaska does not have a full intermediate local government (or county) system, so the state often takes responsibility for infrastructure and services that counties would handle in other states. While state expenses may seem high, remember this fact, and the spread out and isolated nature of Alaska contribute to those expenses. Extreme budget cuts would handicap our infrastructure and services, and do real harm to the economy.
I believe an income tax is a better fit for Alaska than a sales tax, because a state sales tax will negatively impact local government revenue generation, and will disproportionally impact lower income residents. An income tax is more equitable to residents, and will also derive revenues from seasonal residents who pay little now regardless of their use of our infrastructure and services. Oil companies and others in resource extraction can shoulder a larger contribution to state revenue also. These are our (all Alaskans’) resources, and it is a common economic practice to charge businesses a reasonable “rent” (in fees and taxes) for access to those resources.
In this decision process, let’s not forget our history and the promises of equity made to rural Alaska when the state became flush with oil revenue and built large projects (such as power infrastructure) that greatly benefited urban Alaska.
Alaskans have had a good ride since oil was discovered in Prudhoe Bay. The state income tax was discontinued, and we all received Permanent Fund Dividend payments for years. We might want to consider how lucky we have been, and back off from the idea that we are owed these perks. Now it is time for us to step up as citizens and pay our part for government infrastructure and services, just like the rest of the country.
• Linda Snow is a lifelong Alaskan with over 30 years professional experience as an economist, planner, and fiscal and policy analyst. She is the Principal Economist for Southeast Strategies and resides in Douglas.
