As I noted in a previous column, a poll done by the Alaska Dispatch News (Jan. 28, 2016) showed “an overwhelming proportion of respondents — 93 percent — said it was either very important or somewhat important to enact a plan like Gov. Bill Walker’s (which includes taxes) to address the state’s budget shortfall.”
When looking at just GOP respondents to the poll, “71 percent of respondents still said it was very important that lawmakers enact a plan of the same sort as Walker’s, and another 22 percent said it was somewhat important.” Additionally, there have been several editorials, including the Juneau Empire, calling for a complete plan that includes taxes. Despite this growing support, members of the Republican-led Senate Finance Committee recently said in a press conference that they would rather spend Alaska’s savings account than “get into the taxing business” by adopting Gov. Walker’s financial plan.
Their justification is that we’ve not felt enough pain from the budget cuts. “They said the sky was going to fall, and essentially nothing happened. Government continued to function,” explained Sen. Pete Kelly, R-Fairbanks. He says this as if it’s a bad thing to have a functional government providing essential services for keeping our economy afloat. Somehow he can’t see the headline about Alaska’s construction industry losing 3,000 jobs in 2016, nor can he see the hundreds of laid-off teachers and crowded classrooms, or the down-grading in the state’s bond rating. Sen. Kelly’s inability to connect the dots and his disregard for the complete plan that Alaskans want can only be explained by ideological blindness. His antipathy toward government runs so deep that common sense and responsiveness elude him.
As chair of the powerful Senate finance committee, Sen. Kelly sits as the ultimate solution denier. Fortunately, as I learned by attending Southeast Conference’s mid-session meeting, there are a few solution seekers among the Republican majority. First and foremost is Sen. Lesil McGuire, R-Anchorage. She stepped up early with introducing Senate Bill 114 last session. Her bill would use part of the Permanent Fund’s earnings in a percent of market value calculation to yield a sustainable revenue stream for essential services. By dedicating 4.5 percent of the Permanent Fund earnings for state spending, $2 billion to $2.5 billion could be deposited in the general fund, with the actual amount depending on how well the principal of the Permanent Fund performs. At the same time, SB 114 would guarantee a PFD check of $1,000 or more. As she stated in her Juneau Empire column (Jan. 29 2016), “If we take a new path, such as SB 114, the state will dramatically reduce income volatility and preserve the dividend program for future generations.”
While she was at Southeast Conference pitching SB 114, Sen. McGuire said, “I’m in favor of any plan that closes the fiscal gap.” When questioned about her willingness to adopt an income tax and/or deal with production tax credits, she admitted that an income tax is a hard lift and may not happen this session, but she was adamant about “stopping the bleeding” with the state paying out more in oil tax production credits to some companies than it takes in as production taxes from the whole industry. She supported the elimination of about $500 million in production tax credits (similar to what Gov. Walker has proposed). She went on to talk about a sequencing approach to filling the gap. Start with a plan similar to SB 114, eliminate some of the production tax credits and get us more than halfway, then return to the taxation questions.
Rep. Paul Seaton, R-Homer, isn’t waiting to address the issue of taxation, one we all know is inevitable. Last year he proposed a state income tax level at 15 percent of the taxpayer’s total federal income tax. He pursued this line of taxation over reducing or eliminating the Permanent Fund dividend because an income tax was less harmful to those low-income residents that depend on Permanent Fund checks. However, the revenue gained from an income tax alone fell far short of filling the budget shortfall and changes to the Permanent Fund dividend program were still being discussed. This year Rep. Seaton proposed HB 365, which combines an income tax with a Permanent Fund refundable tax credit. The refundable tax credit will come from the same source as the PFD (the earnings reserve of the Permanent Fund), but it will be calculated differently.
Currently 50 percent of the income available for distribution goes to the PFD and 50 percent stays in the earnings reserve. With HB 365, 25 percent of the income available for distribution will go to the Refundable Tax Credits, 25 percent will go directly to general fund and the remaining 50 percent will stay in the earnings reserve. Then the tax credit would be first applied to the amount owed by a resident’s state income tax with any remaining amount sent to the resident as a refund. If the amount calculated for the tax credit exceeded $1,200 per tax credit, the amount in excess of $1,200 would be appropriated to the general fund.
According to Rep. Seaton, “Combining revenues from a Permanent Fund dividend reduction and a progressive income tax creates a balance most fair to all Alaskans and it captures taxes that nonresidents pay their home state on money they earned in Alaska.” Had Rep. Seaton’s bill been in place for the 2015 sessiion, it would have contributed to $1.3 billion to the General Fund.
Since both SB 114 and HB 365 adjust the Permanent Fund dividend program, it is difficult to see how much of the $3.8 billion deficit they might fill. It appears to be significant — maybe $2.5 billion to $3 billion — but not enough to address the full deficit. At a minimum, altering the oil production tax credits still needs to be in the mix, especially if we don’t want to dig the same budget hole in the future.
When asked about altering the production tax credits, Rep. Seaton warned the audience at Southeast Conference that without any changes to former Gov. Sean Parnell’s SB 21 (oil tax reform), the State of Alaska would be on the hook for $2.9 billion (over seven years) if a large field or multiple reservoirs like the one known as the Pikka unit were to be fully developed.
He mentioned that even the natural gas at Point Thompson could cost the state $1.2 billion in tax credits. “We can’t get close to filling this year’s budget gap without eliminating the $500 million in tax credits proposed by Governor Walker and we certainly cannot get to a long term sustainable budget without major restructuring to production tax credits. We can’t ask Alaskans to step up and then turn around and dig another budget hole,” explained Rep. Seaton.
After listening to Sen. McGuire and Rep. Seaton at Southeast Conference, it is clear that we have two strong solution seekers ready to join Gov. Walker in putting together a complete package for resolving the state’s fiscal challenge.
However, the question remains: Will the solution seekers prevail over the solution deniers that sit in key legislative leadership positions?
• Kate Troll is a City and Borough of Juneau Assembly member and was appointed by former Gov. Sarah Palin to her Mitigation Advisory Group on climate change. The views represented are her own.