The political and public debate over Alaska’s fiscal future is too focused on too many of us protecting too much of our own. Don’t touch my dividend. Cut more of someone else’s public services. Protect the oil industry. Don’t dare tax me.
But those debate points miss our underlying fiscal problem. It’s not low oil prices or state spending or oil field tax credits. They’re merely the symptoms of our fiscal disorder. Painful symptoms, but they come and go and can be patched with political duct tape.
We need to admit that we can’t live tax-free anymore.
Statehood skeptics 60 years ago worried Alaskans were incapable of supporting themselves. Truth is, we’re capable, just not willing. We’ve had it far too easy for far too long.
Alaskans have relied on a single source of state revenue for two generations, and it’s time we acknowledge that we are not so much an oil and gas state as we are a Prudhoe Bay state. That almost 40-year-old declining field has provided more than three-quarters of our oil — and our state dollars.
After oil companies, Alaska’s largest distinct taxpayer groups are smokers, drinkers, drivers who fill up their tank and anyone who pays an insurance premium. (Yes, the state collects a small tax on most insurance premiums.)
Isn’t it time we moved out of our parents’ home and started to pay rent?
Regardless of oil prices — and whatever new production might flow in the future — Alaska will never have anywhere near enough oil revenue to maintain adequate public services for a state of almost three-quarters of a million people.
Regardless of oil prices, we face annual budget deficits in the billions of dollars. At the lowest prices, the gap is close to $4 billion. Even if prices double, we still face a gap of near $2 billion a year. Even if we cut all state spending in half — schools, universities, troopers, fisheries management and highway maintenance — we’re still short billions. Even if we eliminate all oil tax credits, we’re still short billions.
Regardless how much people may dislike using Permanent Fund earnings and reducing the dividend, there is no way to pay the bills without the fund. It has to be part of the solution.
This mess shouldn’t come as a surprise. Alaska has run budget deficits most years in the past quarter-century. Voters created the Constitutional Budget Reserve in 1990 to stash away whatever we could collect on the billions of dollars in IOUs from disputed oil and gas tax and royalty cases.
We collected billions and used that money to cover budget deficits in half the years since. We have been in a hole the past quarter-century and covered it up with a blue tarp. But just like a Prudhoe Bay well that eventually plays out, the Budget Reserve is drying up.
The truth is there are no more big IOUs to collect for the budget reserve. Spend down the account too far and there is no dependable way for the state to pay its bills without crisis withdrawals of Permanent Fund earnings.
Yes, a balanced long-term fiscal plan is about protecting the fund and its dividend.
Yes, that means using Permanent Fund earnings for public services.
Yes, that means lower dividends. The state can no longer afford to pay out $1.4 billion a year in dividends — that’s more than the state spends on K-12 education.
Yes, a reduced dividend is like a tax on all Alaskans.
And yes, economic fairness means everyone pays, and those individuals and businesses that prosper because of Alaska’s economic opportunities should pay more into the collective kitty. Which means a broad-based tax on Alaskans and anyone who works here and benefits from the services and is part of the economic activity. We cannot continue to treat taxes like the plague. One is deadly; the other merely annoying.
Prudhoe Bay alone is not going to pick up the tab any longer. We need to help pay our own way. That means reduced dividends, cuts to the budget and oil and gas investment credits — and a tax. We shouldn’t have our next round of fiscal debates without it.
• Larry Persily is a former deputy commissioner at the Alaska Department of Revenue. He currently works for the Kenai Peninsula Borough. The views expressed here are his own.
