April 15th, 2017  
Rep. Guttenberg's Legislative Report

Representative David Guttenberg
Representative
David Guttenberg

Last week of session key legislation

Friends and Neighbors,

This newsletter serves as a snapshot of this week’s important votes. Since the beginning of session, many of you have told me and other legislators to “Do something!” Throughout this session we have been constantly working on Alaska’s complex budget. This week, we did something. We passed out three key bills in our balanced fiscal plan:

•  HB 111: OIL & GAS PRODUCTION TAX; PAYMENTS;
•  SB 26: APPROP LIMIT & PER FUND: DIVIDEND; EARNINGS
•  HB 115: INCOME TAX; PFD CREDIT; PERM FUND INCOME

Please do not hesitate to contact my office for any questions, comments, or concerns. I will always listen.

Monday, 4/11:

HB111 Floor Vote

HB 111: OIL & GAS PRODUCTION TAX; PAYMENTS; CREDITS was passed out of the House with a 21-19 vote. HB 111 is a key tenet in the House’s balanced fiscal plan. This bill fixes our current oil tax credit system and makes sure oil companies pay their fair share to Alaska. In short, the bill:

•  Eliminates North Slope Purchasable Tax Credits
•  Allow 100% of Net Operating Losses to Carry Forward Production
•  Repeals Sliding Scale Per Barrel Credit
•  Lowers the Tax Rate from 35% to 25%
•  Reduces the Net Operating Loss credits by 10% each year after seven years

We expect HB111 to generate $100-$200 million in new revenue at oil prices between $40 and $100 per barrel. Revenues at higher prices will remain nearly unchanged. It also eliminates nearly all future obligations for cash credit appropriations.

Wednesday, 4/13:

The house took a big step towards solving Alaska’s fiscal problem: we passed out our version of SB 26: APPROP LIMIT & PER FUND:DIVIDEND;EARNINGS. It steers $1.7 billion towards state services for the next fiscal year through a percent of the market value (POMV) draw from the Earning Reserves Account (ERA). Without the POMV draw, our PFD may disappear in just 2 or 3 years. This controlled draw allows the Fund to grow and locks in a PFD of at least $1250 for the next two years. That’s $250 more in Alaskan’s pockets than the Senate’s plan.

Rep. Guttenberg speaking on the house floor

While SB 26 is a step in the right direction, the Senate is still proposing another $750 million in cuts to education, health and social services, our university. These cuts cost us 9,660 jobs and further hurt out economy. This is not the only solution.
A comprehensive fiscal plan isn’t one that just cuts vital programs. It is one that finds a balance between smart cuts and increased revenue. That is why SB26 will only go into effect if HB 111: OIL & GAS PRODUCTION TAX; PAYMENTS; CREDITS and HB 115: INCOME TAX; PFD CREDIT; PERM FUND INCOME are passed.

The table below provides a more detailed comparison of the different fiscal plans from the House and the Senate.

 

House Version

Senate Version

POMV Draw from Permanent Fund ERA

Annual POMV draw of 5.25% for 2 years then annual 5.00%

Annual POMV draw of 5.25% for 3 years then annual 5.00% draw.

Fiscal Year (FY)18 Draw fromPF ERA

Approximately $2.5 Billion

Approximately $2.5 Billion

FY18 Deposits toGeneral Fund

Approximately $1.7 Billion

Approximately $1.8 Billion

Distribution split between dividends and state budget

33% to PFDs
67% to General Fund

25% to PFDs
75% to General Fund

Guaranteed Dividend Amounts

At least $1,250 for years FY2018 and FY2019

Exactly $1,000 for FY2018, FY2019 and FY2020

Dividend Estimates thereafter

Est $1,250 growing steadily in FY20 and beyond

Est $1,000 at slow growth rate in FY21 and beyond

Inflation Proofing to Protect Principal of Permanent Fund and Generate More Earnings in ERA

0.25% annual POMV from ERA to PF principal. If ERA balance exceeds four times POMV calculation, amount in excess is transferred to PF principal

If ERA balance exceeds four times POMV calculation (after current year draw), amount in excess is transferred to PF principal

POMV Draw Limit for State Budget

Reduces POMV draw when oil revenues are above $1.4 billion, indexed to inflation. The draw is reduced by 80 cents on the dollar.

POMV draw is reduced by $1 for every $1 that Unrestricted General Fund royalties and production taxes exceed $1.2 billion (achieved around $75/barrel).

Appropriation Limit

None

Appropriation limit of $4.1 billion in Unrestricted General Funds – not including capital projects, PFDs or state debt obligations

Saturday, 4/15/2017:

Floor began at 11 am, and after hours of debate we finished around 4:30 pm. We were voting on HB 115: INCOME TAX; PFD CREDIT; PERM FUND INCOME. It passed with a vote of 22-17. This bill has gone through many hearings, and many changes to make sure it accommodates Alaskan’s concerns. We listened to your concerns changed it to be a 2.5-7% tax based on brackets and federal adjusted gross income from 15% of the federal income tax. HB 115 will raise an estimated $687 million annually, with $80 million coming from non-residents. This revenue is designated for the Public Education Fund. More information on HB 115 and the House’s comprehensive fiscal plan can be found here.

I recognize that an income tax is not ideal, but HB 115 is a chance to do the right thing, to close our fiscal gap. If we don’t close this gap, then every year after this we will be cutting troopers, schools, pioneer homes. Without HB 115, without our comprehensive fiscal plan, we will not have a capital budget years out into the future. We will be unable to fund vital programs that many of us rely on. We were not sent down to Juneau to make the easy choices, we were sent here to make the tough choices in this tough situation. We are all in this economy together and this plan not only touches everyone, but helps everyone.

Though tomorrow is day 90, we will still be working. I would rather do our work correctly than quickly. I will keep working to make sure I represent you the best I can.

Best Regards,


[signed] David Guttenberg

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