Reminder: Town Hall “Tax Talks” with Rep. Adam Wool and Commissioner of Revenue Randy Hoffbeck on Saturday, April 22 from 5-7 PM at the Blue Loon.
Alaska State House Working to Solve
Dear Friends, Neighbors, and fellow Fairbanksans:
Day 90 has passed and the Legislature is still in session. I’d prefer that the Legislature get its business done within the voter-mandated 90 days, but the state Constitution allows the Legislature to continue until Day 121. This year we were presented with a huge challenge so it’s no surprise that we are here in Juneau past day 90 and that’s OK. This is a very important time for our state and we need to make the big and difficult decisions before we adjourn. Even though I really want to be back in Fairbanks with my family and looking after my business I also realize the importance of what’s in front of us.
On Easter Sunday, April 16, the Alaska House Majority Coalition passed HB 115 to institute a school tax that would ensure the continued quality of public education and help close the budget gap. HB 115 was the last of the Coalition’s four major pillars needed to solve the budget crisis to pass the House. The other three pillars are:
Here’s a quick summary of each of these proposals:
House Bill 115 puts in place a modest progressive income tax on all Alaskan workers, including the 20% of workers that are from out of state. Once fully implemented the proposed income tax will raise $80 million from non-resident workers and $600 million from Alaskans. The new revenue will be directed to pay for education. Residents will have the option to apply some or all of their PFDs to their taxes. HB 115 also includes a $4,000 personal exemption that applies to every person in a household.
I realize an income tax represents a huge shift in our current state approach to solving our fiscal crisis. Alaska hasn’t had an income tax since 1980. We started an income tax in the 40’s and curtailed it when oil revenue bloated the state coffers back in 1979. As oil production and prices are down, we can’t rely on that one single revenue source to fund our state government anymore. This chart shows how much people would pay towards education through the income tax:
House Bill 57 is the State’s Operating Budget. The House worked on the budget first and cut $32M from last year’s budget before passing HB 57 to the Senate. The Senate added cuts of $70M to the Base Student Allocation ($265 per student) and $22 million to the University. The House passed a budget allocating $325M to the University which was low to begin with since UA requested $341M. The University has been cut over $50M in the last 3 years and UAF has lost over 500 jobs. These additional reductions were unacceptable – I joined my colleagues in the House Majority Coalition in rejecting such extreme cuts. HB 57 will now go to a conference committee where members will hash out the differences between the House and Senate budgets.
House Bill 111 would reform the oil and gas production tax regime as a component of protecting Alaska’s fiscal future. Through the end of FY 2016, about $8 billion in tax credits have been received by companies. Much of these credits are paid out in cash and the state cannot maintain that policy. When oil prices were very low the state was paying out more in credits than it was receiving in revenue. This document explains all the provisions in HB 111.
SB 26 would restructure the Permanent Fund to provide a dividend of $1,250 for two years and allow a percent of market value (POMV) draw to help balance the budget. What this does it take approximately 5% of the total value of the Permanent Fund and use that to fund state government (2/3) and payout dividends (1/3). This bill would provide $1.7 billion towards the $2.7 billion budget gap to pay for government services in FY18. The House inserted contingency language so that this bill will not be enacted unless the fiscal solutions in HB 111 and HB 115 are also enacted.
No one enjoys voting for taxes. Without an education tax or other broad based tax however, the budget would be about $500M short this year. The Senate says they cut $300M from this year’s budget but really only cut about $100M – much of these claimed reductions were from simply moving money around between different funds. The Senate plan also calls for cuts of $250M a year for the next 3 years. There is no way we can sustain this for three years in a row unless we want a very different Alaska. This was evidenced when the Senate proposed a $6M cut to the Pioneer Homes. There was such a strong reaction from the public that this cut was reversed. Now imagine doing this same cut 100 times to various agencies and programs? This is simply not sustainable. In 2013 the state spent $7.9 billion a year and this year we are spending $4.2 Billion. That’s $3.7 billion less. Looking at the budget as a whole, it’s difficult to find much more to cut without impacting vital state services like education, transportation and public safety not to mention the fact that our capital budget is near zero. The Senate budget has no provisions for increasing the capital budget. This budget is very important to both keep our workers employed and staying in Alaska and for maintaining our state’s roads, bridges, buildings and other valuable infrastructure.
The future of Alaska is in the balance right now and we need to come together to help secure it. All parties must help towards this solution, including Alaskans of all income levels, state government and industry.