Governor Walker Calls a Special Session Starting May 18
Dear Friends, Neighbors, and fellow Fairbanksans:
The extended legislative session is over and the House and Senate failed to agree on a fiscal plan. The Senate majority thinks the state should close most of the $2.5 billion deficit this year with a combination of spending cuts to education and using the Permanent Fund's investment earnings. To close the remaining deficit of about $500 million, the Senate is putting faith in a “drain and pray” plan: drain state savings and pray for higher oil prices or a large production increase. I think this is a very dangerous and irresponsible bet to make.
The House majority coalition wants to eliminate the deficit with a restructured Permanent Fund combined with slightly higher oil taxes and a reinstated state income tax. The House plan allows for dividends of $1250 per year, while the Senate only wants $1000 dividends.
The Senate is not accounting for the future need for a real capital budget to satisfy Alaska’s infrastructure needs. In addition, business investment will not be robust until a full fiscal plan that completely closes the gap is put in place. While the legislature will continue to look for cuts, I believe education and the university have already been cut too much. I don’t think there is anywhere near $500 million in cuts left that Alaskans will find acceptable. That was demonstrated when the Senate proposed a $6 million cut to Pioneer Homes and was met with incredibly strong opposition.
The Governor introduced 8 items on the Special Session call:
I’m disappointed that the Legislature could not come to an agreement before going into overtime. I’ll continue to try and work with my House and Senate colleagues to craft an acceptable compromise that will be fair and equitable to all Alaskans.
On the bright side, two important bills that I sponsored and a third that I strongly support passed this session and should make life in Fairbanks a little bit better.
HB 132 – Transportation Network Companies Act
I am pleased to be the sponsor of HB 132 which passed the House (35-5) and the Senate (20-0) in the last few days. This bill allows ridesharing to come to Alaska. Of course, the two best known TNC’s (Transportation Network Companies) are Uber and Lyft. Alaska is now the 50th state to have ridesharing. People getting off a plane in Alaska now won’t be disappointed when they try to open one of these apps (60,000 people tried last year).
Ridesharing will improve the quality of life for many Alaskans, possibly as soon as next month. One will be able to “hail” a ride simply by opening an app on their smart phone. The three immediate benefits will be:
HB 80 – Municipal Property Assessed Clean Energy Act
This bill passed the Legislature on April 16 and allows local governments to create a Commercial Property Assessed Clean Energy (C-PACE) program to finance energy improvements. Once implemented, commercial property owners can take advantage of the program to lower their energy costs. This bill starts us down a good path toward improving energy efficiency and reducing energy costs for many Fairbanks residents. This bill should also help commercial property owners convert to natural gas when it becomes available. I’ll continue to look at the possibility of implementing PACE programs for residential properties so that similar relief can be given to home owners.
HB 16 - REAL ID
The Governor’s REAL ID bill also passed yesterday – on the last day of extended session. It was rolled into a bill requiring training for police officers to better recognize and interact with persons with disabilities.
This bill was necessary because of the REAL ID Act of 2005, which changed federal laws to increase the authentication of driver’s licenses and ID cards. That law did not take away the state’s authority to issue licenses or ID cards, but does require higher standards to protect against tampering and fraud.
While I am concerned (as are many of my colleagues) with the privacy implications of this law, Alaska had to do something or come June 7 most people would have needed a passport or passport card to access our military bases and other secure federal facilities. This could have been devastating for Fairbanks’s economy. Also by January 2018, most Alaskans would have needed a passport or passport card to fly out of state. This would have been too onerous on Alaskans. There were some helpful safeguards put in the bill, such as requiring the DMV to copy and retain only the minimum number of documents required by the REAL ID Act of 2005 and to not transmit scanned documents out of state. Alaskans will have the choice, however, to get either a traditional license or a REAL ID compliant license.
HB 111 – Oil Tax and Credits
The House and Senate passed different versions of this legislation, and now need to come to a consensus on the bill.
Both versions stop the unsustainable practice of the State of Alaska paying cash for tax credits. But the Senate version does not include some House provisions to make Alaska’s tax system work better in the current low oil price environment.
The House version of HB 111 reduces the base tax rate on oil from 35 % to 25 % in an effort to spur increased exploration and development on the North Slope. The House version also hardens the minimum 4% tax floor, which will ensure some production tax revenue during periods of low oil prices. The Senate version creates additional opportunities for oil tax credits to be used to reduce tax payments below the 4% minimum floor, which will cost the state between $10 million and $45 million a year.
The House version of HB 111 is projected to bring in an additional $20 million in new revenue in Fiscal Year 2018 and an estimated $475 million a year by FY 2027. The Senate version of the bill is forecasted to bring in no additional revenue in FY 2018 and only $145 million a year by FY 2027.
HB 115 – Broad-based income tax
The House Majority’s broad-based income tax, HB 115, died when the Senate voted it down (without any efforts at compromise) on May 12. However, the Governor’s special session calls for consideration of a broad-based tax. The Senate has so far refused to consider appropriate broad-based revenues to help solve our fiscal deficit and seem content for the state to operate with a structural deficit. The House Majority Coalition is fighting for a complete fiscal plan because the uncertainty of a structural deficit is bad for business investment and large cuts to education and other areas where we have already cut too much would probably be required in the future without some broad-based revenue measure. And cutting just the dividend is very unfair to Alaska’s less wealthy residents.
Any choice we make to fill the deficit will impact the economy, including budget cuts. According to ISER, cuts to the state budget will cause the most job losses by far.
Any fiscal plan without a broad-based tax will lead to 4,500 to 5,000 more jobs lost than a plan with one. Let’s not forget that 20% of income tax revenue will come from non-resident workers. Also, tax revenue collected by the state stays in the state economy – a cut to the state budget is money withdrawn from the state's economy.