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Alaskanomics Blog: Governor's Fiscal Plan Rejected

Legislature 'close' to being done


Published:

Nearing end, Legislature rebuffs most of Walker’s deficit plan

Posted: 09 Jun 2016 01:36 PM PDT

As seen in the Juneau Empire

By: James Brooks, State Reporter

JUNEAU — After 137 days in regular and special session, the Alaska Legislature may be nearing an end to its work.

“I know we’re not done yet, but I think we’re close,” Senate President Kevin Meyer, R-Anchorage, declared on June 6.

Both houses of the Legislature have stopped work to allow Juneau’s biennial Native event, Celebration, to take place. No significant Legislative action is scheduled before June 13.

While the Legislature may be nearing the end of its long stay in Juneau, its long-term goal remains unfulfilled: Alaska still has a multibillion-dollar budget deficit.

In December, Gov. Bill Walker proposed a 13-part plan to resolve that deficit by 2019. Here’s where each part of that plan stands:

  • Permanent Fund spending: passed Senate, awaiting House. The biggest part of Walker’s plan to erase the deficit is the notion of using earnings from Permanent Fund investments to partially fund state operations. Senate Bill 128, drafted by Sen. Lesil McGuire, R-Anchorage, calls for a 5.25 percent annual draw from the fund’s Earnings Reserve.

At current amounts, that would generate about $1.8 billion. As a consequence, the Permanent Fund Dividend would be $1,000 for the next three years and lower after that. Without changes, the dividend was expected to be about $2,000 this year.

  • Capital budget: passed Senate and House. The state’s capital construction budget passed the Legislature in the special session on the last day of May. It contains less than $100 million in state money; most of that will be used as matching funds for $1.2 billion in federal transportation money.
  • Operating budget: passed Senate and House. The Legislature passed an operating budget worth about $4.3 billion. That’s a cut of almost $800 million from the current fiscal year, but the Legislature also approved some expenses that don’t fall within the new budget: There’s $430 million in subsidy payments to oil and gas companies, for example, and Gov. Bill Walker has argued that the Legislature’s cuts are somewhat of a mirage.
  • Mental health budget: passed Senate and House. The budget for the state’s comprehensive mental health system is a separate item every year, and it tends to be uncontroversial. This year’s was no different.
  • Oil and gas tax credit reform: passed Senate and House. House Bill 247 promises savings of up to $10 million in the next fiscal year, but the savings add up in future years, reaching more than $200 million per year by 2025. Still, that’s much less than had been offered by a version of the bill that passed the House but was rejected by the Senate.
  • Oil and gas loan program: unpassed. House Bill 246, introduced by the governor, was intended to create a loan program replacing the state’s oil tax credit subsidy for drillers. The reform bill that passed the Legislature failed to eliminate the tax credit subsidy, so the need for HB 246 is uncertain.
  • Mining tax increase: unpassed. House Bill 4005 would increase by 2 percentage points the tax on mines with profits of more than $100,000 per year. The result would be about $7 million more per year for the state. The bill as yet lacks the votes to pass the House, lawmakers have said.
  • Fisheries tax increase: unpassed. House Bill 4006 would increase most fisheries taxes by 1 percentage point and increase the permit fees for many state fisheries, generating $20 million more per year for the state treasury. The bill has not been brought up for a House vote because it lacks the votes to pass.
  • Motor fuel tax increase: unpassed. House Bill 4003 would raise the taxes on fuel for boats, cars, jets and propeller-driven aircraft, generating about $40 million more per year for the state. The tax on a gallon of gasoline for your car would rise from 8 cents per gallon (the lowest rate in the nation) to 16 cents per gallon (the second-lowest rate). The increase would be halved if oil prices rise above $100 per barrel and eliminated if oil rises above $120 per barrel. The motor fuel tax increase has the most support of any proposed tax hike, but it has not yet been brought to a vote in the House or Senate.
  • Alcohol tax increase: unpassed. No separate legislation exists in the special session for the governor’s proposal to double the state’s alcohol taxes. Alaska already has some of the highest alcohol taxes in the nation, and doubling them would give the state the highest alcohol taxes across the board. The governor’s original proposal, House Bill 248, promised $40 million more in revenue per year to the state. Per existing law, half that increase would go toward alcohol abuse-prevention programs and treatment.
  • Tobacco tax increase: unpassed. No separate legislation is being considered in the special session to raise the state’s tobacco tax. During the regular session, Walker proposed House Bill 304, which would have raised $24 million for the state by increasing taxes on cigarettes, other tobacco products, and electronic cigarettes. Of that increase, $2 million would have gone to a fund that fights smoking.
  • Cruise ship head tax increase: unpassed. No separate legislation is being considered in the special session to raise more state revenue from the tourism industry. During the regular session, Walker proposed House Bill 252, which would have raised $16.6 million per year for the state by prohibiting cruise agencies from deducting local passenger head taxes from their state tax liability. The bill also would have closed a loophole in the existing head tax.
  • Income tax: unpassed. House Bill 4004 would establish a state income tax equivalent to 6 percent of a person’s federal income tax. If someone owed $100 to the IRS, they would also owe $6 to the state. Anyone who pays no federal income tax would pay no state income tax. The bill promises $200 million in new revenue to the state, but it remains the most unpopular part of the governor’s 13-part proposal and has not received significant attention.

While lawmakers have not acted on all 13 points of Walker’s plan (nor are they expected to), they have taken significant action in areas not on Walker’s agenda. House Bill 137, brought forward by Rep. David Talerico, R-Healy, increases many Fish and Game hunting and fishing license and tag fees, generating an extra $9 million per year.

A pair of comprehensive reform bills — one aimed at prison sentencing reform, the other at Medicaid reform — also promise several million dollars in savings immediately.

Lawmakers have said that passing any one of those reform measures would have been the highlight of a regular Legislative year.

In this year, however, they’ve been overshadowed by the state’s continuing budget trouble, and even with all the actions taken to date, Alaska will continue to rely on its savings to balance its budget.

 

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