State budget battles may stall amid election year

Three years into the Legislature’s budget battles, a comprehensive fix to the state’s fiscal problems doesn’t seem likely to come down this year.

Though oil prices have recovered some from their low in early 2016 and the Legislature has cut spending, the state is still facing an approximately $2.3 billion in deficit spending. The bipartisan majority coalition in the House of Representatives has pitched a plan to fill some of that gap with a broad-based income tax specifically to fund education, but the Republican-controlled Senate Majority has firmly rejected any call for new taxes and supported instead using the earnings of the Permanent Fund and relying on recovering oil revenues.

Several conflicting bills in the Legislature address the Permanent Fund Dividend program, with Senate Bill 26 asking to permanently divert part of the Permanent Fund earnings to fund government and another asking to enshrine the dividend program in the Alaska Constitution, albeit with language including “may” instead of “shall.” The House and the Senate have already exchanged fire over education funding this year, with the House approving a bill to set the education funding amount early but not providing for a revenue source, and the Senate held it in the Senate Finance committee on Feb. 23.

With the conflict between the sides of the Legislature and an election approaching in November, there doesn’t seem to be much hope for a comprehensive fiscal plan this year, said Alaska Department of Commerce, Community and Economic Development Mike Navarre.

“I don’t expect that we’re going to see the problem fixed this year,” he told the joint Kenai and Soldotna chambers of commerce during a Wednesday luncheon in Kenai. “…And maybe (the Legislature) shouldn’t. Maybe it needs to fester a little more.”

Navarre has been making the rounds, delivering a similar speech to communities and the Legislature for more than a year — that Alaska needs a broad-based tax to stabilize its revenue sources and attract future economic development. An unstable fiscal environment deters private investment, he said.

The most recent revenue sources projection from the Alaska Department of Revenue shows an uptick in oil royalties, raising total projected revenues to the state to about $1.8 billion, about $256 million more than they were in the fall 2017 revenue forecast. Non-petroleum related revenues, such as fisheries landing taxes, total out to about $536 million, for a total of about $2.3 billion in unobligated general fund revenue.

All told, that doesn’t come close to the approximately $4.9 billion in operating expenses the Legislature approved in fiscal year 2018. Most of that is in education, health care and obligated spending, which have already been cut some but continue to grow.

Navarre made the case that the state can’t continue to rely on oil and gas revenues alone, nor on economic development or spending cuts alone to fill that gap. Oil and gas in Alaska is facing stiff competition from the shale oil fields developing in the Lower 48, which are cheaper to operate and faster to reach markets, making investment harder to attract in the state. The biggest projects broken recently, including the opening the Arctic National Wildlife Refuge to oil and gas exploration and ongoing efforts on the Alaska LNG Project, will take years to complete if they happen at all.

Without a broad-based tax, economic development other than oil and gas won’t help get the state out of the fiscal crisis either because the state has no basis to derive revenue from it. And cutting further into state government spending will have impacts on local communities in the forms of education spending and municipal revenue sharing, programs that provides more than $900 million to the five most populous boroughs of the state, Navarre said.

“Yes, you can cut spending, but there will be impacts associated with it,” he said. “I’ve heard the talk about the (Permanent Fund) dividend having been cut and how that took money out of the economy … and it did. The cut to the dividend did take money out of the economy. But, remember, we had a gap. So it was reinvested back into the economy also, in education, in health and social services. Same thing with taxes.”

He didn’t advocate in favor of a specific tax, just broad-based taxes in general. In response to a question about how to ask legislators for a fix, he said people should try to elect legislators next fall who will be willing to compromise and at least talk about taxes rather than supporting or opposing them in a blanket statement.

Reach Elizabeth Earl at eearl@peninsulaclarion.com.

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