Alaska’s path to financial stability will be neither short nor easy, and local residents will have the chance to weigh in on the issue before the state forms its final plan of action.
Randall Hoffbeck, Alaska’s Department of Revenue Commissioner, addressed area residents in a presentation called “A Sustainable Future for Alaska” during a combined Kenai and Soldotna Chamber of Commerce luncheon at the Kenai Chamber of Commerce and Visitor Center on Tuesday afternoon. The meeting was both an informational session on Alaska’s projected $3.1 billion budget deficit for 2016 as well as an invitation for residents to offer their own suggestions to the state before it formulates a policy decision this year.
Hoffbeck, who had been pursuing a career change from administration and appraisal to the ministry before being appointed in December 2014, led the luncheon in prayer before launching into Alaska’s fiscal problems and their potential solutions. He gave a similar presentation in Fairbanks in June, and said that before Alaska residents can offer suggestions to the state, they need to accept that action needs to be taken, soon.
“We soon realized that the bigger issue was convincing people that we actually have a problem,” Hoffbeck said of the Fairbanks meeting. “That’s what these meetings really focus on.”
Hoffbeck introduced four areas state officials will most realistically look at to balance the state’s budget: continuing with government budgetary restraints, initiating “taxes impacting individual Alaskans,” altering oil and gas taxes and credits, and “strategic” use of state assets.
Hoffbeck said the state presently has three years’ worth of savings to operate on. Ideally, though, officials wouldn’t have to touch the savings and would be able to count them as an asset to work with as part of the solution.
Hoffbeck said the state has roughly $100 billion in assets, and that deploying them “responsibly” and “aggressively” could help make a dent in the deficit.
Hoffbeck said it is not realistic to rely on oil to bail Alaska out of its financial problems; the price of a barrel of oil is simply too low.
“Marijuana is not going to balance the budget either,” Hoffbeck said.
The future taxation of marijuana in Alaska is projected to generate between $5.1 million and $9.2 million in the first year of commercial sales, according to estimates made by the Department of Revenue. Hoffbeck said this is not likely to make a significant dent in the deficit.
During the question section of the presentation, City Manager Rick Koch asked whether state lawmakers are confident they can formulate a cohesive plan to address the budget deficit in a timely manner. Hoffbeck said the state needs to make policy decisions this year. He said the consequence for failing to do so is that tax initiatives or other proposals wouldn’t get off the ground in time to help.
“There’s no plan in place today. We’re actually asking people to take a look at the issue, give us suggestions,” Hoffbeck said. “The governor would like to put together a … plan by late August or early September.”
Hoffbeck admitted that relief for the state’s budget will not come equally from each of the four proposed avenues. He said the ability to make large cuts from government spending is not there, and the state will be lucky if it can squeeze 5 percent, or $250 million, from spending on programs and services. That leaves the majority of the deficit burden on the state’s assets, oil and gas taxes and credits, and potential tax initiatives.
Hoffbeck listed health care provider, income, business license, capital gains, school and payroll, and statewide sales and property taxes as potential taxes to look into. He said since Alaska presently taxes its residents less than other states, it is a realistic option for generating revenue. So is putting a cap on the Permanent Fund Dividend, which he said will not come without resistance.
“You may see a cap on the dividend,” Hoffbeck said. “If, two years ago when we had a $800 dividend, we had proposed a $1,000 or $1,200 cap on the dividend, I don’t think we would have had much resistance. But we had an $1,800 dividend last year and we’re looking at one that’s probably going to push $2,000 this year, and now if we start talking about a $1,200 cap, we’re going to hear … we’re stealing people’s dividends.”
Koch said he was not in favor of the suggestion to introduce a statewide sales tax, saying those matters should be up to local municipalities.
“In Alaska, there has never been a statewide sales tax,” Koch said. “It’s always been the purview of the individual local governments as a matter of generating revenue.”
At the same time, Koch said he understood that new or altered taxes could be a reality for Alaskans in the name of balancing the budget, and said it’s better to decide now what taxes should look like than to have them forced upon residents later.
“We’ve had a good long run, and there is a generation or two of Alaskans who — it’s been almost like (being) at the candy store, for a long time,” Koch said. “The reality of it is, that’s going to change. It’s going to change by design, or it’s going to change by falling off a cliff.”
In order to get Alaska residents educated, involved and ready to make practical suggestions related to the budget, Hoffbeck introduced a revenue expenditure model that can be downloaded onto a computer and experimented with. Residents can essentially “play” with the state budget, adjusting spending and adding to certain revenue options in an attempt to make it balance out.
Hoffbeck went to the Kenai Community Library following the luncheon to demo the model for interested residents. The library set up multiple computers to access the program, but only three people showed up for the demonstration.
Kenai City Council Member Tim Navarre attended the demonstration, and said he also hopes residents and state officials can come together to find the least painful solution for balancing the state’s budget.
“Whenever you look at oil and gas taxes and tax credits being taken away — the impact that that can have — everything has to be on the table,” Navarre said. “Everybody has to work together to find the right mix of cuts and revenue generation to lead Alaska into the future … otherwise we miss a lot of opportunity.”
Navarre said he is confident that local community members will have plenty of opportunities to get involved and voice their suggestions before any final plan is crafted.
Hoffbeck’s Fairbanks presentation and the revenue expenditure model can be downloaded at gov.alaska.gov.