Our backs are against the wall. As the legislative session in Juneau approaches its 90th day, there remain deep divisions between the state House and Senate on budget issues, particularly the mechanism by which the deficit of nearly $3 billion should be closed. The answer to the budget question will have effects that reverberate in the state for years and decades to come — but there must be an answer. Alaska must have a plan to accomplish a balanced budget, and regardless of whose solution prevails, the majority of the state’s deficit must be erased this year.
The primary difference between the House and Senate’s budget plans is whether taxes are necessary. The majority caucuses in both chambers appear to agree that restructuring of Alaska Permanent Fund earnings is necessary to provide a stable funding stream for the state and help it to be less reliant on oil revenue. For its part, the Senate has already passed a restructuring plan for the second year in a row. This is a big step, as well as a necessary one. Unfortunately, earnings restructuring is far from a slam dunk, as the House has combined it with an income tax that Senate leaders are loath to even consider.
The question of whether an income tax is necessary is one worth asking and debating. Senate majority caucus members say it isn’t, that their long-term plan for a balanced budget will draw more heavily on the state’s Constitutional Budget Reserve but avoid the need for personal contributions to state coffers by residents. Their plan, however, counts on $750 million in cuts from a state operating budget already bled thin during the past two years. This year’s cuts, likely to constitute a third of that $750 million, have already been called “devastating” for the university and K-12 education. They would eliminate the Alaska Performance Scholarship, a merit-based scholarship meant to decrease the outflow of gifted Alaskans for college education. They would cut about $7.6 million from local K-12 schools, meaning fewer teachers and larger class sizes — and possibly higher local property taxes, if the borough opted to stem some of those cuts at a municipal level. And given that education is one of the state’s largest allocations of general fund spending, it’s a safe bet that the cuts to follow next year and the year after would also hit K-12 and university classrooms hard.
The House solution, which couples earnings restructuring with the state’s first personal income tax in decades, would be a surer bet to balance the budget, but it would require more burden for services be carried by individual Alaskans. Under the House budget plan, it wouldn’t be as difficult to maintain state services such as education, transportation and public safety at their present levels. But members of the Senate have expressed strong reservations, saying it would be too easy to ratchet the income tax upward to cover spending increases instead of being fiscally responsible.
Regardless of which solution has greater support, passing either plan is vastly preferable to passing no plan at all. Alaska can’t wait another year for a fiscal solution.
— Fairbanks Daily News-Miner, April 9, 2017
