As the Legislature moves on from passing the state operating budget to considering revenue measures to help bring Alaska’s fiscal picture back into balance, there appears to be confusion in the Capitol Building. Several senators, most prominently Sen. Pete Kelly, R-Fairbanks, stand in opposition to any kind of taxes as a partial solution to the budget deficit, saying they would rather spend out of the state’s dwindling savings in hopes that oil prices rebound and take care of the problem without legislators having to work out a revenue solution themselves. Given the state’s precarious fiscal position, that simply isn’t a sound or acceptable solution.
In a hearing last week, Sen. Kelly said, “I’m not getting into the tax business while I know government is still too big. How do I know? Because we cut a whole bunch of fat off of it and nothing happened.” The notion that “nothing happened” as a result of last year’s cuts may be news to the many state and university employees who received pink slips, as well as several Alaska State Trooper posts and the division’s Cold Case Unit. Local residents felt the impact early in the winter, as a big snowstorm highlighted the effects of cutbacks in the Department of Transportation’s ability to plow area roads quickly. They also felt it in their property taxes, as the Borough Assembly opted to use local money to blunt the impact of state cuts to K-12 education. Cuts in the budget this year will go further, slashing funds for senior benefits, energy efficiency and weatherization, causing downstream effects in private sector businesses that handle such services. While there’s room for debate about the right size of state government or the services it should offer, Sen. Kelly should know better than to claim hundreds of millions of dollars in cuts have had no impact on residents.
It appears legislators are giving strong consideration to a restructuring of the Alaska Permanent Fund’s earnings to help cover the fiscal gap. As revenue measures go, all serious analysis of the state’s budget has concluded that such a restructuring is the cornerstone to a balanced budget as the state transitions away from oil-dominated revenue. It’s good to see legislators acknowledge the reality, communicated by economists from the University of Alaska’s Institute for Social and Economic Research, the state Department of Finance and even the Legislature’s own Finance Director, that such a restructuring is not a raid on the fund but rather the best chance to preserve it.
To be sure, taxes have defined negatives. A state income tax at the levels proposed in Gov. Bill Walker’s fiscal plan would bring in a few hundred million dollars per year. It would result in a somewhat higher tax burden for all state residents, and few like more money being withheld from their paychecks. But it would also capture revenue from out-of-state workers who come to Alaska for their jobs and currently take almost all of the money they make back to the Lower 48. A state sales tax would raise about half as much money, under plans being floated in Juneau. It would capture money from tourists visiting the state, but it would also increase an already high cost of staple goods for residents.
But whether you think taxes should be part of the balanced-budget solution or not, It’s disappointing to see legislators insist that deficit spending is preferable to a balanced budget. The state has little time — less than five years, even with permanent fund earnings restructuring — to turn the state’s fiscal picture around before its savings accounts are entirely depleted. As options go, that should be the only one left off the table, but It’s the one legislators are steering the state toward by refusing to consider all revenue sources. Getting halfway to a budget solution by enacting permanent fund earnings restructuring is better than no action, but filling in a pothole halfway only means it will take you a little longer before you break your axle. Legislators shouldn’t attempt to safeguard their re-election chances by avoiding politically difficult decisions. The state needs a budget as close to balanced as is possible, and this is the job they were elected to do.
— Fairbanks Daily News-Miner,