With operating budgets passed in the House and Senate but not yet funded, at least one thing is now clear: Gov. Bill Walker’s proposals to raise taxes on individuals and businesses by nearly $460 million in the next fiscal year aren’t going anywhere.
Senate Finance Co-Chair Pete Kelly, R-Fairbanks, couldn’t have been more blunt — or, frankly, rude — in response to a question about how the Legislature plans to pay for the fiscal year 2017 spending that figures to outpace revenue by $3.7 billion.
At a Finance Committee press conference March 15, Kelly took the opportunity of a question that did not mention taxes to state unequivocally that he has no intention of plumbing a well to the private sector to fill whatever gap remains once some means of drawing from Permanent Fund earnings is chosen.
Kelly noted he was speaking for himself, but with all but one of Walker’s proposed tax hikes still sitting in committee or yet to receive a hearing, there can be little doubt his opinion represents the Republican majorities.
The only tax proposal that has moved out of its original committee is the doubling of the fuel tax from its current national low of 8 cents per gallon that is projected to raise about $49 million per year.
The increase has received a large amount of support from stakeholders in the transportation industry who recognize the importance of maintaining the infrastructure on which their livelihoods depends. Of all Walker’s tax proposals, it’s also the fairest and most broad-based, especially at today’s depressed fuel prices.
The Legislature still has a heavy lift ahead to select a means to use the Permanent Fund earnings and because it won’t raise additional revenue through taxes, the majority in the House is going to have to cut some deals with the minority Democrats in order to draw from the Constitutional Budget Reserve, or CBR.
And just as an aside, Kelly and fellow Finance Co-Chair Anna MacKinnon, R-Eagle River, attempted to argue that a budget paid for with the Earnings Reserve and the CBR is “balanced.”
A budget is balanced when revenue covers expenses. A budget that relies on savings is funded. There’s a huge difference, and as far as spin goes it can’t turn a pinwheel in a hurricane.
Nevertheless, the majorities are correct that it is far better to make a relatively small draw from the CBR than it is to kick Alaska’s economic drivers in the guts while they’re down.
The oil industry that’s propped up Alaska’s government spending for nearly 40 years is always a juicy target — for this governor in particular — but no knowledgeable observer could look at the daily stream of news about layoffs, delayed projects and idled rigs and think raising taxes on its members by some $100 million as Walker has proposed is anything but a terrible idea.
Alaska’s most valuable fishery with the greatest number of workers — salmon — is in the midst of its own price crisis yet Walker wants to extract $18 million out of the industry by raising every fish tax.
Minerals prices have also trended lower, and global sluggishness is reducing demand along with other factors such as transitions away from coal that caused Usibelli to halt exports last year.
The governor and his Revenue Department asked the University of Alaska Institute of Social and Economic Research to study the effects of budget cuts on the broader economy. That ISER’s original analysis did not consider the impacts of private sector job losses was a glaring omission that still managed to be revealing.
What we can see from the ISER study is that government job losses have a multiplier effect of less than one. A loss of 900 government jobs results in a loss of about 700 indirect jobs.
ISER may not have looked at private sector losses and their multipliers, but the McDowell Group has done plenty of work in this arena over the years.
What McDowell Group has found is that every direct job in oil production creates an additional nine in the private sector. When the role of oil taxes are accounted for, each oil industry job pays for another 10 state and local government jobs.
Mining and fishing have 2-to-1 job multipliers according to various McDowell Group studies.
Breaking it down, the Legislature’s priorities should be clear: Preserving private sector jobs is more important than preserving public sector jobs. As a business publication, we don’t want anyone to lose their job, but this is the tradeoff the state faces.
Walker may not like it — and he’s certainly welcome to go out and advocate for taxing Alaskan incomes at a $400 million annualized rate — but refusing to raise taxes during an economic downturn is the right call from the Legislature.
— Alaska Journal of Commerce,