This session I had the opportunity to speak with different groups about the state's fiscal situation and the proposals before us to reduce the budget deficit. These groups varied — from the Superintendents Association to the Alaska Municipal League — each with their own interests and causes to champion. But there was one goal they all shared: the need to fix Alaska's $4 billion deficit.
On Day 1, the Senate proposed a path forward including reductions, reforms and revenue. Our operating budget was completed by Day 60. It proposed $450 million in cuts to state agencies, which was in addition to last year's cuts of more than $750 million. These cuts were what the majority of the Legislature was willing to support this year.
Additionally, the Senate overhauled the state's Medicaid system to achieve $500 million in savings over eight years, and it approved major corrections reform to achieve $380 million in savings over the next decade. The goal for both pieces of legislation was to invest in "best practices" that have seen positive, measurable results in other states. You may agree or disagree with either or both pieces of legislation, but there are volumes of information available to the Legislature that suggest our current practices are not receiving the desired results and that they are driving up the cost of government. There were other pieces of legislation that supported system change to positively affect the bottom line of Alaska's operating budget. Some examples are restructuring the Power Cost Equalization and the Community Revenue Sharing programs.
We also increased fees on nonresident hunting and fishing licenses and tags. This change has an estimated revenue increase of $9 million, and it leverages another $20 million from outside government sources to pay for Fish and Game management.
Despite these reforms, Alaska's budgets are still over $5 billion. Remaining is a deficit of more than $4 billion and the question: How will we pay for it?
Alaska's "rainy day account" — our Constitutional Budget Reserve — requires a three-fourths vote of the Legislature to access, and has about $7 billion available to bridge the current fiscal gap. The Earnings Reserve Account has a nearly $8 billion balance and has never been touched since its inception, other than to pay dividends. This account requires a simple majority vote to access.
There are some who don't believe we should use the ERA to bridge our fiscal gap this year, as it has the potential to lower future Permanent Fund dividends. Others disagree with using the CBR, as it further depletes a savings account we've dipped into previously. If we cannot access one of these savings accounts, we must consider creating new revenue streams to pay for programs and services that Alaskans value, such as education, health care and public safety.
As you already know, Alaskans have enjoyed the benefits of a robust oil and gas industry in our state. The royalties, severance (production) tax and corporate income tax collected from this industry have contributed up to 90 percent of state revenue in recent years. This has allowed our residents to carry the lowest state tax burden in the country. Alaska residents pay zero state income tax and zero state sales tax in addition to the lowest fuel tax in the nation, which hasn't been increased in more than 40 years.
Gov. Bill Walker's team has entered into a process to systematically and foundationally change the way Alaska residents participate in the process of supporting and funding their state government, which provides essential programs and services for the people of Alaska.
With a $4 billion revenue shortfall, there are not many ways to fill the hole without turning Alaska's economy upside down. Some suggest we should just tax the oil and gas industry more, others email me asking to pay through an income tax and still others are opposed to all proposals by the governor or the Legislature.
While many want to blame the governor, the Legislature or past legislative bodies, the blame game will not fix the problem. Placing blame is easy; the difficulty lies in the solution. In state government, each agency has a mission, and each agency asserts that its mission is essential. However, with reduced revenue, we can no longer afford all the programs and services we enjoyed in the past. The largest cost drivers in the operating budget are the Permanent Fund dividend program at $1.4 billion, K-12 education at $1.3 billion and Health and Social Services at $1.2 billion.
Government operations are expensive. They provide public education to every student, health care to 110,000 Alaskans and public safety to all of us.
We must consider all options of revenue to fund these services. At the end of the day we must make decisions based on what is best for Alaska and our people, and making those decisions will require compromise from members of the Legislature, the governor and the public.
It's time to put politics aside and do what is right for Alaskans.
Sen. Anna MacKinnon represents District G in the Alaska State Senate, and serves as co-chair of the Senate Finance Committee.
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