I first met Jay Hammond when I was 14 years old. He was my hero and idol, and probably at least part of the reason I decided to learn to fly. So I am a lifelong Hammond-style Republican, but I just don't know where the party has gone, even on a national level.
After watching the recent forum on Alaska's fiscal deficit on Channel 2, here are some thoughts, and I have to admit I may not have all of the facts correct. It seems to me there are three major components to cover the gap without further hurting our population:
Fix the outflow of money to the oil companies. In 2007, then-Gov. Sarah Palin's ACES bill increased taxes on the oil companies but also included tax incentives to increase production. At that time the world crude prices remained high and steady, and no one could have foreseen the rapid and drastic price reduction we have experienced recently. The next move was Senate Bill 21, passed in 2013 in a further effort to incentivize more production. At high oil prices, the cost of SB 21 seemed worth it. But then came the rapid decline in prices worldwide, which are unlikely to appreciably rise again soon. Anyone who thinks we can just wait this out and the prices will save us again is just not thinking realistically. Again, this is not just an Alaska problem, and whatever we do is just a drop in the bucket related to world economics.
So the low production from Prudhoe Bay and the worldwide price drop has now combined to put us where we are today. The first step we have to take is to revise the oil company incentives drastically downward. Former Alaska Senate President Rick Halford said this is a $1.5 billion cost to the state; we badly need to fix that first of all.
Yes, the operating budget has increased a lot over the last 20 or 30 years, but our population has also increased. It would be interesting to see what the government operating total costs were per capita, as compared to previous years.
I was told many years ago that the very first priority of any entity is to look out for its own interests first. We have partners' interests to consider, i.e. the oil companies, but the bottom line is to protect ourselves first. The oil companies will certainly look to their own interests, and so should we look to ours.
The next priority is to increase revenue. My personal priority is to reinstate the income tax, which we all paid for many years. Jay Hammond said to his dying day that one of his biggest regrets was in allowing the income tax to lapse. The way we did it before was very simple and cost effective. Every citizen has to go through the IRS process of figuring their taxes, income and expenses, as stated in federal law. Then the state simply requires that our tax be a percentage of the IRS bottom line; this automatically costs the high-wage earner more money, and impacts the lower earner less.
The alternative is a statewide sales tax. As long as basic living expenses are exempt, to protect lower income citizens, this could work and would derive some income from tourists as well. But reinstating the income tax is by far the easiest and most cost-effective way to generate the most revenue. Many of our communities already have a local sales tax.
Last of all, as Halford said, we can look to the Permanent Fund. With the fund standing at around $50 billion, and quite wisely managed as it has been, there are several billions of dollars available each year just in earnings, and these are renewable, ongoing revenues.
So the goal should be to retain the dividend as is first of all, then maybe the inflation-proofing, and then whatever is left over on an annual, sustainable basis could go to balancing the state budget deficiencies.
The Legislature has taken the first step in cutting unnecessary operating expenses, but I think they went too far in reducing programs benefiting seniors and education, both the university and K-12.
I had recent personal experience with this. For many years I have been helping the Alaska Aviation Museum on Lake Hood, as I firmly believe in the importance of preserving and presenting to the general public the history going back to the 1920s, of how aviation shaped our state's growth. There are over 200 communities off the road system, which are only accessible by aircraft.
Three years ago we went to BP, and they agreed to furnish a grant dependent on the museum giving free tours to schoolchildren. The first two winters we conducted tours and lectures, about 2,000 students each winter. This was priceless education; who knows what even just a few of these students might have been influenced to accomplish? But this past winter the schools stopped calling. When we looked into it, we were told the district could not furnish the bus service due to the budgetary cutbacks. This is just shortsighted and unnecessary.
There has been talk of getting by on the Constitutional Budget Reserve, our savings account, until the long-term solution, such as an increase in oil prices, occurs. No responsible business entity would operate that way. That is like burning your furniture to keep the house warm another day. When that money is gone, it is gone.
So please, to all the legislators, do the responsible thing, drop your petty party differences and personal priorities, and do whatever is best for our state and citizens. You have the tools and resources necessary, all you need is the guts to implement the process.
Orin Seybert is the founder and retired CEO of Peninsula Airways (PenAir). He lives in Anchorage.
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