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Havelock: Taking stock of Alaska's fiscal picture, Part 1

  • Author: John Havelock
  • Updated: June 29, 2016
  • Published November 15, 2015

The well hasn't gone dry, but there's less in it. Successive Legislatures have ignored the need to substitute sources of revenue for dwindling oil receipts and have fiddled with oil taxes, sometimes reducing oil revenue productivity. The result: the budget crisis grows.

The special session on purchasing TransCanada's gas line interest is concluded. The governor has neatly removed this substantial expenditure as Alaskans approach the coming regular session, budget dilemma.

The solutions, with minor variations, are simple and obvious but, is the political system up to it? And what of the public's reaction? Alaskans have previously counted on magic bailouts: oil discoveries and price upsurges, even disasters bringing massive federal relief money. But clinging to Alaska exceptionalism for answers is over. The blanket oil subsidy for our economy is wearing thin and showing holes. As Gov. Jay Hammond pointed out in his book, "Tales of Alaska's Bush Rat Governor," in most other states, economic activity "pays its own way, simply because it has to. Unlike Alaska, these states have no great pool of oil wealth from which they can ladle subsidies." Properly managed, a smaller blanket subsidy from oil revenue and yes, from interest on savings, can cushion Alaska's return to normalcy, but we still need to shoulder up to revenue responsibilities to fill the gap.

Read more: Taking stock of Alaska's fiscal picture, Part 2

Start by surrendering the illusion that cutting the state budget provides more than a symbolic, if still valued, share of the answer. Excepting some pending capital improvements, Alaska's budget, according to trained economists, is pretty close to normal. What's not normal is our passing on revenue normally taken from economic activity.

The gap, depending on who's measuring it, is around 3.0 B (billion). Heading for normalcy, try this starting list, a mix of large and small items. The numbers used are educated, sometimes informed guesses. The reader can play with them, add others and eliminate some. Just get Alaska near its revenue goal.

1. Start with "our" oil. Stop giving "credits" that wipe out state income. That's in the neighborhood of $0.7 billion, so OK, the deficit is now $2.3 billion.

2. Properly fund auditing of back oil taxes. The record of underpayment is long and steady. Who can blame them for fudging? But it's our money. Estimated value in millions: $200 million.

3. Take back part of the oil properties tax: $10 million. (or more) The state levies 20 mils on oil properties, but municipalities are permitted to take it all. They won't like it in Barrow and Valdez, but Barrow, in more realistic terms, doesn't need to fund the same budget as the city of Anchorage and can try taxing itself.

4. Tourism is not paying its share of government services. A summer sales tax, with groceries excepted, and some accommodation for communities that already levy a sales tax would help. Tourists will not stop coming because they pay 5 percent on purchases; they pay that much at home. A statewide sales tax of 4 percent, according to economists' estimates, yields $560 million. Applied to four months, that's $140 million. Accommodation takes it down to $80-100 million.

5. The public cost of alcohol's damage to Alaskan lives is the most highly subsidized part of our economy. Drinks should pay more of their real cost. Five cents a drink will yield $20 million. Let's make that 20 cents but charge it at the bottle level to recover $80 million in alcohol taxes. Still way too low, compared to social cost, but Alaskans love their drinks.

6. Less visible forms of social damage generating state costs come from sugar. Sugar drinks lead to obesity, diabetes and other detrimental health consequences, not quite up to alcohol but not small change either. Collect that nickel a drink yield: $50 million.

7. Gasoline prices have gone down, so raising the gas tax, now among the lowest in the nation, will not be as painful. Road maintenance is not cheap. At 8 cents per gallon, collect $40 million.

8. Mining in Alaska has generally enjoyed nearly a free ride. The proposal made by Walter Feathery in Alaska Dispatch News (Commentary, Oct. 31) to establish a state institution, an Alaska Public Minerals Corporation, to manage that wealth, deserves serious attention. It will not offer an immediate jump in revenue, but it has great promise. Look what NANA did with the Red Dog Mine. In the meantime, tap mineral production for another $20 million in taxes until the royalty system is adjusted.

9. Cutting the state's administrative budget is a necessary part of any package. But notice, none of the legislators trumpeting cuts mention where. Here is a proposal. As junkets and overpriced office space have indicated, the Legislature has overpaid itself. A cut here of $20 million is not out of order. The executive branch should tighten its buckle by thinning upper-mid-management. The university's budget for a duplicative statewide system is a clear example. Cut $30 million. We have bloated bureaucracies supporting unpractical capital projects: a giant dam, a Knik Arm bridge, a Juneau road, among others, to nowhere, a failed rocket corporation and other items: Cut at least $40 million for a total government cut of $85 million.

Collectively these measures raise $1.27 billion, about 40 percent of the deficit, without even getting to a state income tax. The remaining 60 percent must come from an income tax, the Permanent Fund, the dividend, or where else? The political challenge and economic consequences will be addressed in Part 2.

John Havelock served as Gov. Bill Egan's Attorney General and for Gov. Hammond as a member of his Growth Policy Council.

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)

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