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Alaska lawmakers want cuts as administration weighs new taxes, other measures

  • Author: Alex DeMarban
  • Updated: September 28, 2016
  • Published August 24, 2015

Republican lawmakers in Alaska's state House continued to press for more state budget cuts over new taxes or tapping the Alaska Permanent Fund to raise revenue during a presentation held by the Walker administration on Monday as part of its effort to inform Alaskans about the state's dire fiscal situation.

Leading Republican members of the House Finance Committee complained the administration was "glossing" over the need for further cuts and instead was focused on raising revenues. Revenue commissioner Randy Hoffbeck fended off the attack, saying the state must take a balanced approach because cuts alone will not close the multibillion dollar deficit amid low oil prices.

"If we get bogged down in cuts, we will not get to a final answer," Hoffbeck said. "We cannot cut enough government to get to the final answer."

The Legislature and governors have slashed the unrestricted general fund budget -- the portion of the budget facing the huge deficit that does not include federal funds or revenue from the $50 billion Permanent Fund -- from $8 billion in 2013 to $4.9 billion in the new fiscal year that began in July.

That's not enough for some on the 12-member committee.

"Here's my challenge now, as we continue down the trail of talking about other kinds of revenues, we have folks where I come from saying we haven't even begun to scratch the surface," said Rep. Lynn Gattis, R-Wasilla. "We have other surfaces to scratch before we go down that."

Despite the cuts, the state in the fiscal year that ended in June still came up short about $3 billion. In a "best-case scenario," the state expects another $2.7 billion deficit this fiscal year, if oil prices are about $65 a barrel.

If oil prices remain as low as they are, currently around $40 a barrel, the projected deficit will grow, said Pat Pitney, director of the governor's Office of Management and Budget

Many Alaskans still aren't aware of the depth of the problem, said Hoffbeck, though he cautioned the "sky is not falling." That's in part because taxes in Alaska are so low that any effort to raise new revenues will go a long way.

The presentation to the committee was part of an effort the administration has been conducting since June to inform the public and lawmakers about options for balancing the budget.

The presentation comes as financial agencies, such as Standard & Poor's, warn the state's excellent AAA credit rating is threatened unless it takes significant steps to close the gap.

One of the administration's slides showed Alaskans, with no statewide sales tax and no personal income tax, pay the lowest individual taxes for state government in the nation.

Alaskans pay a little more than $500 per resident, if such things as license fees are counted. The next lowest is New Hampshire, where residents pay close to $1,000 per capita, according to the chart. The highest is Hawaii and then Connecticut, where residents pay an average of more than $4,000 a person.

Meanwhile, the state's unrestricted general fund budget is now lower than it was before the trans-Alaska pipeline began operating in 1977, if adjusted for population and inflation, said Pitney.

Because of the recent cuts, as of early July, there were 500 fewer people working for the state as compared to six months earlier. That figure does not count reductions at the University of Alaska or the state court system. About 60 of the reductions occurred through layoffs, with the rest coming through retirements or people resigning after they'd found other employment, she said.

Cuts still need to be pursued aggressively, said Rep. Lance Pruitt, R-Anchorage, who said he was frustrated the presentation "glossed over" potential areas for reductions and seemed to emphasize revenue-generating ideas.

"Before we go to the public and say we want to pull money out of your pocket," state officials need to ensure they've done "due diligence" in cutting state government, he said.

Pruitt said the last time oil prices were similarly low, about 15 years ago, the state managed to cut further.

He said he has areas in mind for cuts, but he would not say what they were. He said it's up to the administration to drive that discussion.

"They need to come to us," he said.

The Walker administration, with its broader resources, statewide constituency and access to daily agency costs, must provide a framework on where to begin, Republican lawmakers have argued.

The administration is working on a proposal expected to be released in early October that will present revenue-generating proposals as well as additional areas for cuts, said Hoffbeck.

Numerous options are on the table to raise revenue -- it's expected more than one proposal will be needed to close the deficit. One idea includes selling pension obligation bonds to reduce an annual retirement payment that is currently about $250 million, Pitney said.

Hoffbeck said after the meeting the state's low tax rate is a blessing and a curse.

"We can become an average-taxing state or even a below-average taxing state and still be relatively successful in closing our gap," said Hoffbeck. "But we're still fighting a history of no personal taxes and that's the problem."

Hoffbeck said some fees that may not be too "onerous" to increase include:

• Taxing S corporations that are currently not subject to corporate income taxes.
• Creating a medical services tax for providers; Alaska is the only state without one.
• Increasing the state’s motor fuels tax that is currently the nation’s lowest.

A variety of other tax-revenue options are also on the table, such as an income tax, a statewide sales tax, an education tax that would be tax people at a relatively small amount, perhaps $100 to $500 a year, and increased taxes for the fishing industry.

"We really don't have a crisis unless we fail to act," Hoffbeck said.

The House Finance Committee also met and offered areas of study for Gunnar Knapp, director of the University of Alaska Anchorage's Institute for Social and Economic Research. The institute is launching a study to look at the potential impacts of additional cuts and new revenue-generating measures. The study will be released before the Legislature convenes this winter, Knapp said.

During the meeting, committee member Rep. Les Gara, D-Anchorage, said past reviews have not looked at production-tax reform as an option. He said the oil and gas industry isn't paying enough, noting as one example the state pays more in oil tax credits than it receives in production tax.

Kara Moriarty, president of the Alaska Oil and Gas Association, which had sent an employee to observe the hearing, said Alaska isn't the only one "bleeding cash" right now. The oil companies that have been the primary provider of state income for decades are also losing money.

"Jacking up tax rates at low oil prices is not going to put more oil into the pipeline," she said.

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