The sheer size of the Alaska's budget crisis makes it difficult to comprehend, let alone to solve. Many people, including myself, find it hard to picture a million dollars as only a tiny fraction of a billion dollars. It takes a thousand million to make a billion. To understand Alaska's fiscal crisis, we need to see these dimensions clearly. The deficit, which was $3.2 billion a year ago, has grown to $4 billion today. The monetary effects of different steps that can be taken to reduce the deficit are in the millions, but not billions. We will need to combine most, if not all, possible measures to solve the crisis.
Last October, Alaska Common Ground and the Institute for Social and Economic Research used building blocks on the stage of UAA's Wendy Williamson Auditorium to demonstrate the size of the state's $3.2 billion debt and each of the million-dollar solutions. The height of the building blocks was sized to accurately reflect Alaska's towering budget deficit and the smaller, but multiple, ways to reduce the deficit. This stage set was a dramatic illustration of the scale of our collective challenge.
A similar free public forum, sponsored by Alaska Common Ground and UAA's College of Business and Public Policy, will be held this coming Saturday from 9 a.m. to 4:30 p.m., again at UAA's Wendy Williamson Auditorium.
For a do-it-yourself way of grasping the fiscal reality of Alaska's budget crisis, you can use four yardsticks and assume each one represents $1 billion. Then look at how close you can come to eliminating the deficit with the available revenue sources and cuts. For example, a revenue source worth $500 million, or half a billion, moves you halfway up one yardstick, but there are still 3 1/2 yardsticks to go.
Alaska's avalanche of debt resulted from the 90 percent drop in oil revenues during the last four years. Because the state share of Alaska's budget is almost totally dependent on oil revenues, the result is catastrophic. Denial and blaming have been widespread but the temptation to do so should not divert us from solving the problem. In truth, most of us have been proud to tell visitors that we live in a state without an income tax and receive an annual dividend to boot.
But it is time to face reality. Neither of the two factors that caused the drop in oil revenues – the worldwide oversupply of oil and consequent fall in prices, and the declining productivity of Alaska's oil fields – is likely to change enough to sustain even a minimal level of state operations and obligations.
The positive side of the current fiscal challenge is the opportunity, in fact the necessity, to step off the roller coaster of dependence on oil revenue and adopt a fiscal plan that will allow stable year-to-year budgeting independent of the ups and downs of oil revenues. Without implementing such a plan, including both the revenue and cost-saving measures, Alaska will continue to pile on more debt at an unsustainable rate. The situation calls for a sense of urgency for the future of our state and our children.
Fairness to all sectors of our population, at all income levels, and in rural as well as urban communities, must be the underlying goal of the bipartisan effort that will be required. Gov. Bill Walker and several legislative leaders have started this process and made proposals.
House Bill 365, sponsored by Rep. Paul Seaton from Homer, uses fairness as the underlying concept, counterbalancing provisions for a Permanent Fund dividend and an income tax based on a percentage of federal tax liability. He recognizes that maintaining the dividend is particularly important to people in rural Alaska and people statewide with limited or no income. Having an income tax makes it possible to keep the Permanent Fund dividend, which is unique and enormously beneficial to Alaska.
The progressive income tax based on federal tax liability would apply to people in higher income levels and exempt or minimize the impact on those in lower income levels. The income tax would capture income earned in Alaska by non-residents, and state income taxes can be a deductible item for someone filing a federal income tax return.
Before we struck oil, Alaska had a progressive income tax based on a percentage of federal tax liability. It is time to rejoin the rest of the country by following the time-honored national practice of taxing income progressively. Given the depth of the fiscal crisis and a basic goal of fairness to all, an income tax is essential. No fiscal plan will be sufficient to cover the current deficit, and still be fair, without a progressive income tax.
Janet McCabe and her family have lived in Anchorage since 1964. Her education and experience are in community planning. She is actively involved in several nonprofit organizations, including Alaska Common Ground.
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