More than anything, Alaskans need a clear look at budget numbers, options

FAIRBANKS — At the Blue Loon, a nightclub/restaurant west of Fairbanks that usually hosts concerts, comics and movies, the main act on the theater stage the other day stands as one of the more sober presentations in the 20 years the Loon has been owned by Adam Wool.

Wool, who is starting his second term as a state representative from Fairbanks, provided his establishment for a town hall meeting on the state budget.

Ken Alper, the director of the Department of Revenue Tax Division, spoke for nearly 90 minutes about spending, savings, state services, personal taxes, oil taxes, the dividend, the Alaska Permanent Fund and where we go from here.

"No one wants to talk about taxes, no one is gleefully looking to take anyone's money, it's just the reality that we're facing at this moment in Alaska's history," Alper said.

Wool worked the computer in the back of the theater for Alper, projecting dozens of charts and graphs on the big screen that collectively conveyed a straightforward message: If the Legislature acts this year, there is a chance of an orderly transition.

Delay one more year and there won't be anything orderly about it.

The pressure is building because the slide in oil revenue that began 2 1/2 years ago has drained most of state savings outside the Permanent Fund. About two-thirds of the state budget is coming from savings.

The budget has been cut by billions and there is no public clamor to close schools, increase class sizes, reduce road maintenance and cut back on Alaska State Troopers.

About enough money is left in the Constitutional Budget Reserve to pay for state operations in the fiscal year that begins in July, covering a deficit of about $3 billion until the summer of 2018.

After that, there's an enormous hole.

The most practical option to get us close to a balanced budget is to use about $1.8 billion of earnings from the Alaska Permanent Fund, cap the Permanent Fund dividend at $1,000, institute a moderate income tax and fix shortcomings in the oil tax system. There is something on that list to irritate everyone and the numbers can be adjusted, but those are the basic tools out of which a compromise has to be built.

If the oil industry digs in against any changes, high earners block an income tax and groups push to use nothing but Permanent Fund earnings, a broad-based coalition to defend the dividend would unite to stop anything.

We need to avoid repeating the stalemates of the recent past because time has about run out.

It is inevitable that the earnings of the fund will be used for state government services, which is entirely in keeping with the purpose for which it was created.

The question for Alaskans today is how to find a way to pay for state government that limits the damage to the Alaska economy and spreads the costs to different segments of society.

The Legislature will again consider a plan to spend some Permanent Fund earnings, similar to the bill that passed the Senate last summer and died in the House. The major drawback was the legislative refusal to consider taxes as part of the fiscal fix.

This isn't as bleak as some people claim. Alaska has the lowest taxes in the United States and many people receive more from state government in dividends than they pay in local property taxes. With a moderate income tax, we might end up with the 49th lowest taxes in the country, while remaining the only state that sends people checks for living.

A cut in the dividend or an increase in taxes is not going to bring a smile to people's faces, but acceptance of what is necessary to preserve the quality of life in Alaska is a different matter. That's something elected officials should think about before worrying too much about what awaits them in the 2018 popularity contest.

If you want the dividend to survive and the Permanent Fund to be permanent, the best way to make that happen is for the state to set clear rules on withdrawing Permanent Fund earnings this year.

The fund now contains $55 billion and there are many ways in which a plan can be structured, but a clear and understandable framework is essential.

To delay any longer is to create an unstable situation in which the Legislature will face pressure to withdraw whatever it needs, without regard for the long term. That's an immediate threat to the dividend and the entire fund.

Columnist Dermot Cole can be reached at dermot@alaskadispatch.com. 

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