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Alaska legislators have never needed compromise more than now

  • Author: Dermot Cole
    | Opinion
  • Updated: February 16, 2017
  • Published February 16, 2017

This gets lost in the daily avalanche of information, but the state has enough money in its second-largest savings account to keep government operating for one more year.

After that the state will have to withdraw whatever it needs from the Permanent Fund earnings to keep the lights on.

This is the background against which every aspect of the 2017 Legislature has to be considered.

Alaska legislators have never needed to master the art of compromise more than now, but too many are pushing sideshows about the Permanent Fund dividend, imaginary budget cuts and oil taxes. Everyone has to give a little or we're all going to be stuck.

The defenders of the dividend won't show us how to keep state and local government services going.

The defenders of imaginary budget cuts refuse to identify how they would cut $750 million to $1 billion over the next three years and how that would not make the recession longer and deeper. Either provide details now or drop the subject.

Those who say oil taxes can solve everything neglect to mention that when the state abandoned a gross tax for a net profits tax, it guaranteed a situation in which oil income would plummet at low prices.

These are not all-or-nothing questions. There was no substantial analysis during the SB 21 debate about the consequences of $50/bbl oil and the 4 percent minimum tax.

There is room to increase oil taxes and cut credits, but that's just part of the fiscal fix. On the other side, those who declare that everything is on the table, except oil taxes, are creating the conditions to repeat the legislative failures of the past.

In all of these matters, the political impulses are understandable because some elected leaders specialize in telling people what they want to hear. But time has run out.

It has been easy to cast yourself as a PFD defender, a supporter of imaginary budget cuts or a believer in higher oil taxes as a cure-all. It falls apart when the state is spending $3 billion a year in savings from an account fast headed toward zero.

If the normal practice of withdrawing a few billion from the Constitutional Budget Reserve takes place this spring, that account will drop to $2 billion by the summer of 2018. That's $1 billion shy of paying the bills in 2018-19, forcing larger withdrawals from the Permanent Fund as time goes by.

In the past four years we've spent about $13 billion from savings, a figure that does not create panic only because numbers with nine zeros are beyond comprehension.

When legislators gather in 2018 to set the budget for the following year, the Permanent Fund will have to be a major element in the budget fix, barring an international crisis and a major spike in oil prices.

It would be far better to act now on taxes, and establish rules about the rate of withdrawal from the fund and the size of the dividend, rather than come up with new numbers every year based on changing circumstances.

The Legislature always has the power to change a withdrawal structure in the future, but having a system in the law would provide guidelines and some accountability.

The House plan to institute one of the lowest income taxes in the nation and curtail dividends is a reasonable one, with elements that no one is wild about. If something similar to that compromise does not succeed this year, next year it's the Permanent Fund or else. That would put the continuation of any dividend at risk.

I think Homer Republican Rep. Paul Seaton has it right about dealing with oil tax credits and combining an income tax and a PFD cut:  "What we're trying to do is get something fair and balanced that is good for all Alaskans and fills our budget to maintain a vibrant economy."

If you've been following the news from the House and Senate, it's an unstoppable force approaching an immovable object.

If legislators do their jobs, they won't get out of this session or the next one without making people unhappy. They need to get used to it, make compromises and forget about the 2018 election, as impossible as all of that sounds.

Columnist Dermot Cole can be reached at 

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