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Any solutions to Alaska's fiscal crisis will be painful, forum attendees say

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  • Updated: October 1, 2016
  • Published October 1, 2016

Each possible step to solve Alaska's fiscal crisis will be painful and nobody wants to take any of them.

That was the message delivered at a day-long forum in Anchorage Saturday that addressed the fiscal woes of a state government that for decades has been nearly entirely dependent on oil revenues for its operating funds. With oil production at only about a quarter of its 1980s-level peak and oil prices sinking, the state's situation is dire, said speakers at the forum, sponsored by the nonprofit group Alaska Common Ground and the University of Alaska Anchorage's College of Business and Public Policy.

The forum sought to build consensus on the state's future path, but all options are unpalatable for a state that just ended one fiscal year about $4 billion in the hole and just started a new fiscal year that is expected to have a $3 billion shortfall.

Already, Gov. Bill Walker has taken one extremely unpopular step. He used his veto power to cut in half the annual dividend from the Alaska Permanent Fund, the state oil-wealth fund that makes payouts to nearly every Alaska resident. This year's dividend, to start arriving in bank accounts next week, will be $1,022 instead of the more than $2,000 previously expected.

Whether solutions come in the form of cuts to the dividend, new taxes or cuts to government services, they will have negative consequences, said speakers at Saturday's forum.

"There is no going around the fact that we're going to hurt the economy. We going to hurt the economy by taking money away from it," said Mouhcine Guettabi, an economist with the UAA's Institute of Social and Economic Research.

Reducing the Alaska Permanent Fund dividend could remove nearly $900 million from the economy in the short term, according to Guettabi's analysis of short-term impacts.

Cutting the state workforce substantially will eliminate 1,414 to 1,677 jobs, another big hit to the economy. Imposing new taxes will also take money out of the economy, he said.

More than dollar totals should be considered, Guettabi said.

"I really think that we need to be very careful about thinking through how each of these options affects households and different level of income households," he said.

A Permanent Fund dividend cut is the most regressive solution, hurting low-income people the most. A state income tax is the most progressive of tools, and it and some other taxes would have the benefits of being distributed partially to nonresidents.

Whatever measures are chosen should be phased in and not imposed too quickly to avoid shocking the economy, he said.

Some specific suggestions at the forum offered at least partial solutions to the fiscal problems.

Alaska's complicated production-tax system has effectively robbed the state of its fair share of revenues from oil flowing out of the North Slope, and there will not be public support for other measures until that fundamental problem is corrected, said attorney Robin Brena.

The new system of generous credits for questionably defined "new oil" has helped drive Alaska's unrestricted petroleum revenues from $8.9 billion in 2012 to $1.7 billion in 2015, said Brena, who relied on state budget figures for his analysis. In 2012, the state took in 35 percent of the value of its oil; in 2015, that had fallen to 8 percent, a level that is "unsustainable," he said.

"We need someone that'll stand up for Alaskans and get us our fair share of petroleum revenues," he said. If that happens, the state is likely to bring in an additional $2 billion to $3 billion in oil-tax revenues, he said.

State Rep. Paul Seaton, who pushed unsuccessfully in the last legislative session for a bill that combined a Permanent Fund dividend cut with an income tax, said the best way to win public support for unpleasant budget solutions might be to bundle them together. That such a package was even aired in the Legislature shows that the public is taking the fiscal situation seriously, Seaton said.

Ric Davidge, a former state and federal resource manager who is now with a conservative political organization called United for Liberty, said there is an opportunity for cuts that would minimize economic pain – adoption of a 30-hour workweek for state employees. Employees would keep their jobs but state costs would be lowered, and such a scheduling system has been used successfully in the private sector, he said.

Distaste for the fiscal step already taken, the cut to this year's Permanent Fund dividend, was on full display outside the door of the UAA building that housed the forum.

A group of protesters spent hours picketing and collecting signatures for a petition to recall Walker for his dividend cut.

"I'm here because the governor lied right to our faces to get elected," said Charles Largent, who paced in front of the building with signs that read "WALKER RAN ON LIES!!" and "WALKER MUST GO."

Andrew Brewer, who manned the signature table in the afternoon, said the dividend cut has big consequences for many people who can afford the least to sacrifice.

"I'm doing this because people are hurting without their dividend," he said.

In a brief statement, Walker acknowledged that the cut was painful.

"I am also disappointed with our $3 billion deficit, which required me to make the very difficult decision to reduce this year's Permanent Fund Dividend. While I know my action is unpopular, my veto was necessary to preserve dividends for years to come," he said in the statement.

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