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ISER head: Time for 'realistic' budget discussion including taxes, Permanent Fund

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  • Updated: September 28, 2016
  • Published March 26, 2015

Saying he's personally troubled by the lack of a broad discussion about Alaska's fiscal crisis, the head of a prominent think tank wants to see a statewide conference involving Alaskans and leaders discussing budget reductions and new ways of generating revenues, including through taxes or the Permanent Fund's earnings.

So far, the solution to the state's massive deficit has centered primarily on emergency cuts by the administration and the Legislature. Some say that's a necessary first step before the state begins looking for new taxes.

But with the deficit still expected to be about $3.5 billion, more cuts will surely have to be made. And if the status quo continues – with low oil prices and limited oil production – the state could plow through its savings in three years. That means it's critical to start having the tough sit-down with Alaskans about the depth of the cuts that are needed and hard choices that must be made to protect the state, said Gunnar Knapp, director of the Institute of Social and Economic Research.

"What are we going to do about this enormous seismic fiscal shift?" said Knapp.

He said he's personally discouraged because there's "no realistic discussion" about how to raise revenues, and "furthermore we're told it's off the table," he said.

"It's such an uninformed discussion it drives me nuts," he said.

Others agree that a fiscal conversation with Alaskans needs to happen as soon as possible. That includes Gov. Bill Walker, said his press secretary, Grace Jang.

"It's definitely something that's a huge priority of the governor's," she said. "As soon as this legislative session is over, the administration will take up those discussions, if not sooner."

Sen. Anna MacKinnon, co-chair of the Senate Finance Committee, said she's thinking about options for getting the message out. One possibility involves taking her committee on the road so entire communities can weigh in. Whatever path is pursued, making sure it's inexpensive will be crucial.

"There are variety of options out there, but the more Alaskans are involved in a conversation about our future, the better," she said.

Knapp said the state's looming fiscal cliff doesn't seem to be getting much traction with everyday Alaskans, perhaps because they feel the problem is temporary and, just as in the past, an increase in oil prices will bail the state out of trouble.

But there are key differences between now and the mid-2000s, the last time the state faced this problem, he said. Among them: The late Sen. Ted Stevens is no longer around to bring home big federal dollars, and even if oil prices shot high enough to rescue the budget – an unlikely scenario – Alaska still faces the problem of less oil production.

"I feel this is different and there's an urgent need to get a better handle on where we are," he said.

Jim Egan, executive director of Commonwealth North, a public policy group, said a discussion with Alaskans must take place during the legislative interim that starts in mid-April.

"Legally, it is absolutely critical that the Legislature and the administration meet with Alaskans in the interim to start a dialog so Alaskans can understand and communicate their vision for the state of Alaska based on realistic budget numbers," he said.

Egan said the first focus should be on "right-sizing" government, determining what level of services Alaskans want and can afford. That will set the stage for the discussion on revenue sources. The group, with Knapp's help, recently released a study offering suggestions on how to rein in government spending, which had swelled as oil prices rose.

He said the administration and the Legislature have tried but have still not effectively communicated the value of the discussion to Alaskans, he said.

"People understand there's a fiscal gap but they also believe they have elected people to fix the problem," Egan said. "But elected officials need the kind of clear direction from Alaskans that can only come from organized discussions."

The discussion may be akin to the Conference of Alaskans, held in 2004 with 55 citizen delegates from across the state discussing solutions to the fiscal crisis at that time. The event got lawmakers and the public discussing an income tax and tapping earnings from the Permanent Fund – at that time containing $28 billion – but oil prices soon headed back up.

They eventually marched to record levels above $100 a barrel but now have crashed to below $50, starving the production taxes that are Alaska's main source of revenue.

The boom times helped the state pump billions into savings accounts that still have more than $12 billion in them. State revenue officials have said, however, the savings are expected to fall to $6.5 billion by summer 2016. What's left will quickly evaporate if something doesn't change.

Still, not all is bad. Knapp, in a conversation at Alaska Dispatch News on Thursday, said there are growing areas of the economy, such as tourism, and sectors with great opportunity for Alaskans to play a greater role, such as in commercial fishing. Also, big possibilities are on the horizon but they may be further off than many think, such as a long-sought but costly gas line project that is a decade from production if it happens.

Also important, the Alaska Permanent Fund has roared to record levels thanks largely to a booming stock market in recent years that has helped push its value to $54 billion. Still, that value could plunge if the market tanks.

Knapp said a broad set of groups statewide need to participate in the discussion, including civic institutions, universities, rotary clubs, chambers and state agencies.

From there, as he sees it, different groups can explore different options, looking deeply at such things as the impact of, say, an income tax or a sales tax or tapping the earnings of the Permanent Fund. The meetings and the analysis, perhaps followed by a public vote, will help inform lawmakers on where the public stands.

Knapp said events that have transformed the state have been surprises, including World War II, the discovery of oil at Prudhoe Bay and the 1964 earthquake. Hopefully, the recent crash in oil prices will somehow turn out to have a silver lining as well, he said.

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