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Alaska Senate leaders: We're not getting into 'the tax business'

  • Author: Nathaniel Herz
  • Updated: September 28, 2016
  • Published March 15, 2016

JUNEAU — Members of the Republican-led Senate Finance Committee on Tuesday said they would rather spend down Alaska's big savings accounts than "get into the taxing business" and adopt Gov. Bill Walker's financial plan, which relies on taxes to close part of the state's $3.8 billion budget deficit.

"There's been some tendency on the part of the administration to start throwing around orders to the Legislature, and we just don't respond to that," said Sen. Pete Kelly, R-Fairbanks, who co-chairs the committee and leads its work on the state operating budget.

Kelly added: "I'm not getting into the tax business while I know government is still too big. How do I know? Because we cut a whole bunch of fat off of it and nothing happened."

The operating budget passed by the Senate on Monday is 19 percent below spending levels from two years ago. But it still totals more than $4 billion, far above the $1.8 billion in unrestricted revenue that the state expects to collect — leaving a huge gap that Walker has proposed to close with a combination of new and increased taxes and earnings from restructuring the $52 billion Permanent Fund.

The senators, at a Tuesday morning news conference, said the tax proposals may not be necessary. Instead, they plan to wait for a rise in the rock-bottom price of oil — taxes and revenues from which have long paid for the vast majority of state services.

"You don't have to fill the entire gap. I think that's where the governor and us are in some disagreement," said Sen. Peter Micciche, R-Soldotna. "We definitely have to have a plan going forward — that doesn't mean that it fills the whole gap. It means that with a range of expected value of oil, we need to get somewhere between where we are today, and filling more of the gap."

Walker's administration projects state spending to remain at about $5.1 billion in the future. About $4.3 billion in revenue would come from the restructured Permanent Fund and existing taxes and fees, and another $400 million would be recovered through reforms to the state's oil and gas tax credit program.

Some $460 million in new taxes would cover the rest of the deficit: $200 million from a statewide income tax; $100 million from increased oil taxes; $120 million from increased fuel, alcohol and tobacco taxes; and $40 million from increased taxes on mining, fishing, and tourism.

Walker's plan would still draw $300 million from savings next year, but that number would fall to less than $100 million by 2018.

He said in an interview Tuesday he wants lawmakers to put a plan in place "that moves us to a budget that does not draw down on any savings."

Asked about the senators' comments, Walker responded: "I really hope that they'll spend the time in looking at a holistic plan, rather than arguing over each slice of the plan that they don't like."

"Let's look at the whole picture," he said. "I think that's really what would be most productive, and most productive for Alaska's future."

Republican legislative leaders have said they're open to spending money from the Permanent Fund's earnings, but Walker's tax proposals have gotten a cool reception so far.

At Tuesday's news conference, Senate Finance Committee members offered their most strident rejection of taxes so far. It began when Kelly responded to a question about how the Senate expected to pay for its $4.3 billion spending plan.

"I'm not sure what you mean," he said. "So often, what we've heard is people from the left think that you have to pay for something with taxes. If that's what you're getting to, taxes will be discussed," Kelly added.

But, he said: "We do have money in savings accounts, and you can pay for the budget with those savings accounts as you're trying to get to a smaller, smarter government. You don't have to dial in taxes."

The state's two big savings accounts, the Constitutional Budget Reserve and the Permanent Fund's earnings, contain a total of more than $14 billion, though this year's deficit is projected to be nearly $4 billion.

The senators wouldn't, however, identify the exact size of an acceptable draw on savings for this year. And they also rejected the idea that a budget relying on savings was not in balance.

"We've had a balanced budget every year — it just depends on how you want to define 'balanced,'" said Sen. Anna MacKinnon, R-Eagle River, the other co-chair of the finance committee.

A balanced budget, MacKinnon said, is where lawmakers arrive at the end of their 90-day session, with support from majorities of the 40-member House and 20-member Senate.

"If you're looking for a magic number, there isn't one," MacKinnon said. "It's what 11 senators, 21 representatives and a governor are willing to vote for and sign."

The Walker administration doesn't support spending big sums from the state's savings accounts for two reasons, said Attorney General Craig Richards, who's been presenting Walker's proposal in legislative hearings.

One is that big deficits put a "cloud over our economy" — deterring investors and causing recent downgrades by credit ratings agencies, Richards said in an interview. The second is that Walker's plan relies on money generated by investing the state's savings, which wouldn't be available if the savings are spent.

How much spending from savings is too much? Like the senators, neither Walker nor Richards would give a number.

"It's hard to know where the exact tipping point is," Richards said, adding the decision is ultimately up to the governor. "He's made it clear that he wants an almost total solution this year."