State contemplates how it will pay for the budget

As the state legislature begins the final month of the session- one big question is looming: How are lawmakers going to pay for the budget?

Even with several hundred million dollars in cuts, the state has a more than 3 billion dollar deficit to fill.

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Sen. Pete Kelly speaking on Senate floor (Stock Photo by Skip Gray/Gavel Alaska)
Sen. Pete Kelly speaking on Senate floor (Stock Photo by Skip Gray/Gavel Alaska)

Members of the Republican-led Senate majority differ with Governor Bill Walker on whether the state must permanently address all of its budget problems this year – and whether the state needs new taxes.

Much of the debate is focused on how far Permanent Fund earnings should be restructured to pay for government on an ongoing basis, like Walker has proposed. Or, whether to just draw from the earnings reserve like the state has in previous years, as some legislators favor.

Senator Peter Micciche says  the government only has to close part of the budget gap this year. In part, that’s because it can expect higher returns from oil prices in the future.

He sees similarities between Alaska’s situation – having saved money in Permanent Fund earnings – and that of a family saving for college.

“And our child just graduated from high school and we’re saying, actually we’re not going to use that money that we’ve saved for the last 18 years for you,” said Micciche. “We’re going to find some other way to pay for your college, but we’re not sure what it is right now. When you look at where we are financially, our child just graduated from high school, and it’s time to start thinking about how we’re going to use our sovereign wealth most effectively.”

Governor Walker wants a long-term solution, so that the revenue the state brings in this year will be stable in the future.

State Attorney General Craig Richards worked on the centerpiece of Walker’s plan – to change Permanent Fund earnings into a stable source of revenue. He says the state’s situation is more like a family facing retirement without its longtime source of revenue than a family paying for four years of college.

Gov. Bill Walker at a press conference in the Capitol, Oct. 23, 2015. He announced that he was dropping a proposed natural gas reserves tax from the special session agenda. (Photo by Jeremy Hsieh/KTOO)
Gov. Bill Walker (File photo by Jeremy Hsieh/KTOO)

“Alaska lived– for 30 years lived off very generous petroleum revenues,” Richards said. “Due to prices and production declines, we no longer can, so we’ve built up a huge savings account to essentially live off in the later years. And we’re at those later years, so to me, that’s why it’s all about you need to draw from your retirement assets in a sustainable manner, because we need to live off of that money for a very long time.”

Walker also supports introducing an income tax, and increasing other taxes, to build a sustainable budget. But Republican leaders are skeptical of the need for more taxes. They do want to draw from the Permanent Fund earnings reserve and other savings accounts – but with less extensive changes than those proposed by Walker.

And Senate Budget Committee Co-Chairman Pete Kelly, a Fairbanks Republican, also wants to cut spending more.

He says nothing happened to government services after the state sustained nearly 400 million dollars in cuts in the current budget year.

“That tells me, it was that fat,” said Kelly. “It was at least fat by 400 million dollars in the day-to-day operations. We’re going to do it again. And you know what, it’s possible, I don’t think it’s likely but it’s possible that we’ll go too far. In which case, guess what, we can come back here next year and fix it.”

Anchorage Democratic Senator Berta Gardner says she’s concerned that more cuts could destroy programs that would take time to rebuild. And she questioned Kelly’s statement that nothing happened after this year’s cuts.

“I would propose if he thinks that,” Gardner said. “He should talk to fishermen, he should talk with seniors, our lowest-income seniors, he should talk with students, and with teachers, who all are experiencing great changes in their world because of the cuts that we’ve made.”

Gardner says an advantage of Walker’s approach is that it would affect all state residents – and nonresidents who make money in the state, in the case of the income tax.

She notes that the state is facing credit downgrades if it doesn’t address the budget shortfall, which will raise the cost for the state to borrow money.

Walker says he’s willing to work with legislators, but he wants that work to lead to a sustainable budget.

“Alaska deserves a conclusion this year,” Walker said. “They deserve a product that’s finished this year. So, we can do it. All the tools are there. All of the motivations are there. If we don’t, we know what the price is if we don’t. The price for kicking the can down the road is way too expensive for Alaska.”

Legislators expect to resolve how to pay for the budget toward the end of the legislative session.