Fate of competing plans to close state budget is uncertain

Co-chair of House Finance Rep. Paul Seaton, R-Homer, asked questions during a hearing on Tuesday. Seaton supports reintroducing an income tax. (Photo by Skip Gray/360 North)

To some House members, reintroducing an income tax in Alaska is the best way to close a long-term gap between how much the state government spends and what it raises in revenue.

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But senators are opposed to the plan, leaving a political chasm between the two chambers with only 11 days left before the scheduled end to the legislative session.

Two different bills aimed at solving the budget gap are moving through the Legislature.

The Senate passed SB 26 in mid-March. It lets the Legislature draw from the Permanent Fund to close the gap, and it shrinks the size of the Permanent Fund dividends. The bill reduces the $2.7 billion dollar spending gap — but it doesn’t close it all the way. The Senate plans to make up the difference by cutting the budget. A nonpartisan Division of Legislative Finance estimate says just passing SB 26 means the state would run deficits averaging $523 million per year for the next nine years.

For members of the House majority, like Homer Republican Rep. Paul Seaton, that’s not OK.

“When you have a $500 million deficit every single year, what it means is your cuts are going to be like they are this year,” Seaton said. “You’re saying a 5-percent cut to education this year, but you’re saying in their (Senate) budget that you’re going to have to make the same kind of cut next year.”

Seaton and others in the House say that’s not the only problem with SB 26.

They said relying on cuts to dividends and spending would balance the budget on those least able to afford it. Senate Bill 26 would cut the income of the poorest fifth of Alaskans by more than 10 percent, while it would hardly impact those in the top 1 percent.

Anchorage Democratic Rep. Chris Tuck said the Legislature needs to do more than just rely on money from the PFD.

“Why not just do the easy stuff? Why not just go after Permanent Funds for children and fixed-income seniors the same as we do for multimillionaires? Why?” Tuck said. “Because we want to make the tough decisions this year.”

The House is putting forth their own bill — HB 115. It draws from the Permanent Fund to pay for the state government just like the Senate bill, but it also adds an income tax. It takes steps to balance the impact on low income Alaskans. Low-income residents would lose just over 8 percent of income, instead of 10 percent, and high-income residents would lose just under 3 percent of income.

There are disagreements over how the House’s current version of a tax would affect Alaska’s economy. The House Finance Committee recently changed their income tax proposal.

Alaska State Chamber of Commerce President Curtis Thayer said the change prompted the chamber to oppose the bill. Thayer said he’s disappointed the bill now taxes income that’s exempt from the federal income tax, including some business taxes and college savings plans.

“When we look at a bill that like I said not only attacks small businesses, but attacks senior citizen pensions, institutes a death tax, parents who save on the 529 (college savings plan) now get taxed on the interest – it’s pretty much a dramatic shift,” Thayer said.

Thayer said state spending should be cut more, by consolidating school districts and health plans, and modernizing technology.

Some senators agree that the best way to close the budget gap is with spending cuts. The Senate Finance Committee proposed cutting $231 million out of the budget more than the House this year.

Senators also want nearly $500 million more cut over the next two years.

Soldotna Republican Sen. Peter Micciche said the Senate plan gets the state much of the way to a balanced budget.

“The Senate feels the need for this to be the most efficient government as we look to Alaskans and say, ‘We’re going to be reducing your dividend. We’re going to be making the most wise use of our reserves,’ ” Micciche said. “The reality of it is, a slight increase in the value of oil, along with our cuts – we’re looking at a fuel tax – brings us extremely close to balancing the budget.”

Bethel Sen. Lyman Hoffman said the House should separate the Permanent Fund draw from the income tax and consider the tax later.

Last year, disagreement over a long-term budget plan was one reason the session extended a month and Gov. Bill Walker called it back for two special sessions.

The House Finance Committee has been discussing HB 115 over the past week.

It’s not yet clear whether there’s enough support for the committee to pass the bill.