New version of Permanent Fund bill would require income tax, oil tax hike

Rep. Paul Seaton, R-Homer, works at his desk in the House Chambers on Monday. Seaton is the co-chairman of the House Finance Committee, which is amending Senate Bill 26 to require an income tax and oil and gas tax increases for the bill to go into effect. (Photo by Skip Gray/360 North)

The House Finance Committee is taking a new approach and will combine its proposals to institute an income tax and raise oil and gas taxes with a proposal to draw money from Permanent Fund earnings to pay for the state government.

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The House committee amended Senate Bill 26, which sets how much the state can draw from Permanent Fund earnings. Under the amendment, changes to the Permanent Fund will only go into effect if the Legislature also passes both an income tax and changes to oil and gas taxes.

Homer Republican Rep. Paul Seaton said the committee made the change to avoid a potential lawsuit challenging a House proposal. He is the committee’s co-chairman.

“This shows our commitment to a full fiscal plan and not passing just a portion of it and walking away,” Seaton said.

The House focused on the Senate bill instead of House Bill 115, which included both Permanent Fund changes and an income tax. Seaton said he expected that if that bill became law, it would likely have faced a lawsuit. While he said he expects the state Supreme Court would uphold the law, he wanted to avoid a legal battle.

Another House amendment to the Senate bill would eliminate a limit on state spending. Another change would increase the amount of Permanent Fund dividends. They would be $1,000 under the current Senate bill and $1,250 in the amended version.

Anchorage Republican Rep. Lance Pruitt objected to a provision that would require the Senate to pass the House version of the oil and gas tax bill, or the entire Permanent Fund bill would die.

“That right there scares the living daylights out of me — that you would try to say that the other body has absolutely no ability to determine whether or not they feel that that particular piece of legislation should be amended in a different manner,” Pruitt said.

The Senate passed the bill in mid-March. The House can make changes. But if the Senate doesn’t agree to the changes, the two chambers could work out their differences in a conference committee.

The legislation is intended to close the long-term gap between how much the state spends and how much it raises.

Anchorage Democratic Rep. Les Gara said it’s also important to pass the income and oil and gas taxes to spread the impact of balancing the budget.

“If somebody who struggles to make ends meet is going to chip in – and I’m glad the dividend in here is larger — but those with the greatest privilege should also chip in,” Gara said.

The House made another key change to the Senate’s version of the bill. The Senate version would lower the amount that the state draws from Permanent Fund earnings by a dollar for every dollar the state raises in oil royalties and taxes above $1.2 billion. The House version would increase that level to $1.4 billion and lower cut to the Permanent Fund draw to 80 cents on the dollar.

That will have the effect of raising the amount available for spending if oil money grows.

State Revenue Commissioner Randall Hoffbeck said the change would lead to instability as the budget goes up and down with oil prices.

“It’s not nearly as effective in taking volatility out of the revenue forecasts, that you will see more volatility in budgeting,” Hoffbeck said.

Hoffbeck said that without new taxes or spending cuts, the state would start to deplete Permanent Fund earnings.

“We need a full fiscal plan, to take the uncertainty out of the economy, so that the economy can start to grow,” Hoffbeck said.

The House Finance Committee was scheduled to hear public testimony on the bill on Monday.