Spending gap could hurt Alaska Permanent Fund, budget director says

Alaska state budget director Pat Pitney, right, listens to Gov. Bill Walker as he calls into an Anchorage Assembly meeting in July 2016. Pitney told the House Finance Committee today that the state faces a $600 million spending gap in future budgets. (Photo courtesy Alaska Governor’s Office)

Alaska’s state government will have a roughly $600 million gap between how much it spends and how much it raises.

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State budget director Pat Pitney said Tuesday that gap could hurt the Alaska Permanent Fund in the future.

Pitney told the House Finance Committee that the Legislature will have to enact some combination of tax increases and spending cuts to close the gap – or it will reduce the billions of the Permanent Fund.

“We’re looking at a way to provide fiscal certainty, connect the economy to the state services received … but we will continue to have the question of reduced spending or increased revenue as we go forward,” Pitney said.

Gov. Bill Walker has proposed a $320 million tax on income from employment.

The tax would be capped at twice the annual Alaska Permanent Fund dividend amount.

The state budget projections are based on assumptions that the House and Senate reach a compromise on a plan to draw money from Permanent Fund earnings and cut dividends.

If lawmakers can’t agree on more changes, Pitney said, then that even this won’t be enough to avoid cutting into the size of the fund.

Pitney said the Permanent Fund could be $5 billion smaller in 10 years. She said that would happen if the Legislature spends not only a planned draw from fund earnings, but an additional draw to close the annual budget gap.

That size reduction in the fund would cut annual interest and investment earnings by $250 million forever, she said. Fund earnings are increasingly important to the state.

“Assuming that we protect the value of the Permanent Fund into the future, this will probably be our most robust annual revenue source from here forward,” Pitney said.

The tax bill was the original reason why Walker called a special session.

But members of the Senate majority have expressed skepticism about the need for the legislation. They say rising oil revenue provides some help to state finances.