JUNEAU, Alaska – Alaska faces a budget crisis like no other in the state’s young history. The gap between spending and revenue has soared to roughly $3.5 billion, mostly due to low oil prices, and Gov. Bill Walker is suggesting some dramatic steps to deal with it.
His budget plan, unveiled Wednesday, includes proposals to implement an income tax — something Alaska residents haven’t seen in a generation — and to use money generated by the state’s oil wealth fund.
The state budget is balanced when oil averages $109 a barrel. Alaska crude traded at about $38 a barrel this week.
Here’s a look at Walker’s suite of taxes and other measures aimed at making Alaska solvent. The Legislature will have the final say on whether these are enacted.
OIL CHECK FUND
Alaska years ago began dedicating a portion of the money it received from oil and other royalties and payments to a separate investment account.
The Alaska Permanent Fund grew with investments and is now worth about $52 billion. Earnings from it are used every year to provide a check to Alaskans as their share of the state’s oil wealth.
Walker is proposing putting oil production tax revenue into the permanent fund, along with half the state’s resource royalties. A transfer from savings would beef up the earnings reserve account to a level the administration believes would allow it to churn out about $3 billion a year for use for the budget.
Remaining royalties would fund the dividend. The plan would put the yearly check that most Alaskans receive at $1,000 for 2016. The administration expects the payouts to remain near that level for the foreseeable future. That’s about half of what Alaskans received this year.
It remains uncertain how lawmakers will receive this proposal. They have to balance the budget, but Alaskans love their yearly check. Any perception of “raiding” the fund could be politically difficult.
President Jimmy Carter was near the end of his term in office the last time Alaskans were asked to send a share of their yearly income to state government.
Walker is proposing that legislators reinstitute an income tax on Alaskans, the first since lawmakers repealed the tax in 1980. It would be 6 per cent of their federal tax liability. The administration estimates it will be about 1.5 per cent of income for the average Alaska family.
If lawmakers approve the idea, the withholding tax would begin in January 2017. This is estimated to bring in about $200 million annually.
It’s not just individual Alaskans being asked to pony up; businesses in Alaska also would be asked to pay more in taxes.
The oil and gas industry would provide the bulk of that, about $500 million, according to estimates. But increased taxes in the mining, fishing and tourism industries would account for another $47 million.
The tourism piece pertains to the cruise ship passenger tax. Currently, ships can deduct local taxes against the state tax, and the proposal would no longer allow that, state Revenue Commissioner Randall Hoffbeck said.
Even though Alaska has a limited road system, residents also would have to pay more to get from Point A to B. Walker is proposing a hike on “transportation fuel,” generally gas for cars and boats and fuel for airplanes. This is expected to bring in $45 million.
The price of a smoke and a drink could go up.
Walker is recommending increases to the taxes people pay for alcohol and cigarettes.
For alcohol, that’s estimated to bring in $40 million annually, and for cigarettes, a total of about $27 million.
Alaska can’t cut its way out of this deficit. In fact, even if every state employee were laid off, it would barely make a dent in the budget gap.
Walker’s budget director Pat Pitney said the proposal calls for a total of about $100 million in cuts in operating costs across state agencies.
Thiessen reported from Anchorage.