Gov. Walker’s budget has arrived—The Morning Headlamp

The Budget Is Here: After weeks of rumors and speculation, Governor Bill Walker finally released his budget plan proposal yesterday. The plan aims to close deficit spending by 2018. Walker’s proposal would dispense with the current formula for Permanent Fund dividends, based on a five-year average of investment returns. The new dividend program as proposed by Walker would be managed by the Alaska Department of Revenue and would be based on the royalties the state receives from natural resource development on state land – rather than money earned from investments by the Permanent Fund Corporation.  As the Governor was revealing his plan to cap the dividend, ISER economist Scott Goldsmith was presenting “A Game Plan for Meeting Alaska’s Fiscal Challenge” to the House Special Committee on Economic Development.  Mr. Goldsmith’s plan utilizes the earnings reserve from the Permanent Fund but does NOT cap the dividend.

Changes Would Impact ALL Alaskans. The proposal will mean big changes for the livelihoods of all Alaskans. Walker’s proposal includes the return of a personal income tax after a 35-year hiatus — of 6 percent of federal taxes, or an average of 1.5 percent of total income, which would raise a projected $200 million this year. It would cut $400 million from the state’s $500 million oil-tax credit program and replace it with a loan fund.  Another $45 million would come from an increased fuel tax; $72 million from mining, fishing, and alcohol. Finally, restructuring of the Permanent Fund to help close the budget shortfall would slice dividend checks, to $1,000 from this year’s $2,072, with the potential for them to fall even lower in the future.  Headlamp notes that implementing an income tax will require an increase in state government and take several years to realize revenue.

Increased Oil Taxes.  In addition to replacing the current oil and gas tax credit system with a new loan program, the plan would raise the minimum production tax on oil to 5% from 4%, which would raise another estimated $100 million for the state.

Reactions are pouring in. Various components of Walker’s plan have already been rejected by lawmakers and the public over the past two decades, and some legislators were quick to condemn them this time. “I’ll certainly give credit for trying,” said Sen. Bill Wielechowski, D-Anchorage. “But, I mean, does he really think he’s going to get this past the Legislature? Anchorage Rep. Charisse Millett, the leader of the Republican-led House Majority, said Walker was approaching the state’s budget problem “in reverse” by proposing new revenues instead of deeper spending reductions. “He’s throwing up the white flag of surrender on cutting the budget,” she said in a phone interview.

Before taxing Alaskans and increasing taxes on Alaskan industry, Governor Walker should focus on budget savings, efficiencies and reductions and projects that generate revenue like oil production and AKLNG. Headlamp hopes that lawmakers share this sentiment and work to create a better budget proposal.

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First Reads

Alaska Governor Calls for State’s First Income Tax in Nearly Four Decades
Wall Street Journal, Jim Carlton, December 9, 2015

Gov. Walker proposes to fix budget deficit with income tax, PFD cut
Alaska Dispatch News, Nathaniel Herz, December 9, 2015

Walker proposes Alaska income tax, $1,000 dividends to plug budget gap
KTUU, Austin Baird, December 9, 2015

Governor eyes ‘major paradigm shift’ in budget ruled by oil
Energywire, Margaret Kriz Hobson, December 10, 2015

Gov calls for permanent fund overhaul, income tax, cuts to PFD
Alaska Public Radio News, Rachel Waldholz, December 9, 2015

Alaska governor proposes income tax, PFD changes to offset budget gap
Fairbanks Daily News Miner, Matt Buxton, December 9, 2015