As the Alaska House and Senate continue to prepare budgets for the coming year, residents of Wrangell and Ketchikan were invited to their Legislative Information Office locations for a call-in session with Rep. Dan Ortiz (I-District 36).
Meeting late in the afternoon February 23, 10 Wrangell residents and seven in Ketchikan tuned in for the representative’s pitch for House Bill 115, a proposal to reconfigure Alaska’s Permanent Fund along with revenue enhancements being sponsored by the Majority-led House Finance Committee.
The bill calls for a 4.75 percent-of-market-value withdrawal from the Permanent Fund each year, with inflation proofing of the fund to be contingent on a surplus. Two-thirds of this amount – roughly $1.5 billion for FY18 – would be directed into the General Fund, supporting state agency funding. The remaining third would be used to pay individual dividends.
Among the other revenue enhancements being suggested, HB 115 would institute a statewide income tax, equaling 15 percent of an individual’s federal income tax liability. The bill would also find additional savings through further cuts to operations costs and petroleum production subsides.
“That’s going to attract some resistance, particularly on the Senate side,” Ortiz said of the subsidies. Liabilities to producers in the form of tax credits near $900 million this coming year, which when coupled with lowered revenues from the industry to the state were effectively “not sustainable” in his opinion.
Coupling the income tax with a 10-percent tax on long term capital gains and that gained from nonresident workers, Ortiz estimated around $655 million in additional revenue once fully implemented. He explained that estimate is roughly based on the Department of Revenue’s assessment of the similarly structured HB 182 from 2015.
In the event an income tax is instated, a resident could opt to lower their liability by putting their PFD toward it under the proposed bill. Calling in from Ketchikan, Don Westland was unhappy with that particular proposal.
“I’m opposed to an income tax. I would rather see a state consumption tax,” he said. Noting the number of annual cruise ship passengers stopping into Ketchikan and other Alaskan ports of call, he felt a statewide sales tax would be a better source of revenue.
“I would rather pay two to three percent on something I would buy,” he commented, noting such a tax could exclude food, heating fuel and prescription drugs for the sake of residents.
Ortiz responded that legislators would be discussing such alternatives during the session, but thought it would come down to an either-or decision.
“We will be looking at the pros and cons of a sales tax,” he said.
The representative noted there would be drawbacks to a consumption tax, with a statewide rate stacking atop of municipalities’ levies. Wrangell has one of the state’s highest rates, at seven percent, and could look to be paying nine or ten in such an event. Anchorage, by contrast, has no sales tax in place, so the prospect could be more popular there.
Responding to a follow-up question put by Ketchikan resident Shawn Ryan, Ortiz explained it could be less expensive for the state to implement an income tax, in part because it would be easier to calculate and less difficult to follow up on.
“It’s my understanding … that it would require less infrastructure, less expense on the state’s part if they instituted an income tax,” he said.
Another concern was the idea of applying one’s PFD toward a personal income tax liability, being likened by one unnamed Ketchikan respondent to something of a bait and switch.
Wrangell resident Brian Merritt questioned whether it was wise to continue with the dividend at all under the present financial circumstances. Given the choice between collecting an annual return for residency or being able to enjoy essential public services, he felt the latter was more beneficial.
“We’re at a different time” from when the fund was first set up, he explained. Rather than living in a “skeleton state,” Merritt suggested money from the PFD go to support retirees and disabled residents, while funding other services for quality of life.
Other budget plans are now being considered in the Legislature. Senate Bill 70 was put forward by the Senate Finance Committee on February 24. The bill would have a 5.25-percent POMV draw from the Permanent Fund, using three-quarters to pay for state operations and the rest used for dividends. PFD payments would be locked at $1,000 for the next three years, while the overall withdrawal would reduce to 5 percent at that time. SB 70 would leave a $900 million spending gap to fill, and would set a cap on unrestricted general fund spending at $4.1 billion per year.
Another PFD-related bill is SB 21, put forward by Southeast Sen. Bert Stedman (R-District R). That would allow legislators to appropriate from the earnings reserve account between 2.25 and 4.5 percent POMV, based on a five-year average of the fund. Because the fund’s investment goal is a five percent annual return after inflation, limiting spending to that percentage of value would still allow the fund to at least keep pace with the rate of inflation.
A minimum of half the withdrawn amount would continue to fund Permanent Fund Dividend payments, with the rest then going toward the General Fund for core services. Each year it would fall upon legislators to then determine what level would be appropriate, which the sponsor expected could help rein in spending. Stedman’s bill was due for another hearing in Finance on Tuesday afternoon.
The Senate Finance Committee is currently considering SBs 1 and 2, proposals which together could call for reinstatement of the dividend withheld from last year’s payout by Gov. Bill Walker’s summertime veto. Both were proposed by Sen. Mike Dunleavy (R-District E), who chairs the committee. He had also put forward a budget plan in January calling for more than $1 billion in additional cuts over four years, with no new taxes levied.
During Ortiz’s call-in last week, residents were able to speak to other concerns as well. Olinda White in Wrangell took time to speak up for the state ferry system, which has seen 17-percent cuts to operating weeks the past three years.
“It makes it very difficult to get around,” she commented. “They really need to rethink this, because the ferry is our road.”
Wrangell teacher Bob Davis added to that, noting cuts to ferry scheduling affects education. He noted students on average miss 30 days of school a year to participate in extracurricular activities.
“That’s just devastating to the academic education. Further cuts in the ferry schedule will just make that all that much worse,” he said. “They’re driving parents and kids to make a choice between a decent education and being able to participate in extracurriculars.”
Ortiz asked that they testify to that effect at future hearings. “That would be the most helpful thing you could do, that would be helpful to Sen. Stedman and I.”
Fellow residents Deanne Cooper and Merritt added their two cents as well, noting that ferry cuts would negatively impact the community’s summer tour season.
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