For those following the issues facing our state, it’s no surprise that Alaska’s $2.7 billion budget deficit is the biggest issue. For the last five years, Alaska has had a budget deficit. Those deficits have caused the state to burn through at least $12 billion in savings, and we are quickly running out of savings.
In the previous legislative sessions (2013-2016), the Legislature – led by Republican majorities – was unable to address the issue in any meaningful way other than to continue reducing the budget and kicking the can down the road. Since FY2013, we have reduced the combined capital and operating budget by 44%. Most of the reductions are from the capital budget, but the operating budget has been cut by $1.1 billion. There are currently 2,500 less people working for the state than three years ago, which equates to a 10% decrease in the state workforce.
Other than burning through our savings, which is a concern in itself, and sacrificing Alaskan jobs, what are other “costs” of Alaska’s unresolved fiscal situation? Here are some of the most significant impacts:
A very small capital budget means we have mounting deferred maintenance issues with transportation infrastructure (ferries, roads, airports). There are also less jobs available for our private construction companies and those who work for them.
The State’s bond rating has been downgraded, making potential state financed projects, like the LNG pipeline project, more expensive and cost prohibitive. Uncertainty in how Alaska will deal with this fiscal crisis also impacts opportunity costs to the business community.
Because of the reductions in our operating budget, the legislature is considering continual reductions in funding for what the majority of people in District 36 believe to be essential government services. Steep reductions would close two Pioneer Homes in Alaska. Further reductions in funding for the Alaska Marine Highway would force continued reduced services to Ketchikan, Wrangell, and Metlakatla. State funding for Public Education would be reduced by 5%. This will mean a reduction in funding for Ketchikan Schools of $1.4 million, Wrangell of $200,000 and Metlakatla of $260,000.
This session, I joined the House Majority Coalition – a multi-party majority within the Alaska House of Representatives that formed around the common commitment to establish a sustainable fiscal plan. In other words, we are committed to fixing the problem. The plan is based on four pillars:
Continue to find smart reductions and efficiencies in the budget. We reduced this year’s operating budget by another $82 million dollars.
Reform the current oil tax credit system. We did so by passing HB 111.
Restructure how we manage the Permanent Fund by beginning to make annual draws of 5.25%. Drawing a POMV from the Earnings Reserve allows us to payout a PFD, inflation proof the Permanent Fund, and use 2/3 of that 5.25% draw to help fund essential state services.
Establish a broad based tax that would generate up to $700 million per year once fully implemented, including $80 million from non-resident seasonal workers.
With these additional
revenues, the deficit would be closed completely in three years. On Saturday, the House voted on the final piece of the plan; we succeeded in what we set out to do. It was not an easy task and it certainly required several tough votes. The most difficult vote was the final step that established the Education Funding Act, which put into place an education income tax. The tax has an effective tax rate of 1.66%, will go into effect in 2019, and the revenue may be used to support our education system.
Our four pillared plan is now in the hands of the Senate.
I appreciate everyone’s input in the budget process, and I encourage you to continue to
do so, by taking our online survey (https://www.surveymonkey.com/r/KP3WL9W), emailing me (Rep.Dan.Ortiz@akleg.gov), or calling my office (907-247-4672). Thank you.
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