The governor’s Revenue commissioner has presented legislators with several revenue-raising options so that the state could afford a significantly larger Permanent Fund dividend and still balance its budget.
A statewide sales tax is among the options the administration presented to the Legislature’s fiscal policy working group last Thursday.
Deciding the amount of the annual dividend should come first, Senate President Peter Micciche told a meeting of Alaska mayors last week. “We have to determine what dividend we can afford,” and then decide how to pay for it.
Supporters of a larger dividend will have to accept the need for new or additional taxes to pay the bill, Micciche said in a virtual presentation to the Alaska Conference of Mayors, meeting in Fairbanks on Aug. 4.
While not explicitly endorsing a sales tax or any of the other options, Revenue Commissioner Lucinda Mahoney said the governor would support the revenue measures “as long as there was support from the Legislature.”
The objective, she said, “is to really start a conversation … to determine what the appetite is for these measures.”
Lawmakers have been struggling with crafting a long-term fiscal plan for the state for 25 years, reaching what could be a decision point this year as reserve funds have diminished and as Gov. Mike Dunleavy promotes a larger dividend, putting public pressure on legislators before next year’s statewide election.
“Everybody’s mad at each other,” Micciche said of legislative fiscal debates, adding that it will take political courage for lawmakers to settle on a dividend and then, if needed, raise revenues to balance the budget.
“Let’s find a way to make a deal that makes everybody unhappy,” he told the mayors the day before the Revenue commissioner gave her presentation to legislators.
The question facing lawmakers, the senator said, is how to pay a dividend, provide public services, not overdraw the Permanent Fund, and still balance the budget each year.
Last year’s PFD was $992, and the annual payment has averaged about $1,300 the past 10 years. The governor’s plan would boost it to almost $2,400 next year, growing to almost $3,400 by 2030, according to Mahoney’s presentation.
“The PFD cannot crater the future of the state,” said Micciche, who served five years as mayor of Soldotna, on the Kenai Peninsula, before his election to the Senate in 2012.
The state budget can afford a dividend of several hundred dollars, without needing new revenues or further cuts to public services, he said. Anything more than that creates a fiscal hole that would need filling.
Other options listed in the Revenue commissioner’s Aug. 5 presentation were an increase in the state’s oil production tax take; legalized gambling, including a state lottery and casinos; doubling the motor fuel tax to 16 cents a gallon; and amending the state’s corporate income tax structure so that Alaska would receive a lot more from digital businesses such as Netflix, Amazon, Apple Facebook and Google.
Another option is broadening the state’s corporate income tax structure so that it would apply to Hilcorp, which bought out BP Alaska’s North Slope operations last year, but as a privately held corporation is not taxed in Alaska as are publicly traded corporations.
This tax-broadening option would apply only to oil and gas companies, not any other sole proprietorships, partnerships or what are known as S corporations, which are closely held businesses with a limited number of shareholders.
In reviewing sales tax options, Mahoney’s presentation gave as examples a 2% and 4% state sales tax on goods and services, with the revenue-raising estimates depending on exemptions, such as food, and whether the tax also would apply to goods and services used by businesses the same as individuals.
Revenues to the state for each 1% of tax could range from $150 million to $300 million a year, depending on exemptions.
The commissioner did not list a state income tax as an option.
Legislators are scheduled to return to Juneau next week for their third special session of the year. Dunleavy has called them back to work on a list of fiscal issues. He wants them to settle on an amount for this year’s dividend; consider his proposal to split equally the annual draw on Permanent Fund earnings between the PFD and public services, putting the new formula into the constitution; consider a constitutional amendment to impose a spending limit on the state; and consider new revenue measures.
Without new revenues, Dunleavy’s plan for larger dividends could result in an average budget deficit this decade of almost a billion dollars a year, according to Legislative Finance Division calculations.
Micciche acknowledged in his discussion with the mayors that cities and boroughs which have depended on their sales taxes for years will not like the idea of a state tax added to the local rate. But a personal income tax could not pass the Legislature, he said, so municipalities need to understand how bad the state budget could get without new revenues and help work toward an acceptable sales tax.
Fairbanks Sen. Scott Kawasaki, who was at the mayor’s meeting, agreed with Micciche’s political assessment. “There is a lot of support generally for a sales tax,” Kawasaki said of his colleagues, though he added that he personally supports an income tax over a sales tax.
Kawasaki, one of four senators on the eight-member House-Senate fiscal policy working group, cautioned the mayors that while they may not like a state sales tax, they need to understand there are legislators who see spending cuts as an answer, such as extending the state moratorium on reimbursing local communities for school construction debt.
“Lawmakers need to settle their differences,” Micciche said, while also criticizing Dunleavy. “The governor has done a couple of silly, populist things,” the senator said, such as vetoing a smaller PFD appropriated by legislators in June to force the debate over a larger dividend in the constitution.
No one should think they are guaranteed reelection by draining the treasury, Micciche said.
He is hopeful, but skeptical, that the governor and legislators can agree on a comprehensive fiscal plan during the special session, which is limited by law to 30 days.
“Alaskans are getting tired of the inaction,” Micciche said.
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