Gov. Mike Dunleavy told legislators in a pair of closed-door meetings last week that he will introduce a state sales tax as a component of a budget-balancing, long-term fiscal plan.
But with just three weeks left in the legislative session, with no details about the governor’s tax bill as of Monday, and with strong opposition from lawmakers who represent communities with a local sales tax, the odds of passage this year are extremely low.
If the governor goes ahead with a sales tax bill, it would join more than a dozen proposals offered by House and Senate members this year to address Alaska’s long-term revenue shortfall. Those proposals include a sales tax, income tax, an increase in oil production taxes and higher property taxes on oil and gas companies.
The state has lived off declining savings much of the past 30 years to cover the budget, and could face years more of deficits if it pays out a large Permanent Fund dividend to Alaskans.
While the governor told lawmakers last week he favored a sales tax, opponents contend it would disproportionately hurt lower-income Alaskans who spend a larger share of their income on essential goods and services that could be subject to the tax.
Sales tax opponents generally favor a personal income tax to help balance the state budget, contending that a progressive tax table would put more of the burden on wealthier Alaskans, though there is strong political opposition to an income tax.
Then there is the middle ground against either tax.
“There doesn’t appear to be a need for a broad-based tax if we have a reasonable PFD,” said Sen. Bert Stedman, co-chair of the Senate Finance Committee, now in his 21st year in the Legislature.
The senator said he opposes any tax if the purpose is to raise more money for a larger PFD.
The budget approved earlier this month by the Republican-led House includes a $2,700 PFD for this year, about double the average of the past 10 years other than the record-setting 2022 election-year dividend of $3,284.
However, without new revenues or significant cuts to public services, neither of which the House has adopted, next year’s budget is in the red by an estimated $600 million — even more if the state increases its support for public schools.
The Senate majority, comprised of a mix of Republicans and Democrats, supports a $1,300 PFD as part of a balanced budget.
“I think the governor recognizes the fiscal reality” that without new revenues the state cannot afford a large PFD, while also meeting the needs of schools and deferred maintenance at public facilities across Alaska, Ketchikan Rep. Dan Ortiz said a day after legislators met with the governor. The state “can’t do all those things without new sources of revenue,” said Ortiz, a member of the House Finance Committee.
That doesn’t mean the representative supports a state sales tax added on top of local taxes. “I’m pretty much inclined to vote against any sales tax,” he said, noting that it would be hard on communities that already depend on a local sales tax for their own budgets.
Stedman is of the same opinion: A state sales tax would drive up the cost of living even higher for residents in municipalities that collect a local sales tax.
The senator’s Southeast colleague, Juneau Sen. Jesse Kiehl, agrees that residents in communities with their own sales tax could see the biggest hit to their economy. Residents in more than 100 cities and boroughs pay a sales tax, ranging from 1.5% to 7.85%.
“Alaska needs a broad-based tax” to establish a connection between economic activity, businesses and workers in the state and the revenues to pay for public services, Kiehl said. “But, man, a sales tax is a crummy choice.”
Dunleavy’s announcement in the two private meetings with House and Senate members of his pending sales tax legislation appears to be a departure from his past statements that he would oppose any new taxes without a statewide vote.
“He said that everything is open for discussion,” House Minority Leader Calvin Schrage, of Anchorage, said of the meeting on April 18. “And I can say that he did not mention the need for a statewide referendum.”
Senate President Gary Stevens said it’s “great” that Dunleavy intends to introduce legislation. But it’s “a little late in the game,” the Kodiak Republican added.
Several other lawmakers confirmed that the governor told them that he would introduce a sales tax bill, though he shared few details at the meetings with legislators.
Jeff Turner, the governor’s deputy communications director and spokesman, said in a text to an Alaska Beacon reporter that the governor did not talk with legislators about an advisory vote. He added in an email, “Governor Dunleavy will not support an income tax bill.”
Alaska had a personal income tax as a territory and for the first 20 years as a state, 1949-1979. Legislators abolished the tax as North Slope oil revenues filled the treasury. Alaska has never had a state sales tax.
“Given the need to reduce the state’s reliance on volatile oil prices, a broad range of ideas have been proposed as the House and Senate work on a comprehensive fiscal plan,” Turner wrote in an email.
“I know certainly Alaskans don’t want to pay a tax to get their dividend,” Speaker of the House Cathy Tilton, a Wasilla Republican, told the Anchorage Daily News.
“I think the idea of a revenue measure (sales tax) is a stabilizing measure, because of the fact that our oil revenues are so in flux all the time, that we have to have some kind of stabilizing piece that we can count on,” Tilton said.
“Each member has their own ideas of what they prefer and I would say, at this point in time, it’s kind of a mixed bag,” she said of legislative interest in raising new revenues to balance the budget.
Tilton acknowledged that passing any revenue measures is “a really heavy lift.”
This news story includes reporting by the Anchorage Daily News and Alaska Beacon.
Reader Comments(0)