Commentary: HB 365 would offer time to find more solutions

Commentary By Rep. Paul Seaton, R-Homer

For The Cordova Times

Alaska has a $3.1 billion budget deficit, caused by the precipitous oil price drop to between $30 and $40 per barrel.  Our state’s unrestricted general fund revenue, mainly from oil (90 percent), has dropped from $9.5 billion in fiscal year 2012 to just $1.3 billion in FY16 and a projected $1.2 billion in FY17.  Our Legislative Finance division predicts that if no solutions are passed in the near future, all our savings accounts will be depleted in FY22.  There will not be enough money from Permanent Fund investment earnings and savings account to cover future budget deficits and there will be no money to pay PFDs.

A fiscal solution that is fair and balanced for all Alaskans requires consideration of both state budget reductions and additional revenues.

Even though the Legislature cut FY17’s budget about $900 million, and the governor vetoed an additional $1 billion, the price per barrel would need to be over $100/barrel to balance our budget at our current funding levels.  The “easy” cuts were taken these past two years.

In fact, the budget has been cut 44 percent since FY13 and is now at the same level as FY07.


We can’t and we shouldn’t rely on oil any longer.  A diversification of revenue sources is required.  Combining revenues from a Permanent Fund system restructuring and a progressive income tax creates a balance most fair to all Alaskans.

During the 2016 legislative session, I introduced HB 365, which establishes an income and long term capital gains tax on residents and nonresidents, allows the Permanent Fund Dividend to be applied as an optional payment against that income tax due, directs a moderate portion of the distributable permanent fund earnings to support state services, and creates a 2.3 percent Percent of Market Value (POMV) draw from the Earnings Reserve Account (ERA).  Individual Alaskan and nonresident contributions will not balance the budget alone, but are a necessity for a fair and balanced solution along with additional cuts to expenditures.  HB365 will contribute $2.4 billion annually to the General Fund.  While this doesn’t completely solve our problem, HB365 will cut our deficit in half by FY25 and extend the life of our savings accounts.  This will allow the Legislature time to enact further revenue sources and budget reductions in a graduated manner which is least harmful for Alaskan families and businesses.

The income tax portion of HB365 is estimated to raise a total $655 million annually.  This sustainable source of revenue is a first step, but it obviously does not fill our $3.1 billion fiscal deficit.  To help reduce the gap, HB365 will also restructure parts of the Permanent Fund system and in doing so allow residents to apply some or all of their PFD as a Refundable Tax Payment towards their state income tax due.  The restructuring is estimated to generate $1.8 billion annually for the General Fund, while at the same time allowing our Earnings Reserve Account to grow.  This growth will ensure the continued survival of PFDs as well as eventually allowing the Legislature to pay back the Constitutional Budget Reserve for money used to cover the budget deficits starting in FY16.

When you add up the various revenue generating parts of HB365, the estimate is $2.4 billion annually.

Again, this will not eliminate our deficit, but it will reduce it and give us 20 more years to find additional solutions.

In the early years of our state, Alaskans pulled together to pay for the services that were important to our families and our future:  education, roads, hospitals.  We willingly paid a state income tax, a school tax and other fees.  Then oil came and we enjoyed the profits that came with it.  But anyone who has lived here long enough knows there is a cycle for everything.  Some years the fish limits are high, some years they are low.  If we respect the cycles and work with them we can sustain our way of life.  It’s not going to be easy.  We will have to tighten our belts with managed budget cuts and lower PFDs.  We will have to accept the fact we must start contributing to the services we want for our children and our quality of life.  It’s going to be a difficult shift for us but when have Alaskans ever backed down from a challenge?  It’s why many of us choose to live here and why we choose to stay.  I and several other legislators are willing to face this challenge and I encourage you to reach out to us to learn as much as you can about possible solutions and to offer your ideas.  Together we can craft a plan that will be fair and balanced for all Alaskans and provide a future for our children.

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