By: James Brooks, Alaska Beacon
Leading members of the Alaska House of Representatives said Friday that Gov. Mike Dunleavy’s ambitious long-term state fiscal plan has almost no support among legislators and is almost certainly dead on arrival.
House leaders spoke with reporters Friday morning, a day after members of the House Finance Committee heard two hours of public testimony on the governor’s proposed statewide sales tax, the cornerstone of his multi-part proposal to bring state expenses and revenue into line over the next five years.
Every Alaskan who testified — almost 30 in total — was against the tax.
“This is just pure speculation on my part, but what you hear folks in the hall say is, if there’s a vote today on the sales tax, it could be a zero to 60 vote,” said Rep. Neal Foster, D-Nome and co-chair of the House Finance Committee.
House Minority Leader DeLena Johnson, R-Palmer, said there might be a handful of legislators who would still support the governor’s plan, but it’s pretty clear that it lacks the support it needs to become law.
“From the testimony that was taken last night in House Finance — when everyone who called in spoke in opposition — it certainly makes it hard to think there’s a lot of people that aren’t very cautious about saying they’re for the governor’s plan,” she said.
The governor’s plan calls for a seasonal statewide sales tax, changes to the state’s oil and corporate taxes, a constitutionally guaranteed Permanent Fund dividend formula, changes to the structure of the Alaska Permanent Fund and a tighter spending cap in state law.
Those changes are being proposed because oil and investment revenue can’t keep up with demand for services and dividends, and lawmakers are unwilling to cut services any more than they already have.
Since 2015, legislators and governors have cut state agencies’ budgets by 16.6%, after accounting for inflation. The state’s capital budget, which pays for new construction and maintenance, has been cut by more than 80%.
Every year since 2016, the Permanent Fund dividend has been cut below the amount called for in state law.
With so much deferred maintenance, public schools — particularly in rural Alaska — are decaying and literally collapsing. The state is now facing a lawsuit alleging that school funding is so low that it violates the Alaska Constitution.
Dunleavy’s proposal would be a way to stanch the fiscal bleeding. The new taxes are intended to be temporary because the Dunleavy administration expects North Slope oil production to rise, boosting state revenue, and it expects that a proposed trans-Alaska natural gas pipeline will be built and generate more money for the state.
Even before this week’s presentations and public testimony, many legislators were skeptical of the plan, and saw the new taxes as merely a way to pay a larger Permanent Fund dividend.
“I’m a logic person,” said Senate Minority Leader Mike Cronk, R-Tok, on Jan. 28, one day after the governor debuted his plan.“We’re going to tax those people that are productive so everybody gets a check? That don’t work for me. … That’s just not logical to me,” he said.
Lawmakers analyzed the sales tax first, in a series of hearings this week, but because it received such a negative reaction in public testimony, legislators are now wondering if it’s worth considering any other part of the governor’s fiscal plan, given that they are all viewed as one package.
Foster said it doesn’t look like the governor’s proposal could be amended and improved enough to get sufficient support in the Capitol.
“Sometimes, you could say, ‘We’re kind of close on things, and there’s a lot of great areas that we can work on,’ but this one just seems to be — folks are just really, really unhappy,” he said.
There are costs to inaction as well. The Institute of Social and Economic Research recently estimated that the state has missed out on 2-3% of its gross domestic product over the past 10 years because of the lack of a fiscal plan. Without a long-term structure, legislators have gotten dragged into annual debates over the size of the Permanent Fund dividend, which has prevented them from discussing other pressing issues.
Some lawmakers have concerns beyond the sales tax. Johnson thinks the governor’s proposal for a revised fiscal cap is inadequate. Because it would be in state law, rather than in the constitution, future legislators could ignore it just as they do the current Permanent Fund dividend formula.
That’s why she calls it a “spending beanie,” instead of a spending cap.
“I personally think it’s rather small, and it would be easily overcome,” she said. “And for that reason, I think of it as a spending beanie.”
Speaker of the House Bryce Edgmon, I-Dillingham, said he’s skeptical of this proposal’s chances after years of other attempts to enact a fiscal plan.
“I won’t regale you with tales from years past, but on the Finance Committee, we have spent weeks and weeks going through a lot of this stuff, and it never got a compromise when it came to the floor. So that’s the issue at hand here,” he said.
Rep. Calvin Schrage, I-Anchorage and another Finance co-chair, said that after hearing Thursday’s public testimony, he’s not sure the governor’s proposal can be successful either. “There is so much education that still needs to take place and studying that needs to be done for us to be able to move it forward in a way that would get broad support,” he said.
“I think folks are just kind of waiting until next year before we, you know, really take a serious stab at some of those things, like the income tax,” Foster said.
“I have higher hopes for next year than I do this year. You know, a new executive leadership branch and the leadership there,” he said.
Later in the day, in a one-on-one interview with the Alaska Beacon, Dunleavy said lawmakers are going to be disappointed if they think that negotiating with a new governor will be any easier.
Dunleavy is term-limited and leaves office in December.
“A governor who goes in there and puts out a plan like this in their first or second year, they’re going to get the same thing we’re getting now,” Dunleavy said. “And that doesn’t work.”
When an Alaskan flies to Seattle and looks out the airplane window, they’ll see construction cranes dotting the skyline, Dunleavy said.
“Washington is a state that does not have an income tax. It’s a sales tax. Washington’s economy is actually pretty good,” he said.
He referred to a fiscal analysis performed by the Institute of Social and Economic Research at the University of Alaska Anchorage, which found that a seasonal sales tax with large exemptions would fall more on nonresidents than an income tax would.
“The sales tax is the best thing we could come up with,” he said, referring to that analysis.
Reducing the PFD to balance the budget — the Legislature’s preferred policy since 2016 — is the most regressive option, harming poor Alaskans more than rich ones, ISER found.
“Taking the PFD is the worst thing you can do for the average person,” Dunleavy said.
He appeared frustrated by legislators’ actions and the lack of an alternative plan coming from the House or Senate.
“I’ve never seen a fiscal plan introduced,” Dunleavy said. “The closest I’ve ever seen was the first fiscal working group just a couple years ago.”
In 2017, the Alaska House of Representatives approved a state income tax as part of a three-part fiscal plan, but it did not become law.
The state Senate, including Dunleavy, voted down the income tax, killing the House’s plan.
“A tax is not a fiscal plan,” Dunleavy said when asked about that history.
He said that with 120 days in the legislative session, lawmakers have time to work on the issue and figure things out.
“Here you go: My last year, there’s no political skin in the game. I’m not going to lose anything because I’m not running for anything. And here’s an opportunity for these guys, and out of the gate, they said, ‘There’s not enough time.’ So if there’s not enough time for this,” Dunleavy said, “What are they spending their time on?”
