The Anchorage Chamber of Commerce hosted Alaska Department of Revenue Commissioner Randy Hoffbeck at their weekly Make It Monday Forum. In a continuation of the conference held at UAF earlier in the month, Commissioner Hoffbeck shared his presentation Building a Sustainable Future: Conversations with Alaskans. The Commissioner shared that he and the Governor both agree that before any discussions on revenues occur spending must be reduced. The State must show that the size of government is right before asking Alaskans to weigh in on the revenue discussion. The Commissioner also believed that there are solutions to the fiscal situation, but they all have a lot of baggage that would need to be addressed.
The State is not able to cut its way to a balanced budget. There simply is not enough slack in the budgets without cutting essential services such as education, health and safety and public safety. Nominally, the budget has increased steadily over time with a sharp increase since the mid-2000’s. Adjusted to “real” or “constant” dollars, only recently have we reached post-pipeline spending. Finally, when adjusted for inflation and population, the current budget is lower than most years during the post-pipeline boom. In comparison to other states, Alaska’s total expenditures by population ranks very low.
There is little chance higher oil prices or production will create a balanced budget. At the current rate of production, the price of oil would need to be over $110 to reach $5.2 billion, which is the current size of the unrestricted general budget. If oil stays at the current price of about $60, even an increase to 800,000 barrels per day would only raise $2.9 billion in revenue. Skyrocketing prices and doubling production is not likely in the near future. Many predict that prices will rise, but not much about the $80 mark and while production decline has slowed, it will not increase significantly in the near future.
Commissioner Hoffbeck introduced the Revenue Model that is being used to show the different options for spending cuts and increased revenues. The model puts into perspective how much is needed to create a balanced budget. There is no ‘magic bullet’ for a balance budget and a viable solution will take discussion and compromise from state government and citizens. Alaska currently has the lowest tax burden per capita and a frank discussion will be necessary before moving forward with any tax that affects individuals.
Options to balance the budget include:
- Repurpose financial assets
- Modify oil and gas taxes
- Modify oil and gas credits
- Modify non-oil and gas taxes
- Add new taxes
It is likely that balancing the $3 billion annual deficit will take a combination of four things.
- Continued budgetary restraint
- Taxes impacting individual Alaskans
- Changes to oil and gas taxes
- Strategic use of our legacy assets
According to Commissioner Hoffbeck, we are about midway through the path to fiscal stability. A lot of good work has been done but there is still more to go. Education of the general population needs to continue and be increased. Initial conversations have been held with government officials, business leaders and those who typically pay close attention to the matters of state. The public must listen to the debate and stop putting up walls when the words “Permanent Fund” and “Taxes” are added to the discussion. If Alaska wants to have educated children, healthy communities and safe neighborhoods, everything must be on the table for potential solutions to the fiscal situation. The solution is out there and while it is not easy, Alaska can and will find the path to fiscal stability with discussion and compromise.
For more information on the conversation, visit http://gov.alaska.gov/Walker/priorities/transition-2014/sustainable-future/the-conversation.html