Alaskanomics

Governor Walker Exercises Veto Power for FY17 Budget

The new fiscal year starts on Friday and Governor Walker used his veto powers today to begin to fill the $4 billion hole in the State’s budget. The Governor announced a total of $1.3 billion in vetoes and savings. The single largest amount was the $665 million in the reduction of the Permanent Fund Dividend. In a news conference, Walker said, “high dividends are not sustainable, and reduction in the payout is needed to keep the fund alive”. Without changes to the program, the dividend will go away in a few short years.

He also deferred payment for oil and gas tax credits that totaled $430 million. Road and bridge projects were deferred to save $250 million this year, while two mega-projects, the Knik Arm Bridge and Susitna-Watana Dam, were halted. Government, K-12 education and the University saw vetoes of $190 million.

As many have noted over the past year, tough decisions needed to be made to help balance the state’s budget. The Legislature passed a budget this year that did little to fill the gap with anything other than savings, so the Governor used his veto power to move towards a sustainable budget. Governor Walker warned that strong discipline is necessary and he exercised that discipline today. Cuts made to programs are difficult, but Walker has noted that cuts are necessary to fill the budget gaps. The change to the PFD shows discipline and ensures that Alaskans receive a dividend in the future, rather than lose it completely, which would happen if action was not taken.

The Constitutional Budget Reserve is running out quickly and should not be used to fund such a significant part of the state budget, as it has in the recent past. There is still work to be done to help balance the budget but the action taken by Governor Walker is a step forward and shows Alaskans that he is trying. Hopefully this will motivate the Legislature to act further when they start the latest special session on July 11.

For details on the Governor’s vetoes, visit Alaska.gov

Alaska Population Stable, Concentrating in Mat-Su, Getting Older

By Scott Goldsmith

The 2015 Alaska population was virtually unchanged from a year earlier at 737.6 thousand according to the Alaska Department of Labor. Natural increase (births minus deaths) was almost entirely offset by net out-migration of 6.8 thousand. This was the third year in a row that the number of out-migrants exceeded in migrants.

For the second year in a row Anchorage lost population (1.5 thousand) and has dipped back below 300 thousand. On the other hand, the Mat-Su Borough added 1.8 thousand and now has a population of 100 thousand. Population across the rest of the state was unchanged.

The senior population continues to grow and now stands at 10 percent. This growth is driven largely by the aging of the baby boomer generation. In fact, seniors account for nearly ¾ of the population growth since 2010.   

Nearing end, Legislature rebuffs most of Walker’s deficit plan

As seen in the Juneau Empire

By: James Brooks, State Reporter

JUNEAU — After 137 days in regular and special session, the Alaska Legislature may be nearing an end to its work.

“I know we’re not done yet, but I think we’re close,” Senate President Kevin Meyer, R-Anchorage, declared on June 6.

Both houses of the Legislature have stopped work to allow Juneau’s biennial Native event, Celebration, to take place. No significant Legislative action is scheduled before June 13.

While the Legislature may be nearing the end of its long stay in Juneau, its long-term goal remains unfulfilled: Alaska still has a multibillion-dollar budget deficit.

In December, Gov. Bill Walker proposed a 13-part plan to resolve that deficit by 2019. Here’s where each part of that plan stands:

• Permanent Fund spending: passed Senate, awaiting House. The biggest part of Walker’s plan to erase the deficit is the notion of using earnings from Permanent Fund investments to partially fund state operations. Senate Bill 128, drafted by Sen. Lesil McGuire, R-Anchorage, calls for a 5.25 percent annual draw from the fund’s Earnings Reserve.

At current amounts, that would generate about $1.8 billion. As a consequence, the Permanent Fund Dividend would be $1,000 for the next three years and lower after that. Without changes, the dividend was expected to be about $2,000 this year.

• Capital budget: passed Senate and House. The state’s capital construction budget passed the Legislature in the special session on the last day of May. It contains less than $100 million in state money; most of that will be used as matching funds for $1.2 billion in federal transportation money.
• Operating budget: passed Senate and House. The Legislature passed an operating budget worth about $4.3 billion. That’s a cut of almost $800 million from the current fiscal year, but the Legislature also approved some expenses that don’t fall within the new budget: There’s $430 million in subsidy payments to oil and gas companies, for example, and Gov. Bill Walker has argued that the Legislature’s cuts are somewhat of a mirage.
• Mental health budget: passed Senate and House. The budget for the state’s comprehensive mental health system is a separate item every year, and it tends to be uncontroversial. This year’s was no different.
• Oil and gas tax credit reform: passed Senate and House. House Bill 247 promises savings of up to $10 million in the next fiscal year, but the savings add up in future years, reaching more than $200 million per year by 2025. Still, that’s much less than had been offered by a version of the bill that passed the House but was rejected by the Senate.
• Oil and gas loan program: unpassed. House Bill 246, introduced by the governor, was intended to create a loan program replacing the state’s oil tax credit subsidy for drillers. The reform bill that passed the Legislature failed to eliminate the tax credit subsidy, so the need for HB 246 is uncertain.
• Mining tax increase: unpassed. House Bill 4005 would increase by 2 percentage points the tax on mines with profits of more than $100,000 per year. The result would be about $7 million more per year for the state. The bill as yet lacks the votes to pass the House, lawmakers have said.
• Fisheries tax increase: unpassed. House Bill 4006 would increase most fisheries taxes by 1 percentage point and increase the permit fees for many state fisheries, generating $20 million more per year for the state treasury. The bill has not been brought up for a House vote because it lacks the votes to pass.
• Motor fuel tax increase: unpassed. House Bill 4003 would raise the taxes on fuel for boats, cars, jets and propeller-driven aircraft, generating about $40 million more per year for the state. The tax on a gallon of gasoline for your car would rise from 8 cents per gallon (the lowest rate in the nation) to 16 cents per gallon (the second-lowest rate). The increase would be halved if oil prices rise above $100 per barrel and eliminated if oil rises above $120 per barrel. The motor fuel tax increase has the most support of any proposed tax hike, but it has not yet been brought to a vote in the House or Senate.
• Alcohol tax increase: unpassed. No separate legislation exists in the special session for the governor’s proposal to double the state’s alcohol taxes. Alaska already has some of the highest alcohol taxes in the nation, and doubling them would give the state the highest alcohol taxes across the board. The governor’s original proposal, House Bill 248, promised $40 million more in revenue per year to the state. Per existing law, half that increase would go toward alcohol abuse-prevention programs and treatment.
• Tobacco tax increase: unpassed. No separate legislation is being considered in the special session to raise the state’s tobacco tax. During the regular session, Walker proposed House Bill 304, which would have raised $24 million for the state by increasing taxes on cigarettes, other tobacco products, and electronic cigarettes. Of that increase, $2 million would have gone to a fund that fights smoking.
• Cruise ship head tax increase: unpassed. No separate legislation is being considered in the special session to raise more state revenue from the tourism industry. During the regular session, Walker proposed House Bill 252, which would have raised $16.6 million per year for the state by prohibiting cruise agencies from deducting local passenger head taxes from their state tax liability. The bill also would have closed a loophole in the existing head tax.
• Income tax: unpassed. House Bill 4004 would establish a state income tax equivalent to 6 percent of a person’s federal income tax. If someone owed $100 to the IRS, they would also owe $6 to the state. Anyone who pays no federal income tax would pay no state income tax. The bill promises $200 million in new revenue to the state, but it remains the most unpopular part of the governor’s 13-part proposal and has not received significant attention.

While lawmakers have not acted on all 13 points of Walker’s plan (nor are they expected to), they have taken significant action in areas not on Walker’s agenda. House Bill 137, brought forward by Rep. David Talerico, R-Healy, increases many Fish and Game hunting and fishing license and tag fees, generating an extra $9 million per year.

A pair of comprehensive reform bills — one aimed at prison sentencing reform, the other at Medicaid reform — also promise several million dollars in savings immediately.

Lawmakers have said that passing any one of those reform measures would have been the highlight of a regular Legislative year.

In this year, however, they’ve been overshadowed by the state’s continuing budget trouble, and even with all the actions taken to date, Alaska will continue to rely on its savings to balance its budget.