Gov cuts PFD, education, oil tax credits from 2017 budget
Facing a multibillion-dollar deficit, Alaska’s governor on Wednesday cut in half the annual checks that give all residents a share of the state’s oil wealth, but he kept enough money in place to award everyone a $1,000 payout.
Gov. Bill Walker’s administration said the checks had to be reduced in order to save the program.
The veto “preserves that ability to provide a check to every citizen in this state forever,” his budget director, Pat Pitney, said.
If nothing was done, Walker said the earnings of the Permanent Fund, which funds the dividends, would have been depleted in four years.
Jeffrey Ganotisi, 38, took some time off from painting a house on Wednesday to fish for king salmon in Ship Creek, which winds through downtown Anchorage. He had already heard the news that the governor is cutting the check in half, and he didn’t like it.
His wife is pregnant with their third child and is due in September. The dividend checks are cut in early October every year.
“We were going to use it for diapers and all that kind of stuff, but it’s going to be kind of tight,” he said.
Every year, they put some money away in their kids’ college fund and use some to stock up on food. It helped last year when nearly every single Alaskan received a record amount, $2,072 each or nearly $8,300 for a family of four.
“Now that they’re cutting it down, it’s going to hurt a little bit ‘cause I have a feeling they’re going to keep cutting it down,” Ganotisi said.
Alaska’s government relies mostly on revenue from oil production to stay solvent. But declining production and a precipitous drop in oil prices have left the state with a deficit of more than $3 billion for the next budget year.
If changes were not made, Walker has warned, the oil-wealth program could disappear. He introduced a bill earlier this year capping the checks at a $1,000 to help pay down the deficit. The state Senate passed the measure, but the House couldn’t get the bill out of committee before adjourning a special session last month.
Walker’s reduction of the oil-check purse was among $1.3 billion in budget vetoes that he said would result in savings across much of state government. He compared the cuts to running to a fire.
“The fire is the future of Alaska,” the governor said.
Doubling down on last year’s line-item veto of $200 million in oil and gas tax credit payments, Walker vetoed $430 million in credit payments to small companies this year, leaving only the $30 million payment required by a statutory formula that is calculated partially on oil-based revenue.
The $430 million would not have covered all of the credits companies had earned for the 2017 fiscal year, but was a figure negotiated by lawmakers in deals on the budget and oil and gas tax credit reform bills.
All through the regular and special sessions a projected credit obligation nearing $775 million, including the $200 million from last year, was bantered about by legislators and confirmed by the administration. The vetoes do not rid the state of the moral obligation to pay, but instead just defers the payments.
Walker said the administration would work with companies and the Legislature to find other ways to pay eventually pay the credits. He emphasized that he could not approve the spend out of savings without a long-term fiscal plan that legislators all but rejected.
Republican leaders criticized the governor in statements following the veto announcements for not following through on the state’s obligation.
“I am glad to see the Governor has further reduced the size of government, however, I am concerned that we as a state have gone back on our word for a second year in a row with regards to tax credits,” House Finance co-chair Mark Neuman, R-Big Lake, said. “Just to be clear, these aren’t tax credits to big global companies, these are for the small, hard-working companies and Alaskan contractors. Companies aren’t going to invest in Alaska when we desperately need them to if they can’t trust us.”
After a news conference, Walker told The Associated Press that he runs the risk of having lawmakers override his budget vetoes because he’s called them back into session beginning July 11, but that’s not his intent.
“You know, I’ve pulled them back in special session so we can finish the job. If they take that time to override my vetoes, there’s nothing I can do about that,” he said. “I’ve done everything I can do.”
Walker said lawmakers complained to him that if the PFD checks were reduced, they wouldn’t be re-elected this year in the fall elections. He said his veto alleviates them of that concern. Walker, a first-term independent, doesn’t face re-election this year.
Walker has proposed several measures to help bridge the gap, including tapping into the earning of the Permanent Fund, which has paid a dividend yearly since 1982. He’s also proposed reinstituting the state income tax for the first time in decades.
Journal reporter Elwood Brehmer contributed to this story.