Senate on offense to start overtime
The Senate is starting overtime with all the balls.
It took all session, but the Democrat-led House Majority got the final pillar of its four-part fiscal plan — an income tax — passed on the 90th day of the regular legislative session.
With that, the majority Republicans in the Senate now have the House’s version of a broad-based tax, the 2018 fiscal year operating budget, a government draw on the Permanent Fund and an oil tax and credit bill to consider, none of which they like at all.
The majorities’ opinions on the four big bills are basic differences in political philosophy; Democrats pushing for taxes to support current spending and Republicans demanding less spending to promote industry investment and keep Alaska the last personal tax-less frontier.
However, the fact that the differences are so fundamental makes finding an avenue to compromise so difficult.
House Majority Leader Chris Tuck, D-Anchorage, exemplified the divide in a sharp comment about how he sees the rest of the session going during an April 18 press conference.
“The only compromise I see right now is the Senate accepting a fair and balanced budget,” Tuck said.
“What more can we do on our side?” he added later.
“If the Senate thinks that we’re going to get out of here with just a (Permanent Fund bill) they got another thing coming,” Rep. Gabrielle LeDoux chimed in.
LeDoux is one of three Republicans in the House Majority coalition.
Senate President Pete Kelly, R-Fairbanks, called the House’s income tax proposal “absurd on its face,” given the state is already in a recession.
House leaders have shared a sentiment similar to Kelly’s regarding the Senate’s goal to cut $750 million from the budget over the next three years, particularly after multiple economists testified that major additional cuts to government budgets would be the most damaging to the state’s economy of the deficit-reduction options.
“If we’re trying to get out of a recession you don’t take money out of the economy,” House Finance Co-chair Rep. Paul Seaton, R-Homer, said of the Senate’s plan to cut.
On general principle, Gov. Bill Walker is on the House Majority’s side.
He also said he hopes to act as a mediator of sorts between House and Senate leaders and has offered to meet with them several times a week until a resolution is reached.
Walker proposed a more modest income tax last year to generate about $200 million. The House income tax would raise nearly $700 million per year to fill most of the remaining deficit after drawing on Permanent Fund earnings, which juxtaposes the Senate’s budget cuts also aimed at closing the left over gap.
Walker emphasized in an April 18 press briefing that the need for a broad-based tax is not about a wish to start growing the size of state government again.
“It’s about fixing government,” the governor said, noting the state is sitting on about $2 billion of deferred facilities maintenance.
“We will continue to root out government inefficiencies,” he added.
Annual state spending has dropped more than 40 percent since its peak several years ago, with most of the cuts coming under Walker’s watch. However, much of the reduction was the elimination of discretionary spending in the capital budget, which will have to resume again on some level to fix state infrastructure and help revitalize the state’s struggling construction industry.
As he has said since introducing his fiscal plan in December 2015, the state’s ongoing multibillion-dollar annual budget deficits and dwindling savings require unsavory decisions — taxing yourself and limiting the size of PFDs, for example.
“I didn’t run for governor to reduce the Permanent Fund (dividend),” Walker said. “It’s not about what we want to do it’s about what we have to do.”
While the controlling interests in the House and Senate are nearly aligned on a vision for restructuring the Permanent Fund, it is contingency language in the bill requiring the Senate to approve a personal tax and the House-passed version of the oil tax bill, House Bill 111, before the Fund action takes effect that is the big hang-up.
Walker also said he supports the current version of HB 111 because “it’s the only one on the table that addresses the oil tax credit issues.”
Legislative leaders also agree that the state needs to eliminate its exposure to refundable North Slope tax credits after doing so for Cook Inlet last year. But HB 111, currently in the Senate Resources Committee, also roughly doubles the state’s effective production tax at current prices and that’s a nonstarter for Senate Republicans.
Walker stopped short of endorsing the House’s tax increase. He proposed production tax changes that led to a smaller tax increase last year.