Walker talks special session in Anchorage
Gov. Bill Walker is making one last push for his plan to end the state’s ongoing multibillion-dollar budget deficits.
On Sept. 20 Walker released a proposal for what members of his administration describe as a capped 1.5 percent payroll tax; others have called it a modified head tax.
On Sept. 22 he formalized the prospect of a special legislative session to address the state’s finances starting Oct. 23 that he previously told legislators to expect when he signed a proclamation making it official.
Walker made his pitch Sept. 29 for the special session to a breakfast gathering of the policy forum Commonwealth North in Anchorage with his new Revenue Commissioner Sheldon Fisher and Chief of Staff Scott Kendall in tow.
Correcting the state’s ever-worsening financial situation has dominated the governor’s agenda nearly since the day he took office in December 2014. It was during the last months of that year’s general election campaign that oil prices began to take the dive they have yet to substantially recover from.
The results of nearly three years of tussling with legislators over how to best close the budget cap — projected at about $2.6 billion for the current fiscal year but down from close to $4 billion in fiscal year 2016 — were apparent in Walker’s comments Sept 29.
The Republican-turned-independent has consistently drawn sharp criticism from his formerly party comrades for saying Alaska needs to reinstitute a broad-based personal tax.
While overall state spending has been cut more than 40 percent during Walker’s tenure, most Republican legislators have been adamant that cuts need to continue before residents are taxed.
The budget passed in June was smaller but did not have the major spending reductions of recent years. Part of that was the Democrat-led House majority, which took control after pulling together a coalition that included three Republicans following the 2016 election, pushing against deeper cuts. Part of it was leaders of the Republican-dominated Senate not being able to drum up enough support for some reductions.
“A lot of work has been done. The Legislature has made a lot of tough votes and I appreciate that very much and we have made some very tough — it’s not fun to roll out stuff involving the word — I don’t know how many ways you can disguise the word tax but we just say it the way it is; it’s a tax. We’re at a point where we can no longer afford to be the only state in the nation that doesn’t have a broad-based tax,” Walker said.
Of his tax proposal, he continued: “It’s not one of those feel good levers but you know what? It doesn’t feel good to not do something and to sit back and continue to draw down on savings after having gone through $14 billion in savings. At some point you have to say enough is enough. We need to bring this to a close.”
The current fiscal year budget was paid for primarily with state savings. The state’s last savings account, the Constitutional Budget Reserve, will have about $2 billion left in it at the end of the fiscal year next June 30, according to Fisher.
The general consensus is that the state needs to have about that much left in savings to cover the costs of a potential natural disaster or a mechanical one, such as a lengthy shutdown of the Trans-Alaska Pipeline System, or both.
During the 2016 legislative session Walker introduced a state income tax that would’ve been 6 percent of an individual’s federal liability, which was part of a suite of nine industry and personal tax increases he proposed to minimize the impact on any single sector of the economy.
He quipped Sept. 29 that “no one was jumping over tall buildings to vote for any of those.”
Early this year Walker supported the House majority’s income tax plan that was summarily shot down in the Senate.
With that as background, some form of personal tax was expected on the call for what has been dubbed the “revenue special session.” What is accompanying the tax bill on the call, Senate Bill 54, was not.
SB 54 amends some of the provisions in Senate Bill 91, the criminal justice reform package that passed the Legislature in 2016, by giving judges and prosecutors more discretion in how low-level crimes are punished.
The reform efforts in SB 91 focused on treatment and rehabilitation of shoplifters, burglars and others convicted of misdemeanor crimes as a way to prevent what were seen by some as unnecessary incarcerations, which are also very costly to the state.
SB 91 has subsequently been criticized amid a spike in all categories of crime statewide despite the fact that it has been law for little more than a year.
SB 54 passed the Senate last April and will be taken up by House committees during the special session.
“I don’t like living in an Alaska where Alaskans are afraid and that’s where we are right now in many regards,” Walker said.
He added that he expects the House to pass it fairly quickly given that public safety is a priority for all in office.
“I don’t say it’s a panacea that all of a sudden crime is going to come to a screeching halt as a result of (SB) 54 but it’s a tool and we need to put some tools back in the toolbox for our prosecutors and judges — for those that are out there — our police officers,” he continued.
The Senate bill that was expected on the call but left off is SB 26, the plan to enact a percent of market value, or POMV, draw from the earnings reserve of the Permanent Fund to support government services and pay future dividends.
Both the House and Senate passed similar versions of the bill last spring but the contingencies that each attached to the legislation have prevented the versions from being reconciled and sent to the governor’s desk.
With the potential to spin off roughly $2 billion for state government while paying Permanent Fund dividends in the $1,000 to $1,200 range, SB 26 or something like it, is the only means available to drastically reduce the deficit without extreme additional budget cuts that most in the Legislature agree aren’t feasible.
Walker said the House leadership’s insistence on a progressive broad-based tax to offset likely smaller future dividends that are characterized as a “regressive tax” by Democrats, pushed him to keep SB 26 off the special session call, for now, despite his two-year push to pass such a bill.
“(SB) 26 can be added in short order. I can’t remove something from the call but I can certainly amend it and add it. So if House and Senate leadership came to me and said, ‘Governor, please add this to the call’ — or there’s a process they can (add it) — we would certainly do that,” Walker said.
“It’s really the structural issue that needs to get resolved on the broad-based (tax) and then there’s no reason that the POMV couldn’t dovetail right behind that.”
The Senate has insisted on a spending cap to accompany a Permanent Fund bill, which Walker again said he is amenable to as well. He said he is open to most ideas that would resolve the deficit and restore financial confidence in the state.
“On the fiscal situation there’s little I would oppose as far as bringing through concepts that finish it out. We don’t say what we propose is absolutely perfect; I guarantee you it’s not perfect but it’s something on the table to have that discussion,” Walker said.
Walker’s Chief of Staff Kendall said the 1.5 percent payroll tax, which would be capped at either a $2,200 payment or twice the previous year’s dividend, is critical because it would once again link government to economic growth even if the roughly $300 million it’s projected to generate would barely cover 10 percent of the deficit.
The tax would also apply to nonresidents working in the state.
“We’ve got the Alaska disconnect.” Kendall said. “What it means is economic growth punishes state government. So if Amazon decided 50,000 employees, we’re moving them to Anchorage and that’s our new headquarters, the state would lose tens of millions of dollars. There is no connection between economic activity and state revenue except for the oil industry. Everything’s balanced on the back of one industry.”
He described further that economic growth meaning more jobs and more people in the state naturally leads to more need for government services and infrastructure and without a tax to link the two government has no way to pay for the increased demands place on it.
“It’s a modest structure but it’s a structure that says when the economy grows, when there are more jobs, the state revenue can take care of those people,” Kendall said further.
He also noted that Alaskans would remain the lowest-taxed people in the country “by orders of multiples” even with the governor’s payroll proposal.
“So to the folks who say, ‘That’s it. I give up on Alaska; I’m leaving’ — where are you going to go?” Kendall commented.
On the flipside, for those who want to retain the current PFD formula that would’ve paid out checks in excess of $2,000 per person this year and suggest closing the gap with taxes and spending cuts, Kendall said the state’s small population won’t let the numbers work.
“Even if we put New York state’s entire suite of taxes in place — income taxes and everything else — we would still be running something like a $1 billion deficit,” he said. “We just don’t have enough people. It just doesn’t work, so it’s a little of this and a little of that.”
To those skeptical about the ability to pass a new tax or overhaul how the Permanent Fund is used as election talk for 2018 is already ramping up, the governor was blunt.
“It’s time to do the people’s business and not worry about our own political futures,” he said. “I’m all in on getting this done. Alaska deserves an answer this year and that’s what we’re going to do.”
Elwood Brehmer can be reached at [email protected].