House majority won’t push income tax again
Legislative leaders from both parties claimed success when reviewing 2017 despite achieving little to solve the state’s most pressing issue: ongoing multibillion-dollar budget deficits.
Democrat House Speaker Bryce Edgmon and Republican Senate President Pete Kelly spoke about the year’s legislative sessions and their expectations for the upcoming session that starts Jan. 16 to a Dec. 13 lunch gathering of the policy analyst group Commonwealth North in Anchorage.
Edgmon said his House Majority coalition met each of its four major goals during the prolonged 2017 sessions: the House made “surgical cuts” to the operating budget; ended the refundable oil and gas tax credit program for Cook Inlet and North Slope work; passed legislation to enact a percent of market value, or POMV, draw from the Earnings Reserve of the Permanent Fund; and approved an income tax.
“Amid all the acrimony and endless special sessions we did get some work done,” he said, noting the passage of bills to allow ridesharing companies in the state, address the federal REAL ID mandate and the state’s opiod addiction epidemic that Gov. Bill Walker signed, among others.
With control of the House for the first time more than 20 years, Edgmon added the Democrats strengthened personal relationships with Senate Republicans, which could prove beneficial in 2018.
“The point of it is we took action,” he said, acknowledging the caucus was aware not everything it passed would become law.
Similarly, Kelly noted the Republican-dominated Senate made good on plans to cut the operating budget by roughly $300 million in its version of the budget; approved a revised state spending cap; passed the Permanent Fund POMV legislation; and voted down the House’s income tax, thereby protecting the private sector, he said.
The only budget-directed bill to reach the governor’s desk was House Bill 111, which ended the oil tax credits. It reduces future state obligations but does little to fix the immediate budget gap.
Meanwhile, the Legislature spent a record 211 days in session this year; prolonged budget battles pushed the state to within nine days of a government shutdown; the $2.7 billion fiscal year 2018 budget deficit was again filled with savings from the dwindling Constitutional Budget Reserve; and ratings agencies further downgraded Alaska’s creditworthiness.
Looking ahead, Edgmon said his caucus is still focused on fixing the state’s budget in the standard 90-day session if at all possible.
He also said the House Majority “heard the message loud and clear” from the Senate and will not push for an income tax again this year. The Senate gaveled out from the special session Walker called this fall without taking up his latest proposal for an income tax.
Rather, the House will shift its focus to separating education funding from the annual operating budget, overhauling how the Alaska Marine Highway System is managed and paid for, and continue to push for a new, “non-regressive revenue source” for the state that doesn’t disproportionately impact rural Alaska, according to Edgmon.
“We can’t simply cut people’s dividends in half and then use the Earnings Reserve to fill the gap — which doesn’t really fill the gap,” he said.
The Office of Management and Budget’s 10-year forecast recognizes inflation but only reflects the costs the state is currently covering with its $4.3 billion unrestricted general fund budget, he stressed.
Alaska’s last three capital budgets have mostly been cut to include only mandatory items and the minimum 10 percent state match to formula-driven federal funds for transportation programs crippling the construction industry while the deferred maintenance bill on state facilities has grown to about $1.8 billion.
Additionally, Edgmon noted there are still no plans to expedite how the state will pay down its leftover $700 million oil tax obligation, stabilize education funding or handle potential cuts to federal assistance.
On top of Edgmon’s unfunded list, state employee retirement payments — $163 million this year — will again grow to over $400 million by 2022, according to OMB.
Economists have said long-term the state likely needs to add roughly $1 billion per year to its current annual deficit amounts because of the issues it has put off addressing.
Kelly said the Senate Majority will stay focused on cutting the budget, protecting the private sector and getting the Permanent Fund bill to the finish line.
“The Senate is going to come from a starting position that we’re in a recession,” he said, contending the state can find its way through its current fiscal issues without new taxes that could further damage the economy. “We can’t make decisions about the long-term future of the state based on what’s hitting us right now.”
Alaska crude prices are back above $60 per barrel and there are at least five significant North Slope oil prospects that could grow production beyond the incremental increases of the past couple years, he stressed.
Kelly said it’s a “pretty safe assumption to say we’re going to have 300,000 to 500,000 (additional) barrels per day flowing in 2021.”
However, getting there would mean those projects would have to meet or beat in-service schedules and high-end production estimates.
As a result, with further budget cuts and the addition of $2.1 billion and growing of Permanent Fund revenue each year the state can live off its reserves and have a balanced budget by 2023, according to Kelly.
He said further that the Walker administration has lacked the innovative ideas needed to reform government and instead, along with House Democrats, has just said government needs more money.
Kelly touted his Medicaid reform bill passed in 2016, which could save the state up to $400 million over six years. The bill got strong bipartisan support and directs agencies to study more structural changes to how chronic health issues are managed and how the state administers its own health care and insurance programs.
The expected savings come largely from taking advantage of federal health care laws that give states opportunities to secure more federal funding for existing programs.
Revenue forecast up
The Department of Revenue issued the official Fall 2017 Revenue Sources Book Dec. 12 with a revelation that the state will have $247 million more than first thought.
That should cut the current-year deficit to roughly $2.5 billion.
The downside is that the new money is short-lived; it’s coming from unexpected back production tax payments made after the preliminary fall forecast was released in late October, according to a department release.
The $247 million will bump fiscal year 2018 unrestricted revenue up to over $2.1 billion, but the department predicts it will fall back to $2 billion in 2019 and gradually grow to $2.8 billion by 2027.
Elwood Brehmer can be reached at [email protected].