Legislators promise commitment to fiscal solution

This time, they say, is different.

“Consensus,” “tough decisions,” “optimistic,” “move Alaska forward” and “workable solution” were among the catch-phrases and buzzwords during the inaugural meeting of the Legislature’s fiscal policy working group as lawmakers said all the right things about wanting to end Alaska’s melodrama and once-and-for-all solve the state’s structural budget deficit.

This time, they are fully committed to shared facts, open to hearing opposing views and willing to compromise for the good of Alaska, members of the bicameral Comprehensive Fiscal Plan Working Group said in so many words.

Senate President Peter Micciche, R-Soldotna, said this time is different in part because the makeup of the group is unique. His staff could not find a similarly formed special committee or legislative work group with two members from each caucus, giving each contingent equal representation.

“This is not a partisan issue; this is not a caucus issue; this is not an issue between bodies,” Micciche said of the state’s finances, starting with the Permanent Fund dividend. “For us to go anywhere we need to hear from everybody.”

He noted the committee’s co-chairs, who normally have the authority to tightly regulate committee proceedings and advanced legislation, will in this case be facilitators tasked with maintaining course but little more.

“There will be no squashing of ideas,” Micciche emphasized via videoconference.

The co-chairs are Sitka Democrat Rep. Jonathan Kreiss-Tomkins and longtime Bethel Sen. Lyman Hoffman, a Democrat who caucuses with the otherwise Republican Senate Majority.

The four Finance Committee co-chairs of the House and Senate are notably absent from the working group roster, which also includes Reps. Ben Carpenter, R-Nikiski; Kevin McCabe, R-Wasilla, Calvin Schrage, D-Anchorage and Sens. Shelley Hughes, R-Palmer; Scott Kawasaki, D-Fairbanks; and Jesse Kiehl, D-Juneau.

The group was formed after House Minority Republicans agreed late last month to vote for an effective date clause on the budget to avoid a government shutdown ostensibly in exchange for more say in the state’s fiscal decisions.

Hoffman said the group will likely start its work by reviewing what has previously been done but this time is different because the group’s work product will be taken more seriously than in past efforts.

“The work will not be half-heard, deterred or delayed or not even addressed by procedural maneuvering,” Hoffman said.

Micciche and House Speaker Louise Stutes both said they are committed to putting bills reflecting the committee’s recommendations on the Permanent Fund, PFD, spending cuts, spending caps and taxes through the committee process in the special session currently scheduled for August called by Gov. Mike Dunleavy .

The timeline for tackling such a list of complex and contentious issues would appear untenably tight with less than a month before lawmakers could need to return to Juneau to debate the work group’s plan, but legislators openly discussed talks with the officials from the governor’s office about pushing the special session back a month or more until the working group is complete.

“This is a real thing. This isn’t an exercise or something to put on a bookshelf,” Micciche said. “My intent is to move it forward, some members may be uncomfortable with that, but we are floundering and we owe it to Alaskans to find a solution.”

The group members will not have to look back far to find the most recent joint attempt to gain momentum towards solving the state’s ongoing deficits.

It was January 2020 when legislators on the eight-member Bicameral Permanent Fund Working Group failed to agree on a complete set of recommendations regarding the use of the fund’s income for the rest of the Legislature.

The group did, however, agree that one of the few laws or procedural norms the lawmakers have refused to violate in recent years — limiting the annual Permanent Fund draw to the 5 percent of market value formula — is imperative to ensuring the fund’s long-term strength.

Hughes, who also participated in the Permanent Fund group, urged colleagues to pay attention to what the group does.

“Legislators may be fishing or traveling or working, but I hope they’re listening because we’re going to need their buy-in,” during the special session, Hughes said.

While the insistence that the group’s recommendations will be carried forward is new compared to recent efforts, it remains unclear what will change from the just-concluded marathon session that saw the Senate approve $2,300 PFDs, the House initially avoid the issue and Dunleavy ultimately vetoing the appropriation for PFDs of about $525 per person he called a “cruel joke.”

With most legislators seeing little ability to cut the budget much further and Dunleavy’s continued opposition to broad-based taxes, one of the few other places for the state to derive significant amounts of revenue is industry taxes and corresponding exemptions.

Tax Division Director Colleen Glover said during a July 13 meeting of the House Ways and Means Committee that the state’s indirect expenditures totaled more than $3.9 billion in what she characterized as “forgone revenue.”

For comparison, Dunleavy’s plan to make the PFD 50 percent of the annual Permanent Fund draw and add it to the Constitution results in ongoing deficits of roughly $1 billion, according to legislative figures.

The largest single indirect expenditure in the Department of Revenue, which accounts for 97 percent of the state’s indirect expenditures through tax credits and exemptions, was the sliding scale per-barrel oil production tax credit.

Oil companies claimed just more than $1 billion in the per-barrel credits in fiscal year 2019; the credits are up to $8 per barrel deducted from the 35 percent net profit tax when oil is less than $80 per barrel.

The per-barrel credit has long been a target of Democrat legislators and some Republicans have recently said an adjustment to oil taxes is very likely to be part of a full state fiscal plan.

Glover said the per-barrel credit claim for fiscal 2019 was unusually high and the expectation for 2020 is approximately $585 million and 2021 is $420 million once the final taxes are calculated.

The smaller recent totals are likely due to lower oil prices during the pandemic that made the per-barrel credit inapplicable; a 4 percent gross minimum production tax kicks in at low oil prices.

Elwood Brehmer can be reached at [email protected].

Updated: 
07/14/2021 - 9:50am