The House Finance Committee is preparing to adjust a proposal that would institute a state income tax and restructure the Permanent Fund. Meanwhile, members of the House majority are suggesting that the budget taking shape will not have any major cuts.
The House majority introduced its major deficit reduction bill on February 10.
As drafted, HB 115 would generate $1.5 billion for government spending by annually taking 4.75 percent of the average value of the Permanent Fund over five years. This percent-of-market-value (POMV) draw would allow for a $1,100 Permanent Fund dividend.
The bill also includes an income tax equal to 15 percent of a taxpayer’s federal income tax liability. The income tax would bring in $643 million in its first full year of implementation.
“We’re looking for a sustainable fiscal plan, a comprehensive one, one that Alaska will be proud of when we’re done with our work,” House Majority Leader Chris Tuck (D-Anchorage) said at a press conference Tuesday.
The House Finance Committee took public testimony Friday on HB 115, testimony that was almost evenly split between support for the bill and opposition.
Rep. Dan Ortiz (I-Ketchikan) said fiscal uncertainty is costing businesses and the State investment opportunities.
“While nobody is jumping at the chance of paying an income tax or paying a sales tax — nobody’s excited about that — there are people out there — a good number of people out there — that recognize that it very well might be what we need to do in order to serve the best interests of the state of Alaska overall and to eliminate that uncertainty,” said Ortiz.
Rep. Adam Wool (D-Fairbanks) said a variety of small licensing and user fees have been increasing over the past few years in response to the multi-billion deficit.
“Instead of going after all these… little individual items, some people would just rather be taxed once, you know?” he said. “Just pay an income tax or restructure our dividend. Do something large and all at once instead of nickel and diming every little thing.”
“We can’t avoid looking at the difficult choices,” Wool continued. “The State right now, I feel, is at a precipice… We’re in a recession. We’re having a lot of job loss. We need to turn the tide. We need to stop the job loss. We need to bring confidence back to the state of Alaska.”
House Majority Says Further Cuts Will Deepen Recession
“We’re in a recession,” echoed House Finance Vice-chair Les Gara (D-Anchorage). “There are some in the Senate that have a plan that would put us in a ten-year recession, one that will kill 10,000 to 15,000 private and public sector jobs that we will not get back for ten years.”
Gara called news that Alaska Aces owners are considering ending operations due to low attendance the “canary in the coal mine” of a recession.
“If you’re just going to cut $1 billion and sort of play to the soundbite game, you’re going to cause a ten-year recession. Just admit that to your constituents,” Gara said, indirectly addressing Senate leaders. “Let’s just be honest with people and stop fibbing to them.”
Gara said the budget has been continuously cut since 2013.
“That’s budgets for people with disabilities, our public schools, our university. And at some point, you can’t just keep cutting public education and cutting the future out of this state,” Gara asserted.
“There have been $3 billion worth of cuts so far,” he said. “That’s part of the reason we’re in a recession. That’s part of the reason we lost 9,000 jobs last year.”
“That was important, and we needed to do that,” Ortiz said of previous budget cuts. “However, I think in some cases, we’ve gone a bit too far, and it’s caused a collective hurt to our overall economy.”
Ortiz chairs the Department of Education and Early Development subcommittee, which took public testimony Monday on proposed budget amendments. Repeating a pattern, multiple House minority members proposed cutting or eliminating funding for pre-Kindergarten grants and programs.
“I know there are some proposals coming forward eliminating pre-K, eliminating Parents as Teachers, eliminating Best Beginnings. That’s shooting ourselves in the foot,” Tuck said. “Those investments pay dividends way down the road, as far as higher graduation rates, pursuit of higher education after high school, having successful learning careers through the K-12 system, keeping parents involved, which is a key factor in making public education successful.”
“You can be penny-wise and pound-foolish,” Wool added.
“While continued cuts need to be looked for, we need to be smart,” agreed Ortiz. “We need to be thinking about what the long-term impact of those cuts are and make sure that we’re actually doing what’s in the best interests of all of our residents and also what’s in the best interests of the state of Alaska, in terms of creating a sustainable workforce, an educated workforce, et cetera.”
House Finance is scheduled to hear subcommittee reports throughout the week.
While the earliest reports from subcommittee closeouts do not show growth in the proposed State budget, comments on Alaska Commons social media suggest some Alaskans are looking for Gov. Bill Walker and the legislature to further reduce their own budgets.
Several House majority members, including House Rules Chair Gabrielle LeDoux (R-Anchorage) and House Finance Co-chair Paul Seaton (R-Homer), drafted amendments that would significantly cut the legislature’s budget.
House Minority Leader Charisse Millett (R-Anchorage) suggested the elimination of the legislative lounge. Seaton, the subcommittee chair, said he was opposed to the idea.
Only one person offered public testimony on those amendments Tuesday, saying he supported “all the cuts.” Votes are anticipated Thursday.
When Alaska Dispatch News reporter Nat Herz asked why legislators can’t order pizza instead of utilizing the lounge, Gara responded that he doesn’t believe in wasteful spending, like excessive travel.
“Those are all worth looking at, but they don’t get you to $3 billion. So the stuff that might be interesting on a headline doesn’t solve the budget deficit,” Gara emphasized. “If we spend our time studying things worth thousands of dollars when we have a $3 billion budget deficit, then we’re just playing soundbite politics.”
“I’m sure you could make money charging us to go to the bathroom, but I appreciate the facilities that we have that allow me to function during the day,” Tuck added.
House Minority Members Want More Info on HB 115’s Economic Impacts
Just as House majority members worry that further budget cuts will hurt the economy, minority members in House Finance say they want more information on the potential impacts of an income tax.
“What is the impact to an individual, the average individual?” Rep. Lance Pruitt (R-Anchorage) asked during a hearing Tuesday. “We’ve heard mostly in terms of the large, kind of the macro side of things, but what is a middle-class individual — what should we expect? How will this impact them?”
The House Finance Committee has heard what an income tax will do at different income levels, but not specifically the impacts of HB 115. An economic study of the bill would likely take months.
Rep. Tammie Wilson (R-North Pole) said that the Railbelt will shoulder most of the burden of an income tax and wondered what the impact will be of adding another tax on people who already pay property taxes or sales taxes.
“The taxes that local jurisdictions have voted for themselves to pay for special services they want are quite different than a tax for the State Treasury to provide… infrastructure across the state,” Seaton responded.
“They are not state taxes,” Wilson agreed, “but they are still a big effect on Alaskans.”
She also asked the House Finance co-chairs to seek out a study showing whether businesses would leave Alaska if an income tax is imposed.
“Wouldn’t every business in the world be in the nine states that don’t have an income tax right now if that’s what companies did?” Gara interjected. “I don’t know how you would do that analysis, frankly.”
Gara said by that reasoning, Alaska might gain some businesses, since HB 115 would be the fourth-lowest income tax in the country.
Seaton said that he will ask Alaska Permanent Fund Corporation (APFC) Executive Director Angela Rodell to come back before House Finance after Wilson expressed surprise at APFC’s zero fiscal note.
Rodell’s testimony suggested that, if HB 115 passes, APFC might invest the Permanent Fund differently, Wilson said, though Deputy Commissioner of Revenue Jerry Burnett noted that wouldn’t impact the Corporation’s budget.
“We’re not in any rush,” Seaton assured Wilson. “We want to get all these questions on the table and get them answered by the Permanent Fund Corporation because otherwise, we’ll just be speculating.”
Seaton also announced that he and House Finance Co-chair Neal Foster (D-Nome) will be introducing amendments to HB 115, based on testimony from Rodell and the public, that will adjust the amount of the POMV draw.
Those amendments could come on Friday, the next scheduled hearing on HB 115.
The Seaton and Foster amendments will not be the last opportunity for committee amendments, Seaton said.