Legislators introduce tax bills amid forecasts of long-term budget deficits
March 29, 2023
The Alaska Legislature is preparing to examine two new tax proposals after a state revenue forecast showed significant long-term budget deficits even with a sharply reduced Permanent Fund dividend.
One proposal, introduced Friday by Anchorage Democrat Sen. Bill Wielechowski, would cut a popular oil production tax credit and expand the applicability of the state’s corporate income tax to privately owned oil and gas producers.
The second proposal, filed Monday by Nikiski Republican Rep. Ben Carpenter, would impose a 2% state sales tax.
The sales tax bill has been scheduled for a hearing Wednesday night in the House Ways and Means Committee, which Carpenter chairs. The tax would be in addition to any municipal sales taxes.
With strong opposition to a sales tax on goods and services, and just seven weeks left in the legislative session, the bill is not expected to move ahead.
The oil tax bill has been scheduled for a hearing Friday morning in the Senate Finance Committee.
“We have to fund our basic services,” Wielechowski said. “And that’s to the benefit of the (oil) industry as well. So, if the industry doesn’t support this, and they have a better solution, I’m all ears.”
Alexei Painter, director of the nonpartisan Legislative Finance Division, said on Friday that under the state’s new revenue forecast, at present levels of spending and with a $2,700 Permanent Fund dividend this fall, the state budget would run a deficit of about $560 million in fiscal year 2024, which starts July 1.
If legislators cut the dividend to $1,350 per recipient, the budget would show a $300 million surplus, but that doesn’t take into account a possible funding boost for K-12 schools or any other spending increases. Proposed increases in state funding for public school operating costs would consume most or all of the $300 million.
The $1,350 dividend is based on a proposed new distribution formula under discussion in the Senate Finance Committee. It is similar to a plan proposed in the House by Ketchikan Rep. Dan Ortiz, who advocates for more state funding for schools, an affordable PFD, and a balanced state budget.
Called the 75-25, the formula would produce a balanced budget for next year, but projections show that it could create deficits in the long term — as much as $230 million a year by the end of the decade unless the state adopts new revenue measures, cuts spending or oil prices rise.
Under the formula, a quarter of the annual draw from the Permanent Fund would go toward dividends, with three-quarters going to state-funded public services.
The 75-25 is on the low end of several new dividend formulas under discussion in the Capitol this year.
The state’s Constitutional Budget Reserve, its largest savings account, has a balance large enough to pay for a $2,700 dividend this year, but it would quickly hit empty if the larger dividend persists.
The Legislature and governors have relied on the savings account much of the past 30 years as oil production has declined since its peak in 1988 and as Alaskans have rejected the idea of paying taxes.
Wielechowski’s proposal to up the tax take from the oil industry earned a mixed reaction on its first day.
Nikiski Republican Sen. Jesse Bjorkman said he opposes Wielechowski’s plan. “The bottom line for me is I’m not interested in taxing producers and people who work in order to give money to people who don’t work,” he said.
Bjorkman said he prefers another option, possibly a sales tax.
“I would be interested in supporting some kind of temporary seasonal sales tax or tax that allows our visitors to pay for many of the benefits that are provided to them when they come in and visit Alaska,” he said.
Wielechowski’s bill includes three main provisions. It would reduce and place a new limit on a tax credit that producers can apply to their production tax liabilities when prices are high. It would expand the reach of the state’s oil and gas corporate tax structure to require companies like Hilcorp, which is privately owned, to pay taxes the same as publicly owned companies such as ConocoPhillips.
A third main part, called “ringfencing,” would limit oil and gas producers from applying tax credits earned on one project to their tax liabilities from another producing field. The provision would block ConocoPhillips from applying tax credits earned during construction of its Willow project on Alaska North Slope to reduce its tax bills for oil production at Prudhoe Bay or elsewhere.
Wielechowski expects the changes could produce at least an additional $500 million a year in state revenues, maybe two or three times that amount at much higher oil prices.
To become law, Wielechowski’s bill or Carpenter’s sales tax proposal would have to pass both House and Senate, then get the approval of Gov. Mike Dunleavy, who could veto the measure.
Dunleavy has previously said he opposes tax increases without a statewide referendum, going so far as to veto a small tax on e-cigarettes last year.
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