Governor says new taxes should be part of any fiscal plan

Gov. Mike Dunleavy, once a staunch opponent of tax increases, said last Thursday that they are now a core part of any long-term state fiscal plan.

Speaking in a news conference, the governor said there is a broad recognition in the Legislature and in his office that the state can no longer rely on oil to balance the state budget.

“To simply ride oil in a do-or-die situation for the state of Alaska is folly,” he said.

Dunleavy confirmed reports that he intends to propose a statewide sales tax, saying work on the proposal was almost done — though it was not clear when the bill would be introduced in the Legislature.

“I would start off with a low percentage sales tax, probably 1%. And the reason I say that is, it’s really about stabilizing our fiscals,” he said.

Regardless of the format, it’s a significant change for a governor who has never proposed a tax increase since entering office in December 2018.

Last year, Dunleavy vetoed a bill that would have raised the state’s minimum age for e-cigarettes because it included a small tax on e-cigarette products. He said in his veto message: “Ultimately, a tax increase on the people of Alaska is not something I can support.”

The year before that, he proposed making all new state taxes contingent upon a statewide vote.

Dunleavy said he now believes that “a broad-based solution that doesn’t gouge or take huge parts from one sector (of Alaska) or another, or penalize one sector for another is probably the most important thing we can do.”

State lawmakers this year have already introduced a variety of tax proposals, including bills to change the state’s oil and gas tax system to raise more revenue, a statewide sales tax, a per-person tax and an income tax.

Alaska has never had a statewide sales tax or a statewide property tax (except for oil and gas equipment), and it hasn’t had an income tax since 1980.

From 1980 through 2018, oil revenue was the state’s main source of income, and since 2018, an annual transfer from the Alaska Permanent Fund’s earnings has been the main source.

Adding a new tax would be a major change in state politics, and none of the ideas proposed so far has advanced significantly in the legislative process. But lawmakers and the governor noted at last Thursday’s press conference that there is a general consensus that at least one option is needed.

For years, lawmakers have tried in vain to agree on a plan that would diversify the state’s revenue sources and make it more resilient to ever-changing oil prices, and also stock market fluctuations, which affect the state’s investment income. Efforts to reach agreement on new revenue sources and a retooled Permanent Fund dividend formula have repeatedly failed.

This year, lawmakers are still divided. In the House, proposals backed by conservative Republicans would cut corporate taxes, levy a sales tax and impose a stricter spending cap. In the Senate, lawmakers have favored balancing the state’s budget by providing a smaller dividend and increasing production tax revenues from oil producers.

Both the governor and members of the House majority at the April 27 press conference said that any tax must be accompanied by other legislation as part of a full long-term plan. Speaker of the House Cathy Tilton, a Republican from Wasilla, said those elements include a new formula for the Permanent Fund dividend, something to encourage economic growth and a measure to raise revenue.

“It needs to be something that the entire Legislature can agree upon,” Tilton said.

Getting agreement on those various pieces isn’t easy in the Capitol.

“It’s a diverse Legislature,” Dunleavy said. “​​Certainly, I have my own ideas on what some of the components (of a fiscal plan) would be. But what I think is really important to remember is that the vast majority of folks in the Legislature … want to solve this issue.”

Lawmakers are still trying to figure out what the components of that plan will be and how they will fit together, he said.

“That’s why something like this is taking a while,” he said.

The Legislature’s adjournment deadline is May 17, and Dunleavy said he is already discussing the possibility of a special legislative session — possibly in the fall — to address the issue of a fiscal plan.

The Alaska Beacon is an independent, donor-funded news organization. Alaskabeacon.com. The Anchorage Daily News contributed to this report.