Reality and Governor Mike Dunleavy’s promises have combined to put him in a box, and detailed tax talk is leaking out — despite strong denials from the Governor’s Chief of Staff Ben Stevens.
The State of Alaska has had a major fiscal challenge for years, and it’s gotten even worse as Gov. Dunleavy faced the requirement under Alaska law to propose this month a budget for the upcoming fiscal year. Stagnating oil production, drooping oil prices, a summer of wildfires, and difficulties in cutting Medicaid costs have come together to reduce petroleum revenues and boost expenditures from what was expected just five months ago.
The Governor responded on December 11 by proposing for next year a flat budget for government operations along with a Permanent Fund Dividend based on the traditional statutory formula and no new taxes. The good news for the Governor is that the budget proposals regarding the Dividend and taxes are consistent with his campaign pledges. The bad news for him is that this proposed budget has a deficit of more than $1.5 billion, which the Governor aims to cover by spending $1.5 billion of the Constitutional Budget Reserve Fund — about 75 percent of the total in that savings account. Starting next year, both the Governor’s Office of Management and Budget and the Legislature’s Finance Division project budget deficits of between $1 billion and $2 billion each year as far as the eye can see.
To address those deficits, there are numerous reports and signals that the Dunleavy administration is talking with legislators about both an oil tax increase and a proposal to raise broad-based taxes, perhaps in the form of a statewide sales tax of 4 percent.
For example: Matt Buxton reported last month in the Midnight Sun blog that “the Governor is reportedly shopping around an oil tax bill with a multi-pronged goal of cozying up to the oil industry as he hopes to stave off a recall by bumping the [proposed oil tax] initiative [off the ballot] while also getting an extra billion bucks to help finally deliver on his Dividends.” (Alaska law allows the Legislature to pre-empt an initiative by adopting a substantially similar bill.)
The op-ed Commissioner of Revenue Bruce Tangeman wrote last month as he resigned seemed to telegraph that he was leaving due to unhappiness about the Governor’s apparently evolving position on taxes. Tangeman’s commentary in the Anchorage Daily News noted that “The discussion is turning more and more toward taxes,” spent substantial space talking about his personal opposition to taxes, and ended by stating that “I want the Governor to have someone who is 100 percent aligned with his vision.”
Buxton reported in the Midnight Sun that “We’ve heard that Tangeman was not thrilled about the prospect of carrying water on any tax, particularly an oil tax.”
Three legislators in three different gatherings have told me that the Dunleavy administration was talking to legislators about a sales tax. One of those three lawmakers told a group of people, including me this month, that the administration was seeking to get legislators to introduce a bill to provide for a 4 percent statewide sales tax and another bill to change oil and gas taxes (presumably to raise them on net).
Reached nine days later, that legislator was fuzzier on the details of a proposed sales tax, but did say that he was approached by the administration about his reaction to the concept of a sales tax. Senate Minority Leader Tom Begich, (D-Anchorage), discussed the Dunleavy administration’s reported openness to taxes at a South Addition Community Council meeting on Dec. 19. A lobbyist for a company focused on Alaska taxes told me this month that he had heard of the Dunleavy administration’s discussion of a sales tax proposal and of the figure of 4 percent as the levy.
While unveiling his budget proposal Dec. 11, the Governor said that he would “engage the public” on fiscal issues to seek Alaskans’ views of more budget reductions or “new revenues.” Gov. Dunleavy said that he expected “discussion of new taxes” when the Legislature meets next month without adding any of his standard denunciations of taxes.
Asked specifically at that unveiling of the budget whether the Dunleavy administration was still ruling out taxes as one way to help fill the deficit, Senior Policy Advisor Brett Huber said that the Governor—who had by that point had left the press conference—was leading a discussion on how to align revenues and expenditures and “Everything’s on the table in that discussion.”
Regarding oil and gas taxes, Chief of Staff Ben Stevens stated at the Dec. 11 press conference that, “We are going to work with the Legislature to look at… how to address that revenue mechanism” but said that the administration will not put forward legislation on oil and gas taxes “at this time.”
Stevens provided a vigorous denial when I asked him last week about the reports that the Dunleavy administration had solicited legislators to support a 4 percent sales tax as well as legislation that would raise petroleum revenues.
“There is no validity to it at all…. That is not true,” Stevens said, going on to say, “We are not soliciting support for revenues,” and described reports to the contrary as “hearsay, innuendo, and rumor.”
The Governor’s own official 10-year forecast (which can be charitably described as over-optimistic) shows that the deficit is between 15 percent and 25 percent of the State of Alaska’s outlays (spending for public services plus Permanent Fund Dividends) each and every year.
However awkward this fact is in the context of the Governor’s campaign platform, expect more and more talk of taxes.
Cliff Groh is an Anchorage lawyer and writer as well as the legislative assistant who worked the most on the bill in 1982 that created the Permanent Fund Dividend we have today. He also designed a course he taught at the University of Alaska called “Navigating Alaska’s Fiscal and Economic Challenges.” This is the twelfth installment of a continuing series on the Permanent Fund Dividend and Alaska’s fiscal system.