The biggest questions about Alaska’s fiscal future are “Who pays?” and “Who stays?”
To see why those questions are paramount, let’s review what we have learned. Maintaining Alaska’s current fiscal system is mathematically impossible, and much ballyhooed painless saviors—ANWR, Alaska North Slope natural gas, etc.—do not appear likely to bail out Alaska from difficult fiscal choices.
These realities mean that at least some Alaskans will have to pay to address the persistent annual deficits of $1 billion or more starting next year projected by the Alaska Legislative Finance Division, our state’s non-partisan expert scorekeepers.
The ways to pay include familiar steps:
--Reducing or eliminating Permanent Fund Dividends
--Reinstatement of broad-based taxes such as a personal income tax
--Additional budget cuts well beyond those already proposed by Gov. Mike Dunleavy
--Oil tax increases
These approaches involve different dollar amounts and have different effects on different groups of Alaskans. Dividends are an outlay exceeding more than $1 billion a year if there is compliance with the formula created in the 1980s but not followed since 2015. Reducing Dividends takes an equal amount from each Alaskan.
Reinstating a graduated income tax like Alaska had from 1949 to 1980, on the other hand, is tilted towards collecting revenues from high earners. Some Alaskans make plenty of money—surgeons, for example, have made up to $5.5 million in net income per year performing operations in our state. The income tax bill passed by the Alaska House in 2017 would have raised $700 million annually, some from non-residents working in Alaska.
The amounts at issue in budget reductions obviously depend on the expenditure that is cut. Cutting Medicaid (which 25 percent of Alaskans are on) hits lower-income Alaskans more, while reducing expenditures on K-12 education would affect Alaska families from all walks of life.
Those paying when oil taxes are increased—at least initially—would be oil companies operating in Alaska and their shareholders. Supporters of an initiative to raise oil taxes assert that its adoption could raise approximately $1 billion annually. Opponents contend that passing the initiative could reduce investment in North Slope oilfields and thereby reduce Alaska jobs and produce less long-term revenues for the State of Alaska.
Given that all these proposals are unpopular with various groups in Alaska, some have suggested that one way out of this box is for our state to have a much lower population. Statements by Gov. Dunleavy can be interpreted as encouraging this “Smaller Alaska” approach. Those remarks include his stated indifference to Alaskans departing the state in reaction to job losses stemming from budget cuts he proposed. The Governor also told the Ketchikan Chamber of Commerce last April that “I’m going to take us back to the ‘60s. We were a state of 250,000, maybe 300,000, and our budgets back in the mid- to late ‘60s were about $175 million per year.”
There seem to be two ideas at work here. One idea is that it is desirable to match the size of the population to the size of the shrinking Alaska economy, and the other is that a much smaller population in Alaska would allow for a much smaller government. No matter what you think of these two ideas—and this writer is definitely not endorsing either—some considerations come to mind. The population turnover in Alaska has long been higher than in other states, with much variation in in-migration and out-migration. A segment of Alaskans may actually want to leave the state, and some observers thought that the $6,700 jumbo Dividend promised by Mike Dunleavy’s gubernatorial campaign last year would have served as an exit payment that would facilitate some voluntary relocations from Alaska.
Turning to potential exits from Alaska that are involuntary, it seems clear that the State of Alaska has more power than other state governments in determining the size and composition of the state’s population. Different kinds of budget cuts, for example, would have different effects on which Alaskans left. Cutting Medicaid might put pressure on low-income Alaskans to move away, but some poor Alaskans have the deepest ties to the state, and the poorest Alaskans could not afford to leave. Reducing funding for K-12 and the University of Alaska, on the other hand, might drive away the most educated Alaskans—plus those most interested in education.
Alaskans need to grapple with the existential elements of our state’s fiscal predicament, including the questions of who pays and who stays.
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 tenth installment of a continuing series on the Permanent Fund Dividend and Alaska’s fiscal system.