Alaska’s Governor Proposes Income Tax, Higher Fuel Fees, Agency Spending Cuts

AASHTO Journal, 8 January 2016

Gov. Bill Walker has proposed a range of new revenue-raising measures that would bring back a personal income tax in Alaska and increase excise fees on various motor fuels, to move the budget away from its heavy dependence on oil prices and production.

Meanwhile, Walker’s “sustainable” budget plan – issued last month and awaiting action by the Legislature – would also make further cuts in state agency spending, including at the Department of Transportation and Public Facilities.

That has the ADOT&PF making plans to curb some road maintenance facilities, and scheduling public meetings to discuss the cutbacks with affected communities.

“All state agencies are working with reduced operating budgets due to low oil prices,” said a Jan. 4 agency press release. “This will impact all modes of transportation, including highway maintenance. Though it is early in the budget process, six maintenance camps are recommended for closure or reduced operations.”

One local news report, citing an agency spokeswoman, said 52 maintenance jobs statewide are slotted for elimination in the fiscal year ahead, of which 21 are fulltime equipment operators and nine are part-time equipment operators. In the 2016 fiscal year, it said, the department eliminated 95 positions statewide.

The agency official said the ADOT&PF wants to reduce the maintenance staff through normal attrition rather than releasing workers.

Walker released a fiscal plan that put the state budget’s funding issues in stark terms. “Alaska faces a period of fiscal uncertainty unrivaled in state history,” it said, adding the state faces a $3.5 billion budget gap this year “despite a 35 percent reduction in state spending since 2013.”

It explained that the long fall in oil prices was to blame. Alaska’s receipts from taxes and royalties tied to the value of its strong North Slope oil production had for many years propped up the budget, while allowing the state to end its income tax and instead pay all residents an annual dividend. It also banked substantial reserves, but has been drawing them down in recent years as new revenue did not keep pace with agency spending.

Now, the plan warns, “even under optimistic assumptions neither oil prices nor North Slope production are expected to increase sufficiently to make up for these large revenue shortfalls. Government cost reductions are required, but cuts alone cannot balance the budget. The Legislature’s fiscal analysts noted that we could lay off every state employee and it would still not close the budget gap.”

On Jan. 5, the Standard & Poor’s debt rating service cut its rating on Alaska’s general obligation bonds – from AAA to AA+ – and warned it could make additional cuts later. That drew criticism from Walker that the Legislature had not yet had time to act on his proposals. He also ordered new restrictions on executive branch hiring and travel.

That same day, the Moody’s rating service praised his plan but said it would be politically difficult to implement. Meanwhile, Moody’s said, Alaska is drawing on its $16.1 billion in reserves at a pace of $65 million a week.

Walker’s plan would raise $200 million with Alaska’s first personal income tax in 35 years, and would curb the annual dividend payments while transferring a higher share of state investment earnings to the general fund.

It would also hike excise taxes on fuel for roadway vehicles plus airplanes and boats, all of which are major means of travel in the state, plus on tobacco and alcohol. It includes higher industry taxes on fishing, tourism, mining and energy.

For capital spending on transportation and other infrastructure, Walker would take advantage of low current interest rates to issue bonds that would cost less in debt service than the state is earning on its investment portfolio, Moody’s said.

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