FAIRBANKS — The Interior’s three state senators returned to Fairbanks on Friday to make the case for a fiscal plan that relies only on restructuring the Alaska Permanent Fund and does not contain the income tax the House and governor are considering.
Sens. Click Bishop, John Coghill and Pete Kelly, all Republicans, made their case that the state’s multi-billion dollar budget gap can be solved by using the permanent fund and existing savings accounts.
The plan relies on restructuring how the state treats the investment earnings from the permanent fund. Under a plan approved by the Senate, a percentage of those earnings would go to fund government while still paying a dividend, albeit at a lower level than before.
“We have evidence that the dividend is in peril, particularly at low oil prices, and the only way to protect the dividend and to use it for what it was made to be used for is to go to percent of market value,” Kelly said.
Kelly said he believes the House and Gov. Bill Walker agree on the need to restructure the Alaska Permanent Fund. The plan approved by the Senate would set the dividend at $1,000 for the next three years.
What the three entities don’t agree on, however, is an income tax.
“The worst thing we can do to the state of Alaska right now is impose an income tax. The Senate is saying, ‘No, we don’t need to play that game’,” Kelly said. “It doesn’t need to be instituted. A lot of really good people, who understand the private sector, come up to me and say, ‘Why don’t you just tax me?’ The answer is because we don’t need to.”
Kelly and the other senators explained that state expenses can be covered with the earnings from the permanent fund, oil tax income and annual withdrawals from the state’s constitutionally protected budget reserve, which requires a three-quarter vote from each chamber of the Legislature to approve.
In recent years, that last part has been an easy task in the Senate, where the Republican-led majority has those votes, but it has often proved difficult in the House, where the majority has not controlled nearly that many votes in recent years.
The House fiscal plan so far hasn’t relied on regular draws from the constitutional budget reserve. Instead it’s been focused on its income tax proposal, with the House Finance Committee holding public hearings on the message this week. Walker has also signaled his support for an income tax.
Kelly, who serves as the Senate president with power to direct the chamber’s agenda, said an income tax is a nonstarter in the Senate. He said he’s not willing to even engage in talks until the House passes a measure.
“We’ve said you earn the right to get into negotiations with the Senate on an income tax when you actually produce one,” he said. “And those negotiations are not going to go very well.”
Contact staff writer Matt Buxton at 459-7544. Follow him on Twitter: @FDNMpolitics.