Gov’s budget plan adds income tax, reduces PFD

Gov. Bill Walker released his battle plan today for dealing with the state’s behemoth budget deficit. It includes Alaska’s first income tax since 1980, and a complete overhaul of how the state uses the permanent fund — effectively cutting PFD checks in half next year.

The plan would also raise taxes on mining, fishing and tourism; on alcohol and tobacco; and on fuel for cars and trucks, boats and planes. And it would abolish the state’s expensive system of tax credits for oil and gas producers, replacing it with a loan fund. (You can find the governor’s full proposed budget here.)

The governor announced the plan at 11:00 a.m. Wednesday morning at Lynden Hangar in Anchorage. His team said the proposal aims to spread the burden of state operations as widely as possible to avoid drastic cuts to state services.

With oil prices hovering around $40 a barrel, Alaska is facing a deficit of more than $3 billion next year — and into the foreseeable future.

The governor’s plan would shift the state away from a direct reliance on oil revenue and the boom-and-bust cycle of oil prices.

Instead, the plan would direct oil and gas taxes into the state’s massive reserve funds — including the permanent fund — and transform those funds into an endowment, using their earnings to fund state operations.

The administration estimates it could withdraw about $3.2 billion annually to fund the state budget, while still allowing the state’s savings to grow.

Those permanent fund earnings are currently the source of Alaskans’ PFD checks. Walker’s plan would instead fund dividends with half of state royalties from oil, gas, and other resource development.]

That change would cut PFD checks in half next year, from an estimated $2,000 under the current system, to about $1,000. The governor’s team argues at current rates, the state will burn through its available savings within the decade, putting future dividends at risk.

The plan would impose fewer cuts than last year’s budget. In all, Walker is proposing about $100 million in new cuts, and $360 million in new taxes, plus phasing out half a billion dollars in tax credits available to the oil and gas industry.

The governor’s plan is just the first move in the budget cycle. Lawmakers will have a chance to make their own proposals when the regular legislative session begins in January.