That Alaska’s fiscal system is broken is probably most obvious to the people who helped create it. Two civic organizations in Sitka recently heard from a co-author of the Alaska Permanent Fund dividend, who’s on a mission to set the state’s finances right.
State Rep. Cliff Groh was a 28-year old legislative aide in 1982 when he helped draft the legislation establishing the Alaska Permanent Fund Dividend. Having worked in and out of government since then — including as special assistant to the state Commissioner of Revenue (1987-1990), and as municipal attorney for the City of Sitka (2000-2005) — Groh is now back in government, elected to serve House District 18 in North Anchorage as a Democrat.
Groh recently returned to Sitka — at his own expense — to visit with old friends and share his ideas about Alaska’s fiscal problems with the local Rotary and Chamber of Commerce on Oct. 25.
Fellow House member Rebecca Himschoot is an Independent representing Sitka, Petersburg, and many surrounding communities, but participates in the minority caucus with Groh. She said that among their very diverse caucus, Groh has earned a nickname.
“The expertise that Cliff brings to the table, well he’s actually earned a nickname,” said Himschoot. “He’s the ‘Fiscal Cliff.’ So we talk a lot about our fiscal cliff here in Alaska, and he really, truly is literally, our Fiscal Cliff. So he’s going to share some of those ideas that he has with us today – not even just ideas – but facts and figures about where we are and how we got there. And some ideas for how things might be different in the future.”
Groh’s vision for the future is basically a return to the past, and the strategies that a bankrupt Territory of Alaska used to shore up its finances and win statehood. The territory relied on revenues from fishing and mining in those days, and was crippled by deficits. In 1948, territorial voters threw out almost the entire Legislature — and brought in new people with a purpose.
“And the new legislators came in, and in an eleven-day period they passed five taxes in a special session before the regular session started in January of 1949,” Groh said. “And the biggest one by far, and the one that’s had the most consequence in terms of revenues, was the first personal income tax in Alaska.”
That income tax was repealed in 1980, shortly after the completion of the trans-Alaska pipeline. Groh says that was the beginning of the “Alaska Disconnect” — when Alaskans began to expect not just an annual dividend check, but also free government in perpetuity.
Groh says that strategy worked pretty well for about 35 years, but now that oil revenues have peaked and are on a steady decline, without an income tax there’s no way to scale Alaska’s revenues to the population.
He asked the Sitka Chamber of Commerce to conduct a thought experiment, and to imagine Alaska’s population doubling.
“What would happen to government services?” Groh asked. “Well, the roads would ‘go south’ and like I said, they’re already terrible in my district. I have to say, driving around Sitka right now, they’re not exactly perfect here either. And obviously the state ferries, which used to run a lot more when I lived here more than 15 years ago, that would decline. We would need more school facilities and teachers, or face worse outcomes. Our dividends get smaller. And public health and safety resources like troopers, firefighters, and public health nurses would be stretched thin. And actually all the state services would either require more investment or the quality would suffer. So let’s talk about what happened to state revenue if the population doubled. It would be about the same as it is now. So we need to understand that.”
Just 10 years ago, Groh’s might have been a lone voice in the wilderness, but Alaska has since burned through billions in savings. While the principal of the Permanent Fund itself can’t be touched, another account called the earnings reserve can be spent with just a majority vote of the Legislature — and then Alaska would have no operating cash at all. So now many of Groh’s colleagues are also talking about taxes: a state sales tax, an income tax or both.
Groh has sponsored Anchorage Independent Rep. Alyse Galvin’s House Bill 156, which would impose a 2% income tax — but only on earnings above $200,000. Anyone earning less than $200,000 would just “chip in” $20.
He’s not keen on a sales tax.
“Some other legislators favor a sales tax — one was introduced this year,” Groh said. “It was a very broad sales tax. And then I said, ‘Folks, before we start taxing groceries and feminine products, I’d rather tax millionaires first.”
Asked by a chamber member whether Permanent Fund dividends should be discontinued, Groh said he didn’t think that would solve the Alaska Disconnect, although he did support restructuring the dividend and protecting the fund itself with a constitutional amendment. And he also did not support a strategy used by many governments, including the federal government: deficit spending.
“We can’t borrow our way out of this problem,” Groh said.
Correction: An earlier version of this story incorrectly said Rep. Cliff Groh introduced House Bill 156, which he has sponsored.
Robert Woolsey is the news director at KCAW in Sitka.
