Gov. Mike Dunleavy introduced a series of bills on Friday and Monday that he says would stabilize the state’s finances. The most prominent pieces of Dunleavy’s plan are a statewide sales tax and a new formula for Permanent Fund dividends.
“I want to stop our fights over the PFD and the Permanent Fund, and I want to minimize arguments over how much we're going to spend each year and how we're going to control the growth of government,” Dunleavy said in his State of the State speech on Thursday, before the bills were unveiled.
The governor did not take questions on the plan on Monday. His press office declined requests to interview members of his administration and did not respond to questions sent by email Monday afternoon.
Debates over the state budget have routinely dominated legislative sessions in Juneau in recent years. Alaska has not followed a formula in state law specifying the amount of the dividend since 2015, after a crash in oil prices sharply reduced the amount of money flowing into state coffers.
The new dividend formula would split the state’s annual Permanent Fund drawdown 50-50 between state services and dividends. If the 50-50 formula were in effect this year, next year’s PFD would cost the state roughly $2 billion and provide each eligible Alaskan with about $3,200.
The new formula would be amended into the state Constitution. The amendment would also combine the Permanent Fund’s two accounts, responding to calls from Permanent Fund managers who say the current structure creates unnecessary risk, and constitutionally cap the state’s annual draw from the fund at 5% of its value.
A constitutional amendment requires a two-thirds majority in both the House and Senate. If lawmakers approve, voters would be asked to ratify it.
Dunleavy also proposes a variety of tax changes, most of them temporary. As a whole, they’d raise more than $900 million in annual revenue from mid-2027 through mid-2032 as the measures begin to phase out.
“Alaska has prosperous years ahead,” the governor wrote in a letter sent alongside the tax bill. “Starting in (mid-2032), Alaska is projected to see higher revenue due to expected increases in pipeline throughput and the Alaska LNG Project.”
The sales tax, proposed Monday in Senate Bill 227, would be set at 4% from April through September and 2% for the remainder of the year. As written, the sales tax would expire in 2034. That would provide the majority of the revenue from the tax package, between $735 million and $815 million each year.
“All who benefit from Alaska’s public services — residents, workers and visitors — will share in supporting those services,” Dunleavy wrote.
The bill would also seek to extract additional revenue from the North Slope’s oil and gas industry by raising the minimum tax companies must pay on each barrel of oil for as many as five years. The tax would end sooner if North Slope oil production increases to 650,000 barrels a day, roughly 40% more than current volumes.
It also includes elements of a bill the governor vetoed last year that seek to bring in more revenue via corporate income taxes from out-of-state companies that sell to Alaskans. It would eliminate the state’s corporate income tax in 2031.
A separate piece of the plan, laid out in House Bill 274 and Senate Bill 222, would require legislators to periodically vote on whether to continue various government programs, known as a “sunset review.”
Another element of Dunleavy’s plan would set a stricter limit for the growth of government spending in state law, reducing the allowable increase in state spending from 5% to 1% . A sunset review and a spending limit have been priorities for some of Dunleavy’s Republican allies in the state House and Senate.
The tax bill would not take effect unless the constitutional amendment, spending limit and sunset review bill each pass.
Anchorage Democratic Sen. Bill Wielechowski expressed reservations about the plan on Monday. He said he’d rather the state lean more heavily on the oil industry and Outside tech billionaires to raise revenue.
But Wielechowski said Dunleavy’s proposal will get “serious consideration” in the Senate.
“I'm glad the governor put something out. I think it's the basis for discussion,” he said. “It's hard to pass any of these major bills without the governor actively engaged, and this shows that he's actively engaged.”
The new statewide sales tax would mean big changes for local governments, many of which already collect a sales tax.
The head of the Alaska Municipal League, Nils Andreassen, said on a video call Monday that Alaska’s local governments broadly support a plan to stabilize the state’s budget. But a statewide sales tax could have a variety of “unintended consequences,” especially for communities that already have a local sales tax, he said.
“The addition of a state-level (tax) is definitely a burden that some communities will feel more than others,” he said. “There will be calls from those residents to lower not the state's rate, but the local (rate), which will diminish revenues at the local level.”
Dunleavy’s plan would also do away with so-called “tax caps” that limit sales taxes in some communities and set a statewide list of sales tax exemptions, Andreassen said. For example, it would likely override a local ballot measure in Juneau exempting most groceries and utilities from sales taxes.
Medical care, rent, groceries purchased with federal SNAP or WIC benefits, jet fuel, insurance premiums and business purchases would be among items exempt from sales tax under Dunleavy’s proposal.
It’s too soon to say if the governor’s plans will pass the Senate this year, Wielechowski said. Leaders in the House said earlier this month they’re not optimistic Dunleavy’s plans will pass this year, his last as governor.
Editor's note: This story has been updated with additional information about the revenue the tax package would raise.
