Gov. Mike Dunleavy’s fiscal plan is taking a beating as lawmakers and the public take a closer look at the proposal. Last week, dozens of Alaskans called into a hearing to voice their particular displeasure with the governor’s proposal to institute a statewide sales tax.
Now, the governor is changing course a bit. In an interview with Alaska Public Media on Friday, Dunleavy offered to put the tax plan on ice for now.
“Let's all agree. Take more time on the taxes. I'm all in on that,” Dunleavy said. “Let's get the first several components in law and a constitutional amendment sent out to the people of Alaska.”
In the interview, Dunleavy defended tax plan, which would hike some oil and gas taxes, modernize corporate income taxes, and, most prominently, create a statewide sales tax of 4% in the summer and 2% in the winter. All of the changes would be temporary, set to automatically repeal in the 2030s, and corporate income taxes would vanish entirely in 2031.
The sales tax would be by far the largest revenue-raiser, bringing in $700 to $800 million annually.
Dunleavy pitched it as an effort to extract more revenue from people who live outside of Alaska. When a panel of economists from the University of Alaska Anchorage’s Institute for Social and Economic Research looked at the options the state has, they found a sales tax, especially one with a higher rate in the summer, would bring in a greater share of its revenue from nonresidents than other options, like an income tax.
The governor also argued that a sales tax would be countercyclical. When gas prices are low, and state oil income is correspondingly low, people might be more willing to travel and spend money in Alaska, he said, pointing to Texas and Saudi Arabia as examples.
“It stabilizes the ups and downs of oil, and so it stabilizes your fiscals,” Dunleavy said. “That's what this is about.”
But House Speaker Bryce Edgmon, an independent from Dillingham, said it was clear from public testimony that Alaskans were not prepared to pay a sales tax.
“You cannot do broad-based taxes or any significant measures without, No. 1, having the general public somewhat in alignment,” he said at a news conference on Friday.
Without Dunleavy’s tax bill, what’s left in the governor’s fiscal plan?
Whether a willingness to delay tax changes will make the rest of the plan more palatable, however, is uncertain.
The tax bill, filed as House Bill 284 and Senate Bill 227, is by far the most controversial part of Dunleavy’s fiscal plan, but even without it, the remaining elements still face skepticism from leading lawmakers in the state House and Senate.
Those include:
- Capping the growth of state spending at 1% each year, not adjusted for inflation (House Bill 275 and Senate Bill 223)
- Tasking a legislative committee with performing “sunset reviews,” evaluating government agencies every six years and requiring a vote on whether to continue or end the agency’s work (House Bill 274 and Senate Bill 222)
- A multipronged constitutional amendment related to the Permanent Fund, which would combine its two accounts into one, cap the annual draw at 5% and set aside half of that 5% draw for dividends (House Joint Resolution 30 and Senate Joint Resolution 23)
Dunleavy argued that passing those measures would build trust with voters — and potential taxpayers — that tax money would be spent responsibly.
“Once you put in rules to control the spending,” he said, “the spending, if you need it, will then make sense to Alaskans, and it can be controlled.”
He cast the final year of his term as the last chance to get those sorts of measures into state law and the Constitution, even challenging this reporter to a $500 bet that the measures would not pass once Dunleavy left office. (This reporter is not allowed to bet on the news and declined the bet.)
Does any of it stand a chance of passing?
House Speaker Bryce Edgmon said in an interview that he was willing to negotiate with the governor’s team but expressed skepticism about the remaining elements of the plan, including the limit on government spending. Inflation in recent years has run above 2%, and costs in rural communities disconnected from the road system have risen even faster, Edgmon said.
“We have so many needs on the operating side of the budget, the capital side of the budget, that to limit to a 1% increase going forward into time, assuming we continue to grow as a state, bring more residents in that make everything more expensive, that seems unrealistic,” Edgmon said.
Some minority Republicans are also skeptical — House Minority Leader DeLena Johnson, a Palmer Republican, told the Alaska Beacon the measure didn’t go far enough, calling it a “spending beanie” that could easily be overcome with a majority vote and the consent of a future governor.
Another minority Republican, Fairbanks Rep. Will Stapp, said the constitutional amendment setting aside half of the state’s investment income for dividends would be unsustainable, even if the tax plan passed. Dunleavy’s proposal, if it were in effect next fiscal year, would dedicate $2 billion in otherwise unrestricted state funds to dividends.
“I fail to see how enshrining a liability that outstrips the amount of revenue I'm raising in taxation creates anything but more instability and a need for more taxes,” Stapp said at a House Finance Committee meeting on Thursday.
Key senators have also balked at the idea of placing the dividend in the state Constitution, including Sitka Republican Sen. Bert Stedman, who co-chairs the Senate Finance Committee, though Senate President Gary Stevens, Republican of Kodiak, said he believed there was room to negotiate with Dunleavy on the amendment.
In response, Dunleavy fired back at Stapp.
“Representative Stapp is the liability,” Dunleavy said, “because he wants to spend the people's PFD.”
Dunleavy said the amendment was an effort to prevent lawmakers from balancing the budget by reducing dividends, as lawmakers have for approximately the past decade. That’s akin to a regressive tax, hitting low-income earners the hardest, according to the economists’ presentation.
“It should always be more difficult,” Dunleavy said. “If not, you're going to end up with what we've had here over the decades, spending every single penny we can find.”
Despite their opposition to Dunleavy’s plan, lawmakers do not appear ready to counter the governor’s proposal with one of their own.
For now, Edgmon said he hoped this year’s debates would at least help Alaskans understand that, with dwindling savings and uncertain revenue, why taxes might be necessary to balance the state’s budget in the long term.
“The one message that we hope will emerge from all this is that, look, Alaska, we have a structural deficit,” Edgmon said. “We need new revenues. And so that conversation, I think, is going to be really valuable.”
