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Senators say Alaska faces large multihundred-million-dollar deficits; discuss combining permanent fund accounts and new revenue options
Summary
Senators described an immediate budget shortfall and warned of larger deficits in coming years; they discussed options including a constitutional amendment to combine permanent fund accounts, per-barrel adjustments, S-corp tax changes and other corporate-targeted revenue measures.
Senator Hoffman, chair of Senate Finance, described what he called the state’s largest fiscal challenge in 30 years and outlined preliminary deficit estimates.
“In the last 30 years, the state of Alaska is probably facing its largest, fiscal problem, the largest fiscal problem in 30 years,” Hoffman said. He estimated the current-year balance shortfall at “a little under $200,000,000,” and said a status-quo budget that kept last year’s Permanent Fund Dividend (PFD) levels would add roughly $285,000,000, bringing a combined shortfall figure he cited to about $485,000,000. Factoring other estimated needs, he said deficits could reach between $500,000,000 and $550,000,000.
Senators also discussed the state’s reliance on the Permanent Fund’s earnings. Senator Giesel said trustee paper number 10 proposes creating a single fund that would operate more like an endowment and that the LBNA joint committee plans an informational hearing on the paper and a constitutional amendment draft before February. Giesel warned the current structure and earnings-reserve arrangements may not sustain current revenue levels in coming years.
Lawmakers discussed a range of potential new revenues and revenue adjustments. Senator Wilkowski summarized options that have been previously discussed in the legislature: a reduction in certain oil tax credits (he cited a historical $5 credit negotiated earlier and a proposed $3 level), per-barrel adjustments that could raise roughly $400,000,000 depending on oil prices, closing an S-corporation tax loophole (estimates cited in the briefing were roughly $100,000,000 to $175,000,000 depending on price and method), and corporate-targeted measures such as an internet sales tax or corporate income tax on out-of-state companies (small-to-mid tens of millions estimated). Wilkowski said he did not hear a caucus position and that no one was proposing a broad sales or income tax on individuals at that time.
Senators said work would continue in committees; Senator Wilkowski said the LBNA would begin work and that a constitutional amendment has been drafted. Senator Hoffman and others said new revenues are on the senate’s list of items to address this year. No revenue bills were passed or voted on during the briefing.
Senators emphasized preserving Permanent Fund earnings that currently supply a substantial portion of unrestricted general fund revenues. Giesel described the percent-of-market-value approach as a potential long-term spending cap and said it is part of ongoing discussions.
