While they might not agree on all aspects of Gov. Bill Walker’s proposed fiscal plan, Homer area business owners and public officials concur that Alaska’s current situation cannot be sustained.
“I’m not surprised. They’ve been talking about that for a long time,” said Beth Wythe, Homer’s mayor and a Republican Party candidate for House District 31, the seat now held by Rep. Paul Seaton, R-Alaska. “It’s going to be an interesting time. There are aspects of what he (Walker) brought forward that make sense.”
“I’m glad that he’s looking at a comprehensive fiscal plan,” said District 8 Kenai Peninsula Borough Board of Education member Liz Downing. “It’s something this state has needed for a while. I hope both sides get on board.”
On Dec. 9 in a news conference at the Lynden Transport air hangar at the Anchorage airport, Walker laid out his plan as well as his proposed budget.
What he calls the New Sustainable Alaska Plan mixes about $100 million more in cuts to the operating budget and $425 million in cuts from oil exploration credits. Walker also proposes a state income tax similar to one filed last session by Rep. Paul Seaton, R-Homer, a $1,000 cap on the Permanent Fund Dividend, and use of Permanent Fund earnings to pay for government. Walker also would increase fuel taxes and even add a 10-cent per drink tax on alcohol sold in bars (see story, below).
Walker’s income tax would be 6 percent of a taxpayer’s federal income tax due — the number in line 63 in a 1040 tax return. If a taxpayer owed $1,000 in taxes, the state tax would be $60.
Seaton proposed a 15 percent tax, but he also proposed a 10 percent tax on capital gains, something Walker’s proposal doesn’t do. Seaton has a bill already filed an in the House Finance Committee. Walker could file his own bill or Seaton’s bill could be amended.
Seaton said an income tax balances out a reduction in a PFD. An income tax also affects nonresident workers and is more progressive.
“When you’re talking about the PFD, reducing that, it’s only Alaskans. It doesn’t matter your economic status,” he said. “Those that are making more money would be paying more money on the income tax.”
Walker’s elimination of oil exploration credits also got support from Seaton.
“It’s a system that needs reforming,” Seaton said.
Ben Johnnson, chief executive officer of BlueCrest Energy, said he agreed the system needed to be changed — but not just yet. BlueCrest is in the middle of developing the Cosmopolitan oil prospect off Stariski Creek near Anchor Point, a project currently employing about 100 workers. In April, BlueCrest anticipates starting production of an oil field. To develop that field BlueCrest will spend about $525 million, Johnson said.
About $120 million of that will come in exploration credits. BlueCrest’s financial plan includes a $150 million loan that assumes $120 million in credits.
“If those credits don’t come, we don’t have that money to get us to the point where we continue drilling on into the future,” Johnson said.
BlueCrest gets paid for work done in the previous year and has received about $25 million so far. Work done in 2015 wouldn’t be affected, but it’s work done in 2016 that Johnson said he’s concerned about if the law is changed in the next session. Johnson said he’s talked to Walker and the governor understands his situation.
“I do think that some type of accomodation needs to be made for companies such as BlueCrest that have invested a lot of money but are not yet to the point of production,” Johnson said. “It would be a waste to stop it before it’s done. We’re almost to the finishing line.”
That’s a point Land’s End Acquisition Corp. president Jon Faulkner agreed with.
“The oil industry deserves one thing, one thing, and that’s stability,” he said.
Faulkner said he thought the fiscal plan should include some more cuts.
“It’s going to take some belt tightening. I think people make the argument that we’re not going to save our way or cut our way out of this budget,” he said. “But it seems we always fail to observe the standards in government we have for ourselves. We have to save wherever possible.”
Wythe said the state should look at infrastructure that generates income as a source of new revenue.
“We need to look for a revenue source that’s reliable and sustainable and that’s not oil and gas,” Wythe said.
Downing said Alaska could look to other Arctic countries like Iceland and Norway for how to develop sustainable economies.
“We need to ramp up income from other areas. A lot of that is we need to diversify our economy, period,” she said. “We need to have strategic goals for doing that and start implementing that.”
Downing both praised and criticized Walker for his education funding.
“I’m glad that he included the $50 increase in the base student allocation,” she said. “I’m disappointed that he cut all funding for early childhood education.”
Seaton criticized Walker for cuts he didn’t make: to public employee wages. A 5 percent across the board wage cut would bring in $105 millin in savings, Seaton said.
“That’s how you get to maintain jobs,” he said.
Last year was the third year in three-year state employee union contracts, Seaton said.
“I don’t think the Legislature will be eager to accept a contract negotiation that doesn’t have some cuts in it,” he said.
In making his fiscal plan, Walker cited a warning in August from Standard and Poor’s Rating Service. In the outline of his plan, Walker quoted the agency as saying that if lawmakers didn’t enact “significant fiscal reforms to reduce the imbalance within the next year,” the state’s rating could start dropping from AAA to worse.
Seaton called that “a wake-up call.”
“We have the opportunity to maintain an excellent bond rating, which is critical as we go forward with the gasline and other projects,” Seaton said. “That’s one of the reasons our goal should be to have a sustainable budget.”
How the state does that will be an ongoing issue, Wythe said.
“It’s not going to be a big issue for this year. It’s going to be a big issue for years,” she said.
What matters isn’t exactly how that happens, but that it gets done, Seaton said.
“If what we do in the end is come to saying ‘Here’s a mechanism that comes close to balancing the budget over the next several years,’ it will be a huge success,” Seaton said.
Michael Armstrong can be reached at email@example.com.