A community meeting of about 50 people last Thursday with Rep. Paul Seaton, R-Homer, at the Legislative Information Office illustrated the current impasse in the 30th Alaska Legislature. How does Alaska continue funding state government? Some favored the House proposal of a progressive income tax. Others said the state should cut the budget or take more out of the Permanent Fund earnings.
“We pay the lowest taxes in the nation. I think that’s an embarrassment,” said Kathy Carssow, speaking in favor of an income tax. “I want to get off the welfare of the state.”
“We want freedom. We don’t need more taxes,” said Justin Arnold, speaking against an income tax.
Some wanted a budget that didn’t increase more than the size of the state population.
“That’s my fear. The expenses — it’s unsustainable,” said Larry Zuccaro.
As of press time on Tuesday, the 12th day of a 30-day special session, the House and Senate haven’t been able to agree on a budget and revenue plan. The House passed House Bill 115, which included progressive income tax rates from 2 to 7 percent of federal adjusted gross income that would raise about $650 million. The Senate rejected that idea. It passed Senate Bill 26, which takes a sustainable percent of market value draw from the Alaska Permanent Fund, giving Alaskans a $1,000 permanent fund dividend.
The House passed another version of SB 26 with a $1,250 PFD, but that died because the House also put a provision in that killed the bill if the Senate didn’t pass HB 115. The Senate also proposes cuts to education and other spending and would fund state government by dipping into state savings. The Senate also anticipates oil prices will go up, leading to more revenues.
In a comparison of the two plans, the House Majority Coalition calls the Senate’s plan “Drain and Pray,” using the hashtag “#drainnpray.” Seaton is one of four Republicans in the House Majority and voted for an income tax.
Legislators took a break for the Memorial Day holiday weekend and returned to Juneau on Tuesday to get back to work.
Seaton said that since 2013 the Alaska budget has been cut 44 percent, 26 percent from agencies and the rest from capital projects — “the right size,” he said.
If the Senate won’t come up with more revenues, the only other ways are to draw down on savings, keep cutting and hope for higher oil prices.
“That gets us right where we are — this recession,” Seaton said of deeper budget cuts.
As to higher oil prices, to make up the deficit would mean prices per barrel of $103, Seaton said.
“Do we hope for that and plan for the worst or plan for a conservative situation?” he asked.
In a phone interview on Tuesday, Sen. Gary Stevens, R-Kodiak, agreed that Alaska is in a recession — and all the more reason not to impose a greater financial burden on Alaskans with an income tax.
“We’re already the most expensive state to live in, and if we have an income tax on that, we would see an outmigration of people on limited incomes,” he said. “I think the Senate’s concern is we don’t want to make matters worse. We can’t solve all the problems at once.”
The Senate favors a more graduated approach of cutting the budget further and using savings to fill in the gap. Stevens said he thinks Alaska will eventually adopt an income tax “when the economy is in better shape.”
Gov. Bill Walker also may propose a statewide sales tax, Stevens said, but that’s something he doesn’t support because of the effect on Homer, Kodiak and local communities that already have sales taxes.
At last week’s meeting, Seaton kept raising a challenge to the Senate or those who opposed an income tax.
“If you want to come up with a revenue system that funds government at $1.5 billion, we’d be happy to see it,” he said.
The LIO conference room filled up, with visitors overflowing into the main office area. Billed as an open house, it turned into part question-and-answer of Seaton, part community discussion.
Earlier in the meeting, Seaton posed a challenge to his constituents: What kind of state do they want to live in? Do they want a state with enough Alaska State Troopers and court officials to enforce the law? Do they want roads that you can travel without 4-wheel-drive? Do they want good education?
West Homer Elementary School Principal Eric Walton said that with flat funding of education, West Homer loses 1.5 positions. With a projected 20 new students entering school next fall, class sizes will increase. If the Senate budget passes with a 5.5-percent decrease in education, “there is not a way we can fit every kid in the classroom with a seat,” he said.
Sarah Vance said she wanted to see more accountability on how education dollars get sent. Vance said that the Alaska graduation rate had gone down even though spending had gone up. She said graduation rates were higher back when people went to school in Connexes — portable buildings.
“We need to get back to more responsible government. Don’t tax the snot out of them,” she said.
Seaton countered Vance’s assertion that graduation rates have not gone up. His office provided data that showed the 2016 rate had gone up 6.5 percent since 2012 for students who take four years to graduate. If the 5-year rate is included — that is, for programs like Flex High School where drop-outs might return to school — the rate has gone up 7.6 percent.
Razdolna School Principal Tim Whip said students did not have a better education in Connexes. Education in Alaska, at least in urban areas, is top notch, he said. He’s seen graduation rates go up in the Russian villages. It used to be that girls would drop out when they got married and boys would drop out when they went fishing.
“They are now graduating, the fishermen, the married couples,” he said.
Those supporting an income tax also said they wanted to do so to get out of being dependent on the oil industry.
“I’d like to have skin in the game,” said Rika Mouw. “The number one player is oil. I don’t want them calling the shots.”
“It’s not too late to write a check,” Zuccaro said in response.
Sandy Stark said she hoped both sides could reach a compromise.
“What’s needed is to see the good in both sides,” she said. “How do you design something that’s fair? You have to reach that goal.”
“We’re hopeful. They haven’t put anything on the table yet,” Seaton said of the Senate.
Stark’s husband, former Homer City Council member Doug Stark, offered a passing thought to Seaton as he left the meeting.
“I’ve changed my mind from being against an income tax to for one,” he said.
Stevens said he thought the House and Senate could come together. They’re now negotiating and have subcommittees working on the budget.
“We will come to a conclusion. It won’t be pretty. We always do. We have to. We’ll find a way to compromise,” Stevens said.
Whatever happens, a budget and some sort of revenue source has to be agreed upon soon. If the Legislature doesn’t act, starting Friday Gov. Bill Walker will have to give state employees notice of potential layoffs — 18,000 pink slips in state government and another 3,500 for the university.
“There was a robust mix of opinions in attendance, which was very representative of the opinions that my staff and I have been hearing from constituents,” Seaton wrote in his newsletter on Tuesday. “The debate we had last Thursday was lively and overall respectful for differing opinions and beliefs.”