JUNEAU — Gov. Bill Walker called for bold action and for Alaskans to pull together as the state confronts a multibillion-dollar budget deficit exacerbated by chronically low oil prices.
He used his State of the State speech Jan. 21 for a “family talk,” to lay out the situation for Alaskans and his plan to deal with it through use of Alaska Permanent Fund earnings, taxes and budget cuts. “Time is of the essence,” he said.
Walker said his speech was not about doom and gloom but about the future that’s in store for Alaska if the administration and Legislature work together. The state has opportunities in areas like resource development, agriculture, tourism and the Arctic, he said.
“Now is the time to put aside politics as usual,” said Walker, a Republican turned independent. “Now is the time for bold steps and new beginnings. The state of our state is strongest when we pull together.”
The speech came three days into a new legislative session in which the major task will be addressing the deficit, estimated at about $3.5 billion for the coming fiscal year and comparable to the prior two years, according to the Legislative Finance Division. The state has been using savings to get by.
A ratings agency recently downgraded Alaska’s bond rating and the state has been warned that future downgrades are possible if significant steps to tackle the deficit aren’t taken this session. That could have implications as Alaska pursues a major gas project.
Walker wants to move away from budgeting around volatile oil revenues. He has proposed turning the Alaska Permanent Fund into an endowment of sorts, fed with oil tax revenue and a portion of resource royalties, from which a stream of money would be drawn from the fund’s earnings reserve annually to help finance state government.
“It’s time we focus on the next 50 years and not just the next budget cycle or the next election cycle,” he said.
The plan would change how the annual dividend that most Alaskans receive is calculated, funding it with a portion of royalty revenues rather than basing it off the fund’s performance. Under that approach, viewed skeptically by some lawmakers, the dividend would be $1,000 this year, roughly half of last year’s payout. The historical average is about $1,150. Next year’s payout could be around $700, Legislative Finance Division Director David Teal said.
Walker stressed there would be no cap on the dividend and that dividends would go up when new oil starts flowing through the trans-Alaska pipeline, oil prices rise or the gas line project the state is pursuing is built. He has argued that if the state stays on its current track, drawing down on savings, the dividend is in danger of ending in 2020.
Walker also has proposed reinstituting a personal income tax, increases in various industry taxes and changes to state oil tax credits. While the package may not be politically popular, Walker said he strove to make it fair and welcomes debate on it. He said he’s flexible on details as long as the outcome is fair and sustainable. The only option that’s unacceptable is doing nothing, he said.
Republican legislative leaders have said they want deeper cuts to the budget than Walker has proposed. Senate Finance Committee co-chair Pete Kelly, R-Fairbanks, said he thinks further cuts and use of the earnings reserve will be part of the approach taken this year. Senate leaders also want to pursue cost savings within Medicaid and the corrections system.
The budget for this year was reduced by more than $800 million, Walker said. Cuts over the past year have included reduced state ferry service; closing some trooper posts and reducing some village public safety officer positions through vacancies; and using federal funds to cover some positions and research projects at the Department of Fish and Game, the administration says. Walker said divisions have been combined.
The number of state employees for the current fiscal year is at a comparable level to 2008, according to information provided by the administration, and further cuts are proposed.