A balanced fiscal plan is closer than it may appear

With the third special session of the year at an end, it may appear that resolution to the state of Alaska’s fiscal situation has never been farther away. However, just as sometimes objects in a mirror are closer than they appear, I believe we are closer to passing a comprehensive fiscal plan than ever before.

In the House Ways and Means Committee I chair, we have heard from members of the bipartisan, bicameral Fiscal Policy Working Group on elements of a comprehensive fiscal plan. This ideologically diverse group recommended a comprehensive plan including modernizing the dividend formula, spending cap reform, additional cuts and new revenue to balance the budget.

The committee also heard various proposals for a fiscal plan from both sides of the aisle, including a 2.5% flat tax, several proposals to update Alaska’s spending cap, a sales tax, oil tax updates and Permanent Fund reforms. We’ve seen real leadership in these proposals. Some combination of these is likely to be part of a grand bargain. Further, we may be closer than many are aware. And that bargain may be struck sooner than people believe.

The Legislature’s nonpartisan fiscal analyst projects that an update to the dividend formula that would split the five percent-of-market-value, or POMV, draw with 75% for essential government services like public education, public safety and road maintenance, and 25% for dividends would produce a $1,250 dividend in fiscal year 2023 and would grow from there. This formula would reduce projected deficits by four-fifths — about $800 million — from the governor’s proposed 50-50 plan.

I have proposed a comprehensive fiscal plan that would balance the budget using the 75%-25% POMV split, as well as minor changes to the per-barrel oil tax credit, a new spending cap, an update to our 51 year-old motor fuels tax rate, and an education payroll tax to help fund public education. This plan would need only modest revenue to balance the budget and put our state on such sound financial footing that we could begin chipping away at our deferred maintenance backlog and make strategic investments in bipartisan initiatives, including pre-kindergarten programs.

While it seems like we have made no progress in creating the fiscal stability our state needs, we have actually made real progress in the last four years. Passage of Senate Bill 26 in 2018 reduced our fiscal gap by two-thirds, and we have cut the budget by about $3 billion since fiscal 2013.

Now we are in the final stretch. Sometimes it seems darkest before the dawn, but I believe we are very close to permanent resolution of our state’s fiscal instability. We have agreed on the size of the problem and the elements of a solution, which is massive progress over just eight months ago when the Legislature gaveled in.

There is a way forward to pass a sustainable fiscal plan this year. All of the pieces have been proposed. Now what we need is leadership, courage and a willingness to compromise.

Rep. Ivy Spohnholz is a third-generation Alaskan who represents East Anchorage in the Alaska State House.

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