Potential lawsuit forces Alaska House to split up Permanent Fund and income tax proposals

JUNEAU — The Alaska House has moved to split its bill to both levy a state income tax and use Permanent Fund earnings to help fill the state deficit, saying the move was prompted by a possible legal challenge.

The largely Democratic House majority coalition split the measure late Friday, when it unveiled its own draft version of a substitute for Senate Bill 26, the Permanent Fund restructuring legislation approved last month by the state Senate.

[Alaska Senate again passes bill to restructure Permanent Fund earnings]

The coalition had previously been advancing its own legislation, House Bill 115, that combined a Permanent Fund restructuring with a statewide income tax.

But it's now advancing the new version of SB 26, which adopts the House majority's ideas about the Permanent Fund — including a $1,250 dividend for the next two years instead of the Senate's proposed $1,000 — without the income tax measure.

Instead, the new version of SB 26 adds a self-destruct mechanism: "conditional language" that says the legislation will die if lawmakers fail to approve a broad-based tax generating at least $650 million a year, with the proceeds directed to education. Lawmakers would also have to approve an oil tax bill proposed by the House before SB 26 would take effect.

The move could simplify negotiations with the Senate, since both the House and Senate versions of SB 26 now have similar — if not identical — components that could be negotiated between the two chambers.

The Republican-led Senate majority, however, has vehemently opposed an income tax, which the House has backed as a critical component of its broad-based plan to eliminate the state deficit of nearly $3 billion.

Homer Rep. Paul Seaton, co-chair of the House Finance Committee and one of three Republicans in the House majority, said that the threat of a lawsuit motivated the splitting of the income tax from the restructuring of the Permanent Fund.

The state Constitution confines bills to a single subject, and critics of the House's income tax proposal have argued that linking it to changes to the Permanent Fund creates a potential "single subject issue" — meaning that a court could strike down the legislation if it was challenged.

Seaton said the majority was confident HB 115, as currently written with its income tax and its siphon on the Permanent Fund, could survive a lawsuit. But he also pointed out that it's already been the target of attack ads.

Investor Bob Gillam and the Alaska state chamber of commerce have both launched ad campaigns against an income tax.

[Anchorage investor tries to torpedo state income tax]

"Since there's somebody out there who has deep pockets and doesn't want to have an income tax, we could anticipate any excuse for a challenge," Seaton said.

Seaton said that HB 115 could potentially be transformed into a standalone income tax measure. The broad-based tax requirement in SB 26 could also be filled by a sales tax, he said.

House majority leaders, at a briefing with reporters Friday, said they're aiming to vote on all the pieces of their deficit-reduction plan by Day 90 of the legislative session — a week from Sunday.

A 2006 citizens initiative capped the legislative session at 90 days. But because the initiative created a law and the Legislature writes its own laws, it can keep working through a constitutional deadline of 121 days.