Alaska lawmakers say agreement on new taxes is unlikely before end of legislative session

A week after Alaska Gov. Mike Dunleavy told lawmakers he would propose a new sales tax, they have yet to see the governor’s bill — and are still far from reaching agreement on the state’s fiscal future.

Lawmakers broadly agree on the need for new revenue sources amid declining oil taxes. But yet-to-be-seen proposals from the governor, along with other revenue measures considered by lawmakers this year, are unlikely to pass with only three weeks until the constitutional deadline marking the end of the regular legislative session, key lawmakers said this week.

“Here we are — 22 days left to go — it’s going to be hard to move a tax bill across the House and the Senate in that time,” said Senate President Gary Stevens, a Kodiak Republican.

“Normally big issues like that take a couple years. Certainly it wouldn’t be 20 days,” said Sen. Bert Stedman, a Sitka Republican who co-chairs the Senate Finance Committee.

“The likelihood of anything happening this particular session — I don’t see it as very likely at all,” said Rep. Dan Ortiz, a Ketchikan independent. “We’re not going to get that fiscal plan between now and the next two and a half weeks. I just don’t see it.”

Dunleavy’s promise for a sales tax bill has reinvigorated discussions among lawmakers about competing revenue measures. In the House, Rep. Ben Carpenter, R-Nikiski, has already introduced his own sales tax. Rep. Alyse Galvin, I-Anchorage, has introduced an income tax on earners who make more than $200,000. In the Senate, lawmakers have introduced legislation that would increase the amount of taxes owed by oil companies and other corporations. But no proposal has advanced out of either body, and the window for action is shrinking.

Dunleavy spokesman Jeff Turner said by email that the governor’s sales tax legislation is “in the drafting stage” and will be introduced “as soon as possible this session.” He did not respond when asked by email why the legislation had not been introduced earlier in the session, which began in January.

Even if the sales tax legislation were to advance, it is not necessarily the most popular among the revenue options considered by lawmakers.

“I’m not hearing from the people I talk to a lot of support for a sales tax,” said Rep. Louise Stutes, R-Kodiak. She is one of several lawmakers who represent communities that already have local sales taxes, and pointed out such a tax would have a disproportionate impact on rural communities. “There’s a general feeling that revenue is certainly in the picture, but to what degree is another definite question,” she said.

‘Productive, orderly, very busy’

Members of the Republican-dominated House majority have expressed more optimism about the prospect of agreeing on new revenue sources for the state in the coming weeks.

“I think we’re making good progress on the business that the people sent us down here to do,” said House Majority Leader Dan Saddler, an Eagle River Republican, calling the session “productive, orderly, very busy” despite a relatively paltry number of bills passed by both chambers so far.

Saddler said Dunleavy, a Republican, has been “increasingly forthcoming” with the Legislature but has not committed to any specific approaches for solving the state’s looming fiscal crisis. Dunleavy has so far remained publicly silent about his tax proposal, discussing it only in closed-door meetings with lawmakers and declining an interview request on his policy priorities.

“We will look forward to seeing what the governor has to say when he holds his press conferences and what he proposes to bring forward to the entire state for his plan,” Saddler said.

In the House, all bills related to the state’s fiscal future, including ones to reform the dividend and change the state’s taxes, have been referred to the Ways and Means Committee. That committee has — with three weeks to go until the end of the legislative session — advanced only two out of the 14 bills referred to it. Any bill that advances out of the committee must then be considered by the more powerful House Finance Committee, which has yet to consider any of the bills pertaining to taxes or Permanent Fund reform.

“We are trying to get them through as a plan,” said Rep. Kevin McCabe, a Big Lake Republican who sits on the House Ways and Means Committee. “We’re trying to tie them up nice and neat.”

‘A nonstarter’

In the Senate, leadership members have focused their attention on advancing a bill that would reform the way the Permanent Fund dividend is calculated each year. Senate leaders now favor a new “75-25″ formula for calculating the dividend, which would divert one-quarter of the Permanent Fund’s earnings to the dividend, leaving the rest for state spending.

But some lawmakers, including House majority members, prefer a 50-50 split, leaving half the Permanent Fund’s earnings for the dividend — and requiring more new revenue streams to make up the difference.

McCabe said a 75-25 split “would be a nonstarter” for him. The 50-50 formula, which translates to a $2,700 dividend this year and would require hundreds of millions of dollars from savings to make up a revenue shortfall, “was the compromise position, not the starting position,” McCabe said.

Still, members of the Senate Finance Committee are pushing for the smaller dividend — which would translate this year to a $1,300 payment per eligible Alaskan — with increased fervor.

“I think everyone understands that the current formula is broken,” said Sen. Lyman Hoffman, a Bethel Democrat who co-chairs the Senate Finance Committee. He added that the goal with the proposed formula is to resolve the annual discussions about the size of the dividend, making space for discussions on other legislative priorities.

‘Something has to give’

In a move previewed by Senate members on Tuesday, the Senate Finance committee is expected to propose tying a change to the public school funding formula to the change in the dividend statute.

Senate Finance committee members said Tuesday they had agreed to cut in half the funding in a bill that originally called for a $257 million boost to public school funding, by reducing a Base Student Allocation formula boost from $1,000 to $500.

The increase to the Base Student Allocation — the formula used to calculate per-school funding from the state — would only be permanent if the 75-25 dividend bill, Senate Bill 107, passed the Legislature and was signed by the governor.

“What number comes out of Senate Finance is going to be the biggest BSA increase we can afford,” said Sen. Löki Tobin, the Anchorage Democrat who chairs the Senate Education Committee and has long called for a more sizable education funding increase, adding that the $1,000 figure agreed on by her committee had been “aspirational.”

Education advocates have since the beginning of the session said that an $860 increase to the funding formula would be the bare minimum needed to keep up with inflation.

“The Senate is staying within the bookmarks of no overdraw of the Permanent Fund and no overdraw of the CBR, because it’s perilously low in backup funds for the state,” said Stedman, referring to the Constitutional Budget Reserve — a stop-gap savings account that can be used by lawmakers to make up funds if their budget calls for more spending than the state has in revenue.

“We’re going to live within our revenue stream this year, which means something has to give,” said Stedman. With lower-than-expected oil prices translating to lower revenue, Stedman said that avoiding a draw from savings would translate to a $1,300 dividend, roughly $128 million in one-time education funding, and a “stripped down” capital budget — which covers building and infrastructure maintenance and repairs.

That is a far cry from the House majority’s spending plan, which includes no education funding boost and a $2,700 dividend, setting the stage for a battle over the size of the dividend and education funding in the final weeks — and leaving little time for the demanding conversations needed to reach agreement on new taxes or revenue sources.

“We’re hoping that the House will agree with the Senate’s position,” said Stedman, adding that the Senate’s plan is to advance a bare-bones capital budget under the assumption that if revenue — driven by oil prices — exceeds expectations, lawmakers can increase the capital budget early next year.

“We’re trying to be cautious, plus deal with all of our base needs,” Stedman said. “I’ll tell you one thing we will not do — hand an unfunded budget to the governor. That’s not going to happen.”

Iris Samuels reported from Anchorage and Sean Maguire reported from Juneau.