"Instead of beginning with an income tax, Alaskans first need to determine the level of services we are willing to pay for. This clearly means cutting budgets until the majority of us collectively assert that enough is enough, and convincingly communicate that conclusion to our elected representatives."
- Rep. Hawker
The Anchorage Daily News recently reprinted their informative series on state fiscal planning. Polls indicate our fiscal gap is the top policy priority of most Alaskans. The paper's series sparks legitimate and needed debate among Alaskans on how we choose to address this problem. The paper succinctly identifies the root of our fiscal problem. We have been spending our savings account for years and its end is clearly in sight. The consequences of doing nothing are unacceptable.
The solution offered by the paper starts with an income tax on working Alaskans and ends without any meaningful spending reductions. That sounds more like a California solution than an Alaska solution. Equally problematic, their fiscal plan does not incorporate Alaska's unique public ownership of immense resource wealth. Emphasizing that wealth and reversing the priority suggested by the paper could give us a viable Alaska solution. In fact, reversing the priority pretty much gets us to the five-point plan I proposed as the Co-chairman of the House Ways and Means Committee.
Instead of beginning with an income tax, Alaskans first need to determine the level of services we are willing to pay for. This clearly means cutting budgets until the majority of us collectively assert that enough is enough, and convincingly communicate that conclusion to our elected representatives. While opinions vary on how deep future cuts should be, few Alaskans believe we can eliminate our entire deficit through cuts alone.
Whatever Alaskans determine is the appropriate spending level, our next decision is deciding the role Permanent Fund earnings will play in our fiscal policy. Options range from taking the fund's earnings completely off the table and balancing the budget with taxes alone, to eliminating the dividend and using all the earnings for services. A reasonable solution, I support, would adopt endowment management to inflation proof and guarantee the long-term value of the fund. We could then continue our current practice of paying half the earnings in dividends, but use the other half towards balancing the budget.
We are fortunate our Permanent Fund has reached critical mass. With endowment management, the fund's principal can be protected and provide earnings that are predictable and adequate, both to pay growing dividends in excess of a thousand dollars each, and to nearly eliminate projected budget deficits. Barring a catastrophic decline in oil prices, we are not likely to require large broad based taxes of any kind in the foreseeable future. We will need to implement some smaller taxes and targeted revenues to supplement our current revenue system. However, heavy-handed taxation of working Alaskans does not have to be, nor should it be, the pillar of our fiscal structure. Should there be a significant decline in oil revenues in the future, we need to be prepared to accept personal taxes, but right now they are not warranted.
To avoid future taxation, Alaska's fiscal plan must promote further natural resource development, especially our gas reserves. Perhaps more importantly, our plan must incorporate a mechanism to mitigate the effects of oil price volatility on future budgets. This mechanism must provide both a budget stabilization fund to dip into when oil prices drop significantly and a means to share the wealth with individual Alaskans when market prices rise and provide revenue in excess of our needs for government.
Alaska's fiscal problems need Alaska solutions based on our unique public ownership of vast undeveloped natural resource wealth and the significant predictable earnings from our Permanent Fund. We have successfully converted a critical amount of our non-renewable resources into monetary investments with the potential to be the cornerstone of a practical fiscal policy that all Alaskans can support. However, in the final analysis, this will not replace our collective responsibility to elect state administrators and legislators who will use the same reason and restraint in spending the public money as they would their own funds.
Fiscal discipline, resource development, investment earnings and a carefully structured general revenue system that anticipates future oil price volatility will serve long and well the best public interest of all Alaskans.
Representative Mike Hawker
Co-chairman House Special Committee on Ways and Means