Alaska, Economics

Seward folks talk taxes & PFD to close state’s fiscal gap

Seward residents hold dialogue over closing the state's  fiscal gap. Heidi Zemach photo.
Seward residents hold dialogue over closing the state’s fiscal gap. Heidi Zemach photo.

By Heidi Zemach for SCN-

Twenty people showed up for an animated open dialogue at the Seward Community Library Museum Tuesday about Alaska’s financial situation, and the challenges, opportunities and choices that will have to be made to close a $3.5 billion fiscal gap.

All seemed to agree that Alaskans have become entitled, that the state is too dependent on oil revenues for its only income, and that diverse revenue streams will be needed if the state is to balance the budget and continue providing services for its citizens.

The majority of Seward attendees were retired, seniors, or middle aged, educated, and several have been among the small city’s most influential doers and shakers. There was a fire chief, council member, mayor, former mayors, a retired librarian, school teachers, a business leader, an attorney, a scientist, two commercial fishermen, tribal council member, and seasonal worker. The discussion might have interested the lawmakers in Juneau who believe the ideas expressed are taboo and that Alaskans are adamantly opposed.

“I don’t think tax is a four-letter word,” said Bev Dunham, a former Seward newspaper editor, civic leader and rabble rouser. “It’s going to take a combination of all sorts of painful things.”

“Income tax is a no-brainer. It’s fully deductible from our federal income taxes, and captures the benefits of outsiders,” said Nan Thompson, a former Anchorage attorney.

“This is an entitlement state,” said Kerry Martin, a former community development department employee. In his recent travels, he’s met RV campers from the Lower 48 who plan to park permanently in Alaska for all the freebies. “Word is getting out that there’s a lot of free stuff here. We need to be paying our own way. We don’t need to rely on oil,” he said.

Alaska should be taxing visiting workers’ earnings just as other states do, said Bev Dunham:

“Have you ever listened to oil workers on a plane talk about how much they make in Alaska? They hate the place!” HB 182, introduced by Rep. Paul Seaton, of Homer would enact a state income tax that would generate an estimated $500 million at a rate of 15 percent of Federal Taxes. Of that, nonresident workers’ share would be about $70 million.

Let’s Talk Alaska-Doing Democracy is a collaboration of Alaska Common Ground and the Anchorage Public Library. A series of discussion questions and fact sheet containing pertinent information on currently proposed legislation, and the latest economic facts and statistics by University of Alaska professor and economist Gunner Knapp, was used for the discussion, and compiled by facilitator, Bill Hall.

Hall, in vest, lays out the civil ground rules for the discussion, and explains why they exist. Heidi Zemach photo.
Facilitator Hall, in Copper River Fleece vest, lays out the ground rules for the civil  discussion, and explains why they exist. Heidi Zemach photo.

Hall opened with  ground rules regarding civil discussion, the art of listening carefully to others, and the importance of not dominating the conversation or endlessly repeating oneself. He set the scene politically by reading a quote from the governor: “This year, for the first time in state history, we are making less than zero from a tax meant to compensate Alaska for the taking of its oil resources,” Walker said. “Next year the problem is expected to worsen, with the state netting negative $400 million on what has traditionally been our biggest source of unrestricted revenue.” (Commentary published in Alaska Dispatch, Jan 8, 2015) An estimated $7 billion in state savings remains to balance the budget for another year or more, but if low oil prices and similar trends continue, and the deficit is $3 billion next year, those savings could be wiped out in less than three years, Walker said.

The situation has also been described as a constitutional problem because our spending and taxing choices will change how government serves the people, Hall said. It’s also a democratic test of the peoples’ ability to create a public voice that expresses how government should serve the common good; and an ethical issue about what we are willing to do in the interests of our fellow Alaskans.

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Alaska has an “entitlement problem,” said Tom Tougas, a Seward businessman. When the Alaska Permanent Fund was created, and the constitutional amendment approved by voters in 1976, there was nothing in it about giving dividends to residents, he said. Rather, Governor Jay Hammond’s vision was for it was to fund government services when oil funding declined, as he predicted it would. “And we’re there now,” Tougas said. The idea of dividends came later, when Alaska got rid of the state income tax, said commercial fisherman Bob Linville. Alaskans paid a Territorial and State income tax from 1949 to 1980, ranging from 10-16 percent of their federal income tax. However, with oil pumping money into the economy, personal income taxes were repealed in 1980. Now Alaskans are currently taxed the least of any of the 50 states, and the Alaska Permanent Fund is considered sacrosanct.

Together, the group considered how the $51 billion Alaska Permanent Fund could help.

According to the constitutional amendment, the fund’s principal is restricted to income-producing investments, while earnings are allowed to be “deposited in the general fund unless otherwise provided by law,” thus making them available to pay for government services. The spendable earnings have been used to preserve the value of fund by being reinvested equivalent to annual inflation rates; to pay Alaskan residents dividends; and to increase the value of the fund by having the surpluses invested back into the fund. The latter can pay for government services without impacting the payment of dividends to Alaskans, which have lately grown to the largest checks ever, Hall said.

The statutory net income to the permanent fund was $3.5 billion in FY 2014, for example, of which $1.2 billion went to dividends, $546 million to inflation-proofing, and $1.75 billion to reinvestment. That $1.75 billion could have been used to help pay for basic government services.

Although participants came from a mix of political backgrounds and experiences, all favored using unexpended earnings of the Alaska Permanent Fund to help balance the budget and preserve services, or perhaps capping the dividend amounts. They also would accept a state income tax. Doing both isn’t particularly logical, however, said Dave Squires, a retired fire chief and Seward councilman “It’s just dumb for Alaska to give people permanent dividend fund checks and then ask for it back,( through income taxes).” But he nevertheless wants lawmakers to define” essential services” and be able to fund them. Mayor Jean Bardarson cautioned that people in rural Alaska rely heavily on the PFD, so she’d not want it to go away altogether.

Participants also generally looked favorably upon concepts such as imposing higher “sin taxes” for alcohol and tobacco, greater mineral extraction or mining taxes, and revising the current oil tax credit system to address inequities in production taxes, and possibly even a state sales tax—although that was the least preferred alternative. Former City Mayor Willard Dunham said the reduction in the state tax formula for oil production didn’t prepare Alaska for the drop in oil prices, and needed to be revised upwards. Senator Bill Wielechowski (D-Anchorage) and Rep. Les Gara (D-Anchorage) have sponsored legislation to protect Alaska in times of depressed oil prices by adjusting the current production tax floor from 4% to 12.5 %. It also reduces some per-barrel tax credits.

Few young people attended, or gave an opinion. However Katrina Smith from Pennsylvania, an idealistic seasonal worker at Icicle Seafood did. Her comments focused on the importance of mentoring troubled teens and bringing people of all ages together to help one another. “Why not increase taxes on alcohol and tobacco to take a stronger stand, and provide it to something positive?” she said.

Referring to legalized marijuana, which he feels will cause many new social problems, Squires said, “We ought to tax the crap out of it,” to which Smith cheered enthusiastically, pumping her fists in the air. John French, an environmental advocate, said it is already going to be heavily taxed by Alaska, as it has in other states in which it has been legalized.

Dr. French, a history buff, said his New England ancestors understood the concept of citizen responsibility in a participatory democracy, and obligation to the welfare of others. President John Kennedy emphasized this when he said: My fellow Americans, ask not what your country can do for you, ask what you can do for your country.”  Unfortunately, we’ve lost that sense of moral responsibility, French concluded. He also decried the declining state of Alaska’s university system, and cutbacks to its programs and required class offerings, and said a priority should be returned to support state education at all levels. French favors forward- funding public education, as promised, and suggested that an endowment fund be created to provide greater stability.

“In 1977, everyone wanted to teach in Alaska,” agreed retired Seward librarian and former teacher Patty Linville. Now, Alaska ranks 50th in places people want to teach, she said. “If you have a good sound education system and produce good thinkers, you’re going to be successful,” Patty said. Her husband Bob pointed out that Seward schools had recently lost its only dedicated music teacher position because none had applied.

Letty Swanson, a retired teacher who has worked with for Parents As Teachers, and the Infant Learning Program, and her husband Marc were particularly worried about the lasting impacts that may result from cutbacks to social services, and programs that support early childhood learning and preschool. “I am very concerned,” said Marc. “My big worry is that the legislature won’t tax and won’t cut the dividend.”

Pessimism aside, all agreed that Juneau lawmakers need to witness an immense groundswell of public sentiment, discussion, marches, and lobbying efforts if they are to be convinced that Alaskans are indeed willing to accept responsibility for funding the state’s priorities.

Hall has taken the same discussion topic to Anchorage and will be traveling to various other Kenai Peninsula communities, including Homer and Soldotna. He hopes to get additional grant funding to bring it to 20 communities throughout the state. The ideas expressed won’t be tallied or recorded for the public record, but Hall hopes that the discussion begun in those communities will spread and help inform public debate in Alaska.

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