Alaska, Business, Economics, Politics

Senator Micciche Addresses Alaska’s Budget Problem

State Senator Peter Micciche at a Seward Chamber of Commerce luncheon November 2015. Photo by R Smeriglio
State Senator Peter Micciche at a Seward Chamber of Commerce luncheon November 2015. Photo by R. Smeriglio

By Rick Smeriglio for SCN — State of Alaska’s fiscal woes and what to do about them will continue to occupy a place at center stage in the Legislature according to Senator Peter Micciche – District O (including Seward, Soldotna, Kenai and northern Kenai Peninsula). At last week’s Seward Chamber of Commerce luncheon, Senator Micciche gave a brief outline of the state’s income and expenditures with emphasis on the gap between the two. He reviewed options for decreasing expenditures and for increasing revenue to state coffers. Additionally, Senator Micciche presented results of a non-scientific survey that asked some of his constituents their opinions on the budget situation.

Now that he has given several of these talks on the subject, Senator Micciche can begin by getting directly to the point. SCN has edited his remarks for clarity and length.

“We have an oil price problem … Working toward a sustainable budget is my top priority this year … There is no capital spending … Seward is the only city in Alaska to receive a re-appropriation [unspent funds for capital project remaining within district] last year … There will not be a capital budget this year … It’s about making difficult choices this year,” Senator Micciche told the luncheon audience of about two dozen.

Not counting incoming federal funds and earnings of the permanent fund, Alaska’s treasury gets most of its revenue from oil. The State had a budget shortfall of about $2.7 billion this fiscal year. It closed the gap by spending from the constitutional budget reserve (not the permanent fund earnings reserve). It could do likewise next year, but if it did so again the year after that, the State would likely exhaust its reserve. Senator Micciche presented information from the executive branch that showed the top three categories of state spending (education, obligations [including oil tax credits and pensions], and social services) out-striping all others combined by well over two to one.

After speaking about hundreds of millions of dollars of budget cuts already made and “tough cuts” to education and people in need, Senator Micciche said, “There are still legislators who believe we can cut our way to a balanced budget; we can’t … We’d be living in the third world like cavemen … I don’t want to raise my four girls in a state, this state, with a 2.2 billion dollar operating budget. That doesn’t work. It wouldn’t be safe; we’d have the worst education system on the planet. We’d have challenges that would make this great state a shadow of its former self. I’m not willing to go there. I don’t think any of you are willing to either.”

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The State of Alaska has a fiscal year 2016 operating budget of $4.9 billion, down from $8.0 billion in fiscal year 2013. It received $2.2 billion in various taxes and royalties from oil companies. Senator Micciche proceeded to review the several tax options to close the gap between income and discretionary expenditures. Only two came close to raising the necessary billions: statewide sales tax and personal income tax. Alaska has no such taxes.

“It’s time we looked at real options, we don’t have to compromise the survivability of the fund … In my view, the solution that has the least amount of potential impact to the families of Alaska, is an earnings reserve option initially, then looking at other forms of revenue past that,” Senator Micciche told his audience.

He then presented survey results gathered this fall from 650 to 700 adult constituents in Senate District O who responded to questions about Alaska’s fiscal options. Because the responses did not come from individuals randomly or even representatively distributed across the population, the results do not necessarily reflect true public opinion.

According to the survey, by two to one, respondents favored spending from the permanent fund earnings reserve to close the fiscal gap. To allow spending from the earnings reserve, about 56 percent agreed with capping the permanent fund dividend. Equal numbers favored using the earnings reserve versus a statewide sales tax; a lesser number favored an income tax. With earnings reserves off the table, respondents favored a statewide sales tax over a state personal income tax by almost two to one. Even when asked different ways and compared to various other taxes, respondents clearly did not favor income taxes. Slightly less than half agreed with reducing credits to the oil and gas industry, currently about $700 million annually.

Senator Micciche finished his presentation by suggesting that a return of high commodity prices (oil) would reduce the need to spend from the earnings stream coming from Alaska’s capital reserves or to look at other revenue options such as taxes. He also warned that a downgrading of Alaska’s credit rating due to inability to maintain fiscal balance would make State borrowing more expensive and would increase the cost of capital projects in the future.

“I’m not going to let this state crumble into oblivion because I’m unwilling to find revenue solutions that make sense,” Senator Micciche said in answer to a final response from the audience about leadership and the results of the survey.

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