Alaska Lawmakers Trying to Fix Budget With Tax Bills

The Bloomberg BNA Tax Management Weekly State Tax Report filters through current state developments and analyzes those critical to multistate tax planning.

By Steve Quinn

April 11 — State lawmakers have less than a week to agree on a fiscal package they believe will help close a $4 billion budget deficit driven by chronically low oil prices.

The stakes are high for a state that recently enjoyed hearty budgets financed by oil taxes, which fed nearly 90 percent of the state's General Fund. Today, oil revenue funds closer to 60 percent, according to the Department of Revenue's most recent spring forecast.

But with the growing deficit widened by oil sinking below $40 a barrel, credit rating agencies put lawmakers on notice: fix it or face a second downgrade this year.

“Doing nothing is not an option,” House Speaker Mike Chenault (R) said during an April 8 briefing with reporters.

The Republican-led Legislature is trying to find the right blend of budget cuts, new revenue from a suite of tax bills put forth by Alaska Gov. Bill Walker (I), and reducing the statewide payout from the oil fund, currently valued at $53 billion.

Battle Over Oil Taxes

The most contentious among eight tax bills is Walker's oil tax credit bill designed to raise taxes by an estimated $100 million while curbing tax credit payouts the Department of Revenue says could soon outstrip oil production income.

Many lawmakers, however, are reluctant to make what they believe are wholesale changes to a tax system re-written three years ago, saying it reflects an unstable government.

The House was set to vote April 10 on a version put forth by the House Finance Committee, H.B. 247, but tabled the vote because of disparate views, Chenault told Bloomberg BNA.

“Some people want to move it further and some don't want to take it as far as what's proposed,” Chenault said. “There is some concern about how are we going to pay for credits and some are concerned about going back on our word as far as what we told them we would provide.”

Income Tax Proposal Fails to Move

Walker also proposed the state's first income tax in more than 35 years. Walker seeks a 6 percent levy on an individual's federal income tax liability.

But the bills in both chambers received a tepid response. One House committee gave H.B. 250a single hearing, and a Senate committee gave S.B. 134 two hearings.

Many lawmakers have been ardently against an income tax, saying there are other ways to close the gap.

“I'm going oppose an income tax until Hell freezes over, then I'll fight it on ice,” Sen. Bill Stoltze (R) told Bloomberg BNA.

Walker has also proposed boosting taxes on the mining, fishing and tourism industries as well as increasing taxes on alcohol, tobacco and motor fuel. All but the tourism tax have gained traction.

The Legislature is scheduled to close out this year's legislative session April 17, but under the state's constitution, they can continue working through May 18.

Walker also warned lawmakers in a letter last month that failure to approve a broad-based tax would result in a special session.

In a statement e-mailed to Bloomberg BNA, Walker toned down his views.

“I appreciate the work being done by the legislature to address the state's $4 billion budget deficit, and I will continue to work with lawmakers to come up with a sustainable solution to our fiscal challenges this year,” he said.

To contact the reporter on this story: Steve Quinn in Juneau, Alaska, at correspondents@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

For More Information

The bills are at www.akleg.gov.