Brennan: Dusting off crystal ball
By Tom Brennan
Since today is, among other things, the 90th day of the current legislative session it’s time to dust off the old crystal ball and predict what is going to happen.
First, there won’t be an income tax or statewide sales tax passed this year. There could be a lot more discussion about it, but don’t worry. Ain’t going to happen until it absolutely must happen. And that’s not just yet.
Next year is an election year and that means such taxes won’t be approved in the 2018 session either, but either an income tax or a sales tax — or possibly both — are almost certainly in our future.
Unless some wondrous and unlikely thing happens to our economy, Alaskans are eventually going to have to dig into their own pockets and pay a portion of the cost of state government. We have had a free ride since the Legislature repealed the state income tax in 1979. Can’t go on forever.
Instead of having the people pay the state, the state has been paying the people in the form of dividends from the Alaska Permanent Fund. Those dividends will continue but not at the levels of $2,000 and more that we have seen in some recent years. But a thousand-dollar or so benefit for just being an Alaskan isn’t a bad deal.
For the next few years, at least, our legislators can balance the budget by drawing from the Earnings Reserve of the Permanent Fund, which had a balance of $10.3 billion in February, and dipping into the Constitutional Budget Reserve, which has a current balance of $4.7 billion.
Alaska has 710,000 residents so a $1,000 dividend would take $710 million. And I believe the legislators would need to draw about $700 million from the CBR to balance the budget after all the other sources are tapped. They could actually tap those reserve funds for several years before they had to get really serious about broad-based taxes on you and me.
The real risk there, according to Tim Bradner’s column in the Alaska Dispatch News this week (and Tim knows this stuff better than most people I know) is that drawing down reserves could make Wall Street leery and Alaska’s credit rating could take a hit. That could get expensive both for the state and for local governments. The CBR gets its money from resolution of disputes involving mineral related income, sources like the back taxes the state is currently trying to collect from oil companies, so some replenishment is possible.
But I just don’t see the momentum there for passage of those onerous income or sales taxes this year. Even if the taxes were modest that would be a big red line to cross. I could be wrong, but don’t bet your Easter egg money on it.
There will, of course, be a lot of wheeling and dealing before the legislative session ends at its 121-day constitutionally mandated limit, which I calculate would be May 17. In the meantime, both the Democrat-controlled House and the Republican-controlled Senate will take a little and give a little on their various positions.
The oil tax credit program will probably die. It was a valuable way for the state to invest in new oil production but money for such investments seems unlikely to be available. We will, however, have to find a way to pay our already committed obligations.
Let us hope that the Legislature has enough good sense to avoid raising taxes on the oil companies. That would be a real losing proposition and a disincentive to investment by the companies that create the jobs and generate most state revenues.
The House Democrats should pay close attention to a message sent out this week by Janet Weiss, president of BP Alaska. She sent it after the Dems began salivating over a statement in BP’s annual report suggesting that BP Exploration Alaska made $85 million in Alaska last year.
Weiss said the $85 million referred only to a small portion of BP Alaska’s business operations and that the company overall lost $358 million in Alaska in 2016, almost a million dollars a day.
She said the company spent $1.8 billion in Alaska last year ($1.2 billion in operating expenses and $600 million in capital investment) and paid $464 million in taxes and royalties.
That is what you might consider a golden goose. Use your heads, legislators.