Governor’s budget includes paying off tax credits, payroll tax

Gov. Bill Walker is asking the Alaska Legislature to again consider new taxes to help support state spending in Fiscal Year 2019.


The governor’s office released his proposed budget Friday, with unrestricted general fund spending slightly down from last year at a total of $4.2 billion. It includes a $34 million increase for the Department of Law and the Department of Public Safety and another $27.2 million for Medicaid, driven by increasing enrollment and costs. Counting designated funds and federal funds, the total budget comes to $10.65 billion, according to state budget documents.

To support the budget, the governor proposed using Permanent Fund earnings and supplementing it with a temporary 1.5 percent payroll tax and a motor fuel tax increase, which is currently before the Legislature for consideration.

“We can’t keep hoping and praying for an increased cost of oil, something that’s completely out of our control,” Walker said in an interview at the Clarion Tuesday. “That’s what’s gotten us where we are today, honestly.”

The payroll tax is similar to one Walker proposed in this fall’s special session, which the Legislature rejected without much consideration. The difference is that this version would sunset after three years. The Office of Management and Budget estimates it would generate about $800 million over three years, designated to support deferred maintenance projects in the capital budget. Even if it passes, it will still be low compared to other states’ income or payroll taxes, he said.

The extra funds for the capital budget will help put Alaskans back to work, Walker said.

“The deferred maintenance will be spread all across the state in small amounts, small chunks, local contractors, local folks will get the work,” he said. “When you build a bunch of schools, you see folks coming up from the Lower 48 and get the work. You won’t see that … (the investment) will make a big change in the unemployment percentage.”

The budget includes a small increase for capital projects over last year, at $150 million, but that only covers the match required to receive federal funds. Most of those projects are transportation infrastructure, with others in affordable housing throughout the state, energy projects and the state’s information technology renovations.

One point in addressing some of the deferred maintenance issues is to take advantage of the competition within the construction sector right now, Walker said. With work scarce, construction bids have been lower for the past several years, making projects cheaper for the purchasing agency. Tied to that concern is the Alaska Gasline Development Corporation’s plan to push forward the Alaska LNG Project toward eventual construction beginning at the end of 2019. If the state waits on capital projects and the LNG Project goes forward, construction contractors may be busy and bids may be more expensive, he said.

A major part of the budget is tied up in oil and gas credit payments. Walker included a plan within his proposed budget to start paying off the state’s remaining oil and gas tax credits, beginning with bonds being issued in FY 2019 and continuing in phases through fiscal year 2025.

There are three main reasons for waiting until now to begin paying off the oil and gas tax credits, one being that the Legislature voted to formally close the program in the last session, Walker said.

“(Another consideration was) how do we do it on sort of a net no cost to the state arrangement? And we’re in the process of negotiating that with the various companies to do that. And the third thing was that the option is still there. … Now’s the important time to do it. But the biggest issue was they finally closed out (the program).”

The public safety increase of $34 million partially addresses public concerns about increasing crime rates amid the ongoing opioid crisis. The allocation includes funds to hire more troopers and public defenders, some for the Alaska Department of Corrections to help address the growing prison population and $18 million for additional substance abuse treatment programs. Walker said the opioid crisis is a topic the administration is sensitive to and is asking for public engagement to help enforce it as well as state efforts such as placing notices in the Seattle airport to discourage drug trafficking and more drug detection dogs on ferries.

“We’re pulling all the levers that we can,” Walker said. “But we always ask if there’s something we’re not doing that somebody thinks we should be doing, let us know, but be prepared for us to ask you what you’re doing and how you can help.”

With several actions taken in the last session, including the Permanent Fund Protection Act and the closure of the oil and gas tax credits, Walker said he felt the state was on track toward fiscal stability.

Before the session even begins, the Republican Senate Majority has rejected any new revenue options, falling back on the Alaska Department of Revenue’s revenue forecast released this fall showing increased oil production and improved oil prices. During an update to the Kenai Peninsula Borough Assembly on Dec. 5, Sen. Peter Micciche (R-Soldotna), who serves as Senate Majority Leader, said the Senate Majority plans to cut growth and only keep up with inflation.

That is frustrating for Lt. Gov. Byron Mallott, who said the Senate’s lack of forethought to invest in Alaska does a disservice to rural communities.

“It’s not seeing the kind of investment that it needs in order to be a meaningful, equal part of Alaska in any way whatsoever,” Mallott said. “And yet we have leaders saying flat-line budget out as far as we can see, no growth. Rural Alaska sits back and says, ‘Where are we?’”

Walker agreed, saying the past few years’ “wait and see” attitude has been expensive and has worn down the state’s savings. Although he said he understood proposing a tax was not politically popular, he said they were more concerned with the long-term fiscal health of the state.

“I don’t care (about the risk). I want to fix Alaska,” he said. “If we have to take a risk politically to do that, then so be it.”

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