Governor optimistic about budget fix

Editor’s note: Gov. Bill Walker visited the Frontiersman offices in Wasilla on Thursday to discuss several topics of statewide interest, with much of the discussion focused on the governor’s plan to help solve the state’s looming $4 billion budget deficit. Walker’s plan calls for a mix of spending cuts and new revenues from Permanent Fund earnings as well as new taxes on industry and individuals. We asked Walker about his hopes for the plan’s passage in Juneau, and why he thinks the solution is right for fixing Alaska’s economy. The following question-and-answer exchange was edited slightly for length and clarity:

Q: As far as the budget, can you give us a sense of where we’re at right now? Are you optimistic?

A: I’m the ultimate optimist, in this business you have to be. If I was a pessimist I wouldn’t have become governor. My odds of becoming governor were pretty low. I stay the course and I don’t give up. So I am confident that we can resolve it this year.

Q: What are some of the big hurdles right now?

A: I think implementing any of the revenue measures are not comfortable for some. Increasing the fuel tax, bringing back income tax — even though it’d be a 1 percent tax, the lowest income tax in the nation. And I don’t like taxes, I’m not a tax person. But this isn’t about what we like, it’s about what we need to do. And so we have to use all the tools available to us.

Some have said, ‘Why have you taken on the political battle on income tax for ‘only’ $200 million dollars?’ We have a roughly $4 billion deficit. So why the hit that I will take for $200 million? It’s for this reason: We’re trying to do things broad based and [raise] revenue from a number of different things. And so the biggest revenue comes from our sovereign wealth fund, from the earnings. But we have the lowest fuel tax — we haven’t raised the fuel tax since John F. Kennedy was president — it’s time that we assess that.

On the other taxes, we have not adjusted them for a long, long time, on the fisheries tax and mining tax. And looking at this, a big piece of it is on the credits on mining and exploration. That’s a challenge. That’s a well-intended program started back in 2006 with a $10 million cap per company and then it went to $25 million and then the cap came off. Lo and behold it went to (costing the state) $700 million, was on its way to $1.2 billion and potentially $1.78 billion next year. If we don’t stop it and say, ‘Whoa, that’s more than we pay for education,’ I’m not sure we can provide this subsidy to go and explore for oil.

Q: Where do you see Alaska’s economy 10, 20 or 30 years down the road?

A: That’s why we’ve come up with what we call this New Sustainable Alaska Plan. Because it’s sustainable. We have a cash flow problem but we don’t have a wealth problem. You know, we make more of our income now off of our wealth than we do off of our oil. So we can have a sustainable inflation-proof draw each year — not the whole earnings but a portion of it — and use that for going forward.

First of all, we need to bring the cost of government down. We’re going to continue to look for efficiencies. We’ve done a lot of consolidation of services so we continue to look at how can we make it more efficient. But if we laid off every state employee we wouldn’t balance our budget. So we know we need to have new revenues. What that will do is create the sustainability and we can look out a long, long way and not have that tied to oil. Ninety percent of our revenue has come from oil, and under our plan it’ll be 21 percent. It’ll bring it back down to what’s more realistic, rather than sitting back and hoping the price of oil spikes back up to $147 a barrel and we can all have a parade.

We could have made this change any time in the last 30 years, shifting off of being tied to oil as much as we have. But it just hasn’t been politically sensible to do that. And it’s hard to do that. I don’t mean to be critical of any of my predecessors or former legislators, but it’s hard to do that when you don’t have a problem.

So that’s really the silver lining of this thing: We get to do what we probably should have done 30 years ago. But we need to do it now.

Q: How important is it that something gets done now?

A: I think it’s very important, and here’s why:

We have a cloud of uncertainty over Alaska right now. I’ve had six bond rating meetings since I’ve been governor. And each of them say the same thing: “Like the plan, like that you put the whole plan out there. And if you get that approved, then that does solve the problem. But until then we’re going to continue to downgrade you.”

So I want to stop the downgrade, number one. And I want to get rid of that cloud of uncertainty so we can know what we’re going to have going into the future — what we can work with, what our capital budget’s going to be. We have some projects that we need to finish in order to grow Alaska, but we can’t do that while we’re still trying to balance our checkbook. If you went to a bank and said you still hadn’t figured out how to balance your checkbook they’d say, ‘Come back when you get it figured out.’ So I think it’s imperative this year.

The other thing is next year we start a new legislative session. So we’ll have some new legislators, new organization and we sort of start over again. If it’s uncomfortable this year it’s going to be uncomfortable the next year and the next. Let’s be done with it.

Q: How much is the Permanent Fund going to be a part of this solution? How do you convince the population that using a portion of earnings from the fund is the way to go?

A: Let them know that if we don’t do something in a couple years it goes to zero. It’s just gone and will never be seen again. If we do nothing it’ll be just a few more of those big checks and then it goes to zero.

Secondly, the amount we’re talking about that will be paid out — certainly the first year — is about $1,000. The average has been about $1,140. We want to keep that whole dividend program permanent.

Right now Alaska enjoys the lowest personal income tax in the nation. If we pass every single one of these things we’ll still have a dividend and we’ll still have the lowest taxes in the nation.

Q: Do you think a solution is within our reach?

A: It is. A family of four at $50,000 income would pay $47 in taxes. A single filer making $100,000 would pay $1,000. Again, it’s the lowest in the nation. We’ve done that for a couple reasons. Everything you do fiscally in Alaska has a different impact on somebody else. In rural Alaska, the dividend reduction is going to have a more disproportionate impact because of the costs in rural Alaska. The income tax sort of balances that out a little bit. Someone said, ‘Why do you have so many pieces to this plan?’ Because that’s what brings the balance to it. So if everybody sort of puts something in the offering plate as it comes by it’s a little more palatable.