Legislature starts work this week on governor’s new tax, fiscal bill

The state Legislature will take up Gov. Mike Dunleavy’s new proposed tax and fiscal reform package this week. The first hearings are scheduled Thursday in the House Finance Committee.

Mat-Su’s State Rep. Elexie Moore, R-Wasilla is a member of the committee. No hearings are scheduled yet in the Senate but the first committee to hear the governor’s bill will be the Senate Resources Committee, where new Mat-Su State Sen. George Rauscher is a member.

Among other things the governor is proposing a seasonal state sales tax of 4% in summer, dropping back to 2% in the winter. This would be on top of existing city sales taxes in Mat-Su of 3% in Palmer and 2.5% in Wasilla.

If the state tax is adopted it’s unclear that exemptions allowed in local sales taxes around the state would ne allowed.

However, while Mat-Su residents won’t like new taxes there is something in the plan they will like: A constitutional amendment that would guarantee a hefty Permanent Fund Dividend, or PFD.

Part of the governor’s plan includes the constitutional amendment that also restructures the $85 billion-plus Permanent Fund along with putting the PFD in the constitution. The governor says the restructuring would give the principle, or corpus, of the Fund protection from being “raided” the Legislature.

The restructuring is largely a technical reorganization of the way money In the Fund is handled and has been advocated for years by the Fund’s trustees and is in itself relatively non-controversial. But because it is complex it will have to be explained in way voters will understand it beause they will have to approve the constitutional amendent in a general election.

The addition of the PFD in the constitution will be very controversial in the Legislature, however as well as likely controversial with the public. That’s because putting the dividend in the constitution could have the effect of requiring the Legislature to fund the PFD ahead of other constitutional requirements like public education, public safety and management of natural resources like fish and game.

Other parts of the governor’s package will also draw intense scrutiny. One is a proposal to increase state oil and gas taxes for the first time in years. Criticism of the plan is already developing. More than a decade of stability in the state’s petroleum tax laws have encouraged the industry to make massive new investments to develop new North Slope oil finds. Alaska oil production will be increasing next year after years of steay decline.

Jobs in the industry are increasing too, particularly in construction, oil service companies and eventually with oil producing companies themselves as new oil fields begin producing beginning this year. This is important to the Matanuska-Susitna Borough because many residents of the Mat-Su commute to petroleum jobs on the North Slope.

But new state taxes seem to come at an awkward time. Although things on the slope are very busy there are headwinds developing for the industry on the international level. Crude oil prices are dropping and costs for the industry are rising for materials like steel. The trade tariff wars now raging on the international level are complicating, and increasing, prices for specialized equipment. All of this makes the supply chain for materials and supplies uncertain.

It had been assumed that state tax policy would remain stable, as it has for years, but now that may no longer be taken as a given.