Legislature steps up for Round 4

JUNEAU — State legislators gathered in Juneau on Monday to “gavel in” for the fourth special session of 2017. Gov. Bill Walker had called the session to make one last try at a fix of the state’s broken fiscal system before the regular 2018 session in January.

What was once a side-issue, repairing a criminal justice reform bill passed by the Legislature in 2016, is now dominating the Legislature’s attention, prompted by a wave of petty crime mainly in Anchorage and the Mat-Su Valley.

Through Monday and Tuesday lawmakers dealt mainly with procedural issues and a reshuffling of committee assignments in the Senate to fill seats on committees held by Sen. Shelley Hughes, (R-Palmer), who is being punished for voting against the Senate majority’s budget last spring.

Hughes lost her seat on the Senate Finance, Labor and Commerce, Resources and Joint Armed Services committees but retains her seat on the Education committee. Sen. Mike Dunleavy (R-Wasilla), was similarly punished the year before for voting against the majority on the budget.

Both senators said the budget was too high.

Also on Tuesday, a new House-Senate working group on oil taxes met to begin a review of state petroleum taxes required by House Bill 111, a tax bill that was passed last spring. On Thursday legislators will take up the fiscal issue in committee hearings.

With the session just two days old, sharp divisions have already developed among legislators, with Democrats in the House and the governor favoring what is basically a repair job on Senate Bill 91, the 2016 crime bill, while Republicans, pushed by angry constituents, favor a total repeal of the bill.

The limited fix of the crime bill is in Senate Bill 54, which was introduced in the regular session earlier this year, but not passed, and which is now being brought into the special session. It would mainly reimpose jail time for minor offenses, a change made in SB 91 that has been criticized mainly by merchants hit hard by shoplifters.

As for finances, whether the Legislature can deal with the problem in the limited special session, which can last for 30 days, or even the regular 2018 session, which can last for 120 days, is very much in doubt. This special session is not expected to last the entire 30 days. Most estimates are 14 to 21 days.

The state is continuing to run back-to-back multi-billion dollar deficits and is fast draining cash reserve accounts. The governor wants to get the fiscal fix done during a special session when lawmakers can focus their attention. During the regular session, which begins in January, legislators will be preoccupied with preparing another state budget and upcoming state elections in August and November.

A solution to the fiscal problem is on the table in Senate Bill 26, which involves use of some of the Permanent Fund’s earnings, modifying the Permanent Fund annual dividend, adopting a possible broad-based tax on citizens and continued budget cuts.

Democrats in the state House are proposing reestablishing a personal income tax, which the Republican-led Senate has resisted, while the governor has put forth a “wage” or “payroll” tax, an annual tax on employed persons that would be somewhat linked to income but would not a true income tax.

“We are proposing a payroll tax of 1.5 percent of wages earned by Alaskans and non-resident workers, capped at $2,200 or twice the previous year’s permanent fund dividend amount, whichever is higher,” state revenue commissioner Sheldon Fisher said in a briefing.

The proposal is expected to generate between $300 million and $325 million per year, about 15 percent of which is expected to come from non-resident workers, who in 2015 earned more than $2.7 billion,” Fisher said.

The personal income tax in HB 115, passed by the House, but not the Senate, would have brought in over $600 million in new annual revenues.

If only the Permanent Fund earnings and dividend modification were to pass the treasury, it would net about $1.8 billion in new annual revenues. If traditional sources of income, mainly from oil but also a variety of smaller taxes, continue as expected, the state will receive about $1.5 billion yearly. The total between the two would be about $3 billion per year.

Assuming a status-quo state general fund budget of about $4.2 billion, the remaining gap is some $1.2 billion. However, even if spending were held constant in total dollars, money for services would still be squeezed because of inflation and certain cost increases built into the state budget, mainly health care for state employees and retirees.

Even if a new broad-based tax were to pass, there would still be a budget gap of several hundred million dollars a year, but the billion-dollar-plus deficit would be gone, which would extend the time the state can draw on remaining reserves.

New budget cuts will be considered to deal with part of the remaining deficit, but the governor argues that massive cuts have already been made in recent years.

“We have cut more than 44 percent from state spending over the last four years while drawing $14 billion from savings,” Walker said in previous statements.

“With the downturn in oil prices, it’s clear that we must find a new source of revenue to pay for troopers, teachers, transportation and other essential services. We must end the uncertainty for a healthy state economy,” the governor said.