Mat-Su senator proposes first new revenue measure for 2025 legislative session

State legislators in Juneau are dealing with what may be a $500 million hole in the fiscal 2025 and 2026 state budgets and leaders in the State Senate are talking about a need for new taxes.

Not surprisingly, lawmakers appear to be turning first to taxpayers who can’t vote – oil and gas companies.

The first new revenue bill getting serious attention in the new Legislature, however, is sponsored by Mat-Su’s Sen. Rob Yundt, a conservative Republican.

Yundt’s fellow conservatives in the Senate don’t like the bill, Senate Bill 92. Sen. Mike Shower, R-Mat-Su, for example, said he opposes it. But leaders in the Senate’s Majority coalition, which is led by Democrats, like the idea. Yundt’s bill could raise $180 million next year which could go a way in filling the projected deficit.

Hearings began in Senate Resources Committee last Wednesday on SB 92, Yundt’s bill. The legislation sets up new state corporate income tax for oil and pipeline companies organized as “S” corporations rather than “C” corporations, the structure used by most large businesses.

S corporations are exempt from the current state corporate income tax because the federal tax liability is instead held by shareholders of the corporation, which are typically a small number of individuals. In contrast, with “C” corporations where the state corporate income tax is paid by the business.

Because Alaska has no personal state income tax the shareholders wind up paying no tax, thus creating a loophole. The bill is really aimed at Hilcorp Energy, a major Alaska oil producer that is organized as an S corporation.

Yundt’s bill is a bit awkward as the first legislation by a conservative new senator but he argues it as a fairness measure in “leveling the playing field” between Hilcorp and other major Alaska oil producers that are C corporations, and which do pay state corporate income taxes.

Gov. Mike Dunleavy is also cold to the idea of any tax and is considered likely to veto SB 92 if it passes the Legislature.

Other new oil tax bills may be in the works. In a briefing by Senate Majority leaders last week Sen. Lyman Hoffman, D-Bethel, said new revenues are being discussed in the Majority caucus but that a state income or sales tax is not being considered. That leaves taxes on oil to fill revenue gaps. Another idea broached by Sen. Bill Wielechowski, D-Anch. is a change in oil production tax credits allowed to petroleum producers under the state oil and gas production tax.

Senate leaders are meanwhile warning of widening budget deficits out to FY 2028 after a recen briefing by the nonpartisan Legislative Finance Division. Oil production and prices are expected to be flat or slightly down. A bright spot in the revenue picture is the projected increase of the Permanent Fund’s annual budget contribution from $3.65 billion this year to $4 billion in 2028.

Still, state operating costs are rising and schools, among others are pushing for funding increases to offset inflation. Even Republican legislators acknowledge the probems rising costs and flat state funding are creating for schools.

Overall, for the current FY2025 state budget year, which ends June 30, a deficit of $140 million is estimated. For FY2026 the budget which legislators are preparing now and that starts July 1, a $400 million deficit is seen. The two-year deficits total about $540 million. This is the amount that legislators will have to find this spring.

In last week’s Senate briefing Hoffman said the Finance committee, so far, is working with an assumed state capital budget of $300 million, mostly for construction; $29 million for new state employee labor contracts which are typically agreed in late spring; a contingency for the 2025 wildfire suppression and a Permanent Fund Dividend following the “75-25” split as last year (75% of the annual payment from the Fund to the state budget and 25% to the dividend).

A major new uncertainty is how the federal government changes by President Trump and shadow-President Elon Musk will affect Alaska. Forty percent of Alaska’s overall budget is federal dollars. Here’s one to watch: If Trump undoes the enhanced federal share for the expanded Alaska Medicaid population this will increase the state’s requirement to fund Medicaid. It could be a major new cost factor going forward.