State official: Governor open to 'discussion' on new taxes

New state taxes are on table for discussion next spring as the Legislature and Gov. Mike Dunleavy figure out how to deal with a projected $1.5 billion deficit for state Fiscal Year 2021, the budget year that begins next July 1. The Legislature and the governor must approve the budget, including how to cover the funding gap, before June 30.

For the first time in years there may be serious talk of new revenues.

The governor is open to a discussion on new revenues, said Laura Cramer, Deputy Director of the governor’s Office of Management and Budget and these could include higher fuel taxes or a state sales tax. Cramer spoke in a Dec. 18 briefing to Commonwealth North, an Anchorage policy group.

Dunleavy himself said he expected the Legislature to engage the tax topic and that he would discuss new revenues in a public dialogue over spending for programs and possible new revenues next year. The governor’s comments came as he released his proposed FY 2021 budget on Dec. 13.

Cramer said, “There are no revenue increases (in the new budget) but the governor is open to a conversation. He will put no ideas forward, but he is willing to have the discussion.”

Dunleavy also said Dec. 13 he will push again for “full funding” of the Permanent Fund Dividend, or PFD, referring to a formula in a state law that guides how the PFD is to be calculated. But that’s only if the Legislature decides to authorize a PFD, and if the funds are available.

If the statutory formula is following the PFD would be about $3,000. The Legislature authorized a payment of $1,600 for FY 2020 (it was actually paid in 2019, in October). In the Commonwealth North briefing Cramer also said the governor will seek a supplemental appropriation to the current year budget to pay the difference between a $1,600 PFD and $3,000 dividend in an additional payout, which would amount to $847 million if it is paid.

Meanwhile, for next year, or FY 2021, the $1.5 billion gap between revenues and state expenditure is covered by a withdrawal from the Constitutional Budget Reserve, a state savings account. That’s just a “placeholder” action, state officials acknowledge, because, by law, the governor must submit a balanced budget.

Ben Stevens, the governor’s Chief of Staff, said there will be discussions with the Legislature as to how to cover the deficit.

If legislators do not fund the $3,000 PFD, and instead pay the same $1,600 this year, it would reduce the deficit because less money would be spent on the dividend – about $850 million less is likely. That would more than cut the gap in half, but the Legislature will still have to fund the remaining deficit either by reducing spending or raising new revenues, such as through new taxes.

On other budget issues Cramer said the governor proposes to pay municipal school debt reimbursement at 50 percent what would be paid under existing law, as was authorized in the current budget. Last year Dunleavy had proposed cutting all municipal school debt payments by the state but then agreed with the Legislature on a 50 percent reimbursement,

Legally, the obligation for payments on local school bonds rests with the municipality that issued them – the state reimbursement for part of the costs is not binding. However, it does leave local governments like the Matanuska Susitna Borough stuck with the difference between full and half payment.

For the current years the borough was able to cover the difference by drawing on reserves and cutting other spending and avoiding the need to increase property taxes. That may be difficult to repeat next year.

Cramer said there were few reductions to state agency budgets in the governor’s new spending plan and increases in some programs where expenditures are tied to formulas, such as for state K-12 school funding and public employee pensions.

However, the administration is aggressively pursuing a number of efficiency measures that will result in savings, mainly through consolidations are sharing of services like information technology and human resources.

Dunleavy also has an assumed amount of supplemental appropriations built into his budget released Dec. 13 but Cramer acknowleged these are just educated guesses. More precise figures for programs like Medicaid will be available in early February, when the governor must submit a request for supplemental appropriations, she said.

One of the reasons for the need for a Medicaid supplemental is that the state Department of Health and Social Services, “was unable to achieve $120 million in reductions,” for which it had set a goal. Based on the planned reductions the Legislature reduced the Medicaid appropriation and the governor cut more though a line-item veto. The result was an underfunding of Medicaid and now the need for a supplemental.

Medicaid is a joint federal-state program where the eligibility for low-to-modest income Alaskans and the disabled are set out in federal law. Service cannot be denied until the requirements are changed by the federal government.

One continuing problem is the lack of a significant state capital budget. The proposed FY 2020 budget would see $135.6 million in state undesignated general funds appropriated for capital needs, much of it as the required state match to federal construction funds for highways, airports and rural safe water and sanitation projects.

The proposed amount is down from $146.8 million spent this year.

The capital budget has no money for the state’s deferred maintenance backlog on public buildings, which now totals about $2 billion and growing. About half of the deferred maintenance, or about $1 billion, is in University of Alaska facilities.