Cut to the budget chase —  Gov. Walker’s administration solicits ideas for filling state’s financial gap

Photo by Jenny Neyman, Redoubt Reporter

Photo by Jenny Neyman, Redoubt Reporter

By Jenny Neyman

Redoubt Reporter

Gov. Bill Walker’s administration stresses that cuts alone won’t be enough to bridge the state’s budget gap.

Theoretically, balancing a budget is a simple mathematical affair — add revenues and subtract expenditures until you reach equilibrium.

But when you’re talking about Alaska’s budget, things get complicated. As Randall Hoffbeck, commissioner of the Alaska Department of Revenue, explained at a Kenai Chamber of Commerce meeting last week, the state’s $4.9 billion unrestricted general fund faces a $2.7 billion shortfall.

“$2.7 billion is $8 million a day that we go into debt. That’s how big $2.7 billion is, and how difficult it’s going to be to close,” Hoffbeck said.

Difficult both logistically and controversially.

“Every one of the options that we’ve put out there has a constituency for and against. No matter what the solution that we ultimately arrive at, it’s going to be controversial, and we’re going to ask some people to make some very difficult decisions in the next year,” he said.

Cutting alone won’t close the gap, Hoffbeck said. The state’s general fund budget already has been slashed from $8 billion in fiscal year 2013, to $4.9 billion last year.

“We essentially could cut out all government programs and you still wouldn’t have a balanced budget. What comes next is more painful than what’s come in the past. In order to really achieve any significant savings in cutting government expenditures now, it comes out of programs,” Hoffbeck said.

So that leaves revenue, but the state’s traditional magic bullet won’t be enough of a shot in the arm to close this gap.

“The reality is that with the tax regime that we have now, the production that we have now and the price that we have now, the three working together really set up a situation where we simply cannot expect oil to bail us out again,” he said.

Repurposing the state’s financial assets could present revenue opportunities, though there are risks in making investment decisions.

“Money generates money, and if we can deploy those assets as efficiently as possible we can generate a substantial amount of revenue to the state if we invest those in a prudent and a little bit more aggressive manner,” he said.

Another option is to modify the oil and tax regime, though Hoffbeck said that Gov. Bill Walker is committed to working within the current structure. Under today’s conditions, that doesn’t leave much opportunity to generate extra revenue.

“At $60 (a barrel) oil, there’s not much money in the system. You could squeeze industry hard if you want to, but there just isn’t the money in the system,” he said.

Cook Inlet oil and gas producers shouldn’t expect their holiday from severance taxes to continue. Nor should Alaskans expect to continue their status as by far the lowest-taxed state residents. A variety of measures are on the table, including an increase in the gasoline tax and adding taxes to e-cigarettes and marijuana sales. Brand- new taxes also are being suggested, including on health care, business licenses, gross receipts, income, capital gains, payroll, sales and property.

And the Alaska Permanent Fund?

“You will see discussions this year on using permanent fund earnings. You may see a cap on the dividend,” he said.

Currently on the www.gov.alaska.gov Web page is an interactive budgeting model that allows people to experiment with various balancing options. And the administration is open to suggestions from the public about how they’d like to see the budget balanced. Hoffbeck said that Gov. Walker intends to draft a plan by the end of the summer to put out for public feedback, then submit a balanced budget to the Legislature.

“It’s going to take some combination of continued budgetary restraint, some kind of tax impacting individual Alaskans, we’re going to have to look at oil and gas taxes and credits, and then strategic use of our legacy assets, and that’s really the only way that we’re going to get there,” he said. “What the proper balance of that is is anybody’s to say at this point in time.”

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