By Jenny Neyman
Yes, oil prices have fallen from over $100 to under $50 a barrel, the state is now facing about a $3.2 billion hole in its operating budget, will have no capital project funding to speak of next year and is in danger of its bond rating being degraded if it doesn’t get its financial act together.
But to Kenai Sen. Peter Micciche, the situation isn’t all bad, if it leads to good decisions.
“A good part of the industry in the state of Alaska is state government. It’s going to be hard to reel in and separate the wheat from the chafe on necessary or essential services versus things that aren’t quite so necessary,” he said. “And when things were tight I’m not sure that they pinched back. We always got saved by the price of oil. I frankly don’t think it’s an entirely negative thing that we’re challenged on our number one commodity price right now, if we use the opportunity wisely.”
Micciche held a town hall meeting at Kenai Peninsula College on Dec. 2 to update constituents before the second half of the legislative session convenes Jan. 19. Much of the two hours of presentation and discussion with the 70-plus-people who attended focused on the budget.
The good news is, the state’s unrestricted general fund has already been cut from around $8.5 billion to $4.9 billion since 2013.
“Pretty significant cuts. So when you hear people talk about the ‘runaway cost of government,’ that’s simply not the case,” he said.
The not-so-great news is some of the cuts were made in haste, and perhaps, in error, he said.
“Some departments we have cut too far. If you call the state troopers now because of a burglary at your home, they have to choose as to whether or not they’re going to respond. They’ve been cut pretty deeply — too deep, in my opinion. So we actually have to return some funding to some departments, and there’s room to cut in others,” he said.
The full-on bad news is the budget hole won’t realistically be filled by a rebound in oil prices, nor the continued tapping of the Constitutional Budget Reserve, nor will it be bridged by continued budget cutting.
“We can make spending more efficient. We can combine departments and administrations, but we can’t cut to the point where we’re at $2.2 billion operating budget. That just doesn’t work,” he said.
That means raising revenue, to fund an acceptable level of state services.
“I don’t want to raise my kids in a place that has a terrible educational system, really poor roads, and that isn’t safe,” he said.
Micciche outlined several revenue options. One is repurposing financial assets — which could mean re-evaluating use of the permanent fund — possibly capping dividends and using fund earnings to help pay the state’s bills. Modifying non-oil and gas taxes is also on the table — including taxes on fishing, mining, motor fuel, the corporate income tax rate and sin taxes, like on tobacco, alcohol and marijuana.
Oil and gas taxes and tax credits need a reboot, as well, he said. Micciche sings the praises of the reworking of the oil and gas tax system that passed in Senate Bill 1, which he helped author, though he thinks it could use some tweaks.
“The new oil rate — that’s the sliding scale that I designed into it — I think we need to look at that. When we were finished with it in the Senate, the House fiddled with my 35 and 5, and they put a higher number at the lower end. I think we need to put in that the original curve, which would have delivered a couple hundred million more dollars to the state,” he said.
He’d also like to see Cook Inlet production taxes, a hazardous release surcharge and natural gas reserves taxes evaluated.
Finally, Alaskans will likely have to contribute, potentially in the form of a statewide income, property or sales tax.
“There’s a tax here that would affect all of us in this room. And if the CBR (Constitutional Budget Reserve), the (permanent fund) earnings reserve option, or the price of oil does not recover, we’re going to have to talk about some of those taxes. And we’re going to have to make them broad-based so that it doesn’t sink a particular demographic,” he said.
Micciche said he leans toward a statewide sales tax.
“People who earn more generally spend more,” he said, noting that Alaskans’ tax burden is the lowest in the country.
Once the budget is brought in line with the state’s current financial realities, the next hurdle will be keeping it there.
“Spending in state has largely been a function of income. They like to throw a lot of capital money around when there’s a lot of money in the coffers of the state. We need to get to the point where there’s a clear-cut set of criteria where we’re going to spend in capital when we catch up this fiscal gap but need to remain responsible in agency spending, but it should not fluctuate with revenue,” he said.
Micciche encourages his constituents to stay in touch.
“Our rule is we call everyone back. I read every email. We have great staff that’s always standing by. If, for some reason, you don’t hear back from us, I want to know. We appreciate your emails, your testimony. We respect your individual perspective. I believe the right answer is always somewhere in the middle. We want to hear from everyone,” he said.
His office while in session can be reached at 1-800-964-5733, and his Kenai office is available at 283-7996.