Tough Sledding for Alaska

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The Alaska Legislature resumes work today, amid much ongoing discussion of the state’s economic woes, including a $2.7 billion annual budget deficit. Important decisions lie ahead about how to stabilize the state’s finances and return to the days when Alaska’s economy hummed and people saw it as a land of opportunity.

As PACE wrote in December, raising taxes on the oil and gas industry, whether through new levies, or by removing long-standing incentives or credits, is the wrong way to address the financial quagmire. The oil and gas industry has faced over a decade of dizzying policy changes that make the long-standing fruitful government and industry partnership much harder to sustain.

H.B. 111, enacted in July 2017, removed some oil and gas tax credits last year.  Alaskans who want the state to get back on the right path by encouraging the industry to stay and expand its footprint should be watchful this session.

Signs that anything could happen abound. The legislature is being asked to consider paying for more government services by tapping the Permanent Fund for nearly $2 billion – a first since the Fund’s establishment in 1976. In December 2017, Governor Walker proposed a three-year payroll tax to raise revenue for infrastructure projects.

The heightened discussion about how to find money to pay for basic state government services means that the deliberations of a small working group becomes even more important. H.B. 111 set up a bipartisan and bicameral Oil and Gas Fiscal System Working Group, chaired by Rep. Geran Tarr and Sen. Cathy Giessel. It meets again this week, on January 18. At an organizational session in October, the members engaged in a thoughtful discussion of how to attract more oil and gas investment, especially more exploration and drilling.

As PACE observed last month, higher taxes on the oil and gas industry are clearly not the answer. The state has tried this option for over a decade, yet failed to close the gap. Instead, raising taxes on oil and gas has likely deepened the state’s fiscal woes by targeting the industry that provides or supports one-third of Alaska’s jobs.

Even though it will be tough sledding, it’s time instead for the legislature and Governor Walker to fully and honestly examine the causes of widely diverging revenues and expenditures and fashion creative and effective solutions. Lawmakers can reassure many Alaskans by demonstrating early on that the enduring partnership between the state, its citizens, and the oil and gas industry is valued and viewed as integral to creating a brighter future for all.