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Wednesday, March 20, 2019
HomeColumnsJuneau artist adds voice to budget discussion — through animation

Juneau artist adds voice to budget discussion — through animation

By PAT RACE
GUEST CONTRIBUTOR

I want to thank Must Read Alaska for lending me a few pixels to share this short animation I made about the State of Alaska’s fiscal situation.

I grew up in Juneau and studied computer science at the University of Alaska Fairbanks before moving back home and starting a small business with my college roommate. I’m the third generation of my family to graduate from UAF so I’m naturally a little concerned for the future of the school under the Gov. Michael Dunleavy budget proposal.

My dad is a long-time Republican who grew up in the Nyac mining district, northeast of Bethel, and Juneau. He ran against Rep. Beth Kerttula a few times and I helped with his campaign. My mom is a Democrat who served as a public librarian for 33 years and now she’s a happily retired yoga instructor. Like most Alaskans, I’m somewhere in the middle of that ideological spectrum.

I’m proudly registered nonpartisan and I think Alaska needs conservative fiscal hawks just as much as we need progressives advocating against corporate colonialism. The state’s interests are varied and the best answers are often found through hard questions and earnest compromise.

I’m not a fan of the proposed Dunleavy budget. It’s a tough hit to services like the Marine Highway System and K-12 education in addition to shifting costs to municipal governments. I don’t think Alaskans are going to get behind it.

I like what I’m seeing in the Legislature in response to the Dunleavy budget. Democrats and Republicans are working together in the House, and Senate Republicans haven’t been pitching softballs.

I might be barking up the wrong tree by writing an op-ed for Must Read Alaska, but this fiscal conversation is the biggest question facing our state. And I know Must Read Alaska’s readers ultimately care about Alaska and want what’s best for our future.

Personally, I believe the State provides valuable and essential services that can’t be delivered by the private sector. I believe we have a corresponding obligation to our fellow Alaskans and I think we need to step up and pay for shared services through an income tax.

I know there are other answers and other perspectives and I look forward to reading your comments. Even if you view it critically, I’d appreciate you sharing this video. I hope it can be a good gateway into this discussion.

Full Disclosure

Editor Suzanne Downing asked that I disclose the funding source for this project and I think that’s completely appropriate. This project was funded by Rep. Justin Parish of Juneau before he left office. He allocated $5,000 from his office expense account, which covered about 50 hours of my production time. My crew and I put at least 250 hours into the project.

While they are State funds, office expense accounts are used at the discretion of legislators and frequently cover constituent newsletters and travel to partisan conferences or trainings. Up until 2013 office expenses were also used as extra cash income.

I had help from Rep. Parish’s staff and former Walker Administration Tax Director Ken Alper in collecting the data, most of which came from the Revenue Sources Book.

There were no editorial shackles and this wasn’t a part of a partisan strategy. What you’re hearing in the film is my voice in both a literal and editorial sense.

Pat Race is a Juneau businessman, entrepreneur, and artist.

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Suzanne Downing had careers in business and journalism before serving as the Director of Faith and Community-based Initiatives for Florida Gov. Jeb Bush and returning to Alaska to serve as speechwriter for Gov. Sean Parnell. Born on the Oregon coast, she moved to Alaska in 1969.

Latest comments

  • So Pat, if an income tax will only bring in @$350 million at best, then do you think we can tax our way to a sustainable budget or will we need to make a lot of cuts still? Also I think beauracracies have a hard time getting efficient unless they’re under financial pressure. I went to UAF over a 30 year period for 3 degrees, mostly done part-time, so I was up there many years, and the beauracracy just kept increasing, and there have been third party reports that the system has too much middle management. Do you agree about the “efficient” statement, and do you think UAF could use a little more efficiency?

    • Hi Lance,
      I do think cuts can and will be part of the solution. Expenditures need to meet revenues in the long run. But that can be achieved by making modest cuts and also increasing revenue. I think we’re better off with a balanced solution than all of one or the other.

      I do think there will always be room to find efficiencies at UAF. Technology changes, working habits change and it’s a large system that should be under an ongoing process of improvement. I don’t think downward financial pressure always achieves that goal though. I think you’ll find that sometimes financial pressure just creates stress and more inefficiency.

      It’s simply understood that if you need to fix your car it will take some extra cash. When education needs to be “fixed,” politicians often think you can change out the engine for free. It’s a process that takes time and/or up front investment for payoffs down the road.

      All my best,
      Pat

  • We need an appropriation limit; we need Governor Dunleavy to reduce the budget to match our revenues; we need to recognize that the Earnings Reserve will disappear at about the same rate that the PFD diminishes due to over-use by the Legislature. $500 million in Earnings Reserves this year can be eliminated over the next 5 years and still replenish the Earnings Reserve each year.

    BTW, the PF Corp did not give Governor Walker the money he took from the PFD’s. That money is sitting in the Earnings Reserve, which is a fund within the Corpus of the PF. It’s invested in more liquid investments than the Corpus.

    • Hi Beth,

      If you watch the animation I made, I am very much sounding the alarm on chewing through our earnings reserves. I agree that we need to protect the Permanent Fund.

      I think having an income tax helps to relieve some of the fiscal pressure protects the permanent fund. I also think we need to re-examine our revenue generated from our resources and make sure that’s in line with expectations. I think the oil industry gets a pretty good deal here and has successfully tamed our legislature.

      Look at the revenue we’ve received over the last several years, they’re pretty low.

      I know it’s popular to malign Gov. Walker on the PFD cuts but please remember that cut was also made by a the legislature in following years. In fact, many legislators privately thanked Walker for taking that hit the first year he used the line item veto to reduce funding.

      • We do not need an income tax. Since you understand the Earnings Reserve, then you also understand that 80% of the time the 50% split adds to (or replenishes legislative withdrawals) every year. That is the Legislative Savings account. They could easily take $1 Billion a year and have the Earnings Reserve available in potential perpetuity.

        • If we reduce spending, save the PFD so it does what it’s meant to do, and still need more money for state government, what do you propose? A sales tax? (At least that might garner some income from tourism as well?)

          • Use a small portion of the Earnings Reserve, say $500 million (it’s actually replenishing itself at about $1.5 to $2 billion per year over the last 6 years ). PFD’s are not paid out of the Earnings Reserve, they’re paid out of the Earnings and so is the Earnings Reserve. About 49% to the People, 49% to the Earnings Reserve and 2% for inflation proofing.

          • I don’t support a sales tax. I think that’s the domain of the municipalities. That’s actually one of my biggest problems with this proposed budget, how much it shifts the fiscal burden to municipalities. We need to solve problems, not move them around.

        • We do need to be careful with our reliance on those earnings. There are scenarios where the market thins and we chew through our savings. Bolstering our savings with an income tax that captures revenue from out-of-state workers helps.

          If you read about Gruening and the original state income tax, you’ll see that an income tax was an essential part of building the foundation for statehood.

  • As long as the State is handing out cash to every Tom, Mary, and two-year old who breathes Alaskan air for 185 days a year, I am not interested in giving them any of my hard-earned money. They can put all the oil money in the Permanent Fund, not give away half of the earnings, and use the Permanent Fund Earnings to use on legitimate governmental purposes: education public safety, transportation, etc. Some programs will have to go away. They were nice when the State had more money than sense, but those days are over. Using the average earnings over five years as a limit will damp out the volatility of the oil patch and give them a reasonable target for what is available for needs. Wants may have to wait.

    • Hi Bosco,

      That sounds like a possible solution but the shift from the existing system of dividends to the method you propose means we’re asking every Alaskan to give up the same dollar amount to fund government. I’m not on board with the idea of taking the same amount of money from a rural kindergartner as from a 185 day/yr slope worker. It clearly has a different impact.

      What makes more sense to me is an income tax that claws back dividends.

      Once you’re actually making a financial contribution to the state, Alaskans will have a lot more standing to say what that money is spent on and I think the legislature will be held to a much higher standard by citizens.

      • I agree. That would be like over-taxing the poor.

      • I might agree with you, if we had done anything to earn this check. We don”t. It is largesse with no governmental purpose. a large portion of which gets sent to Washington DC.. Your solution creates two bureaucracies, one to hand out money and another to claw it back from those who participate in the economy while allowing those who don’t participate to keep their gift. Those who don’t participate still have kids in school, have public safety concerns, and want roads and airports, but you expect everybody else to fund it for them. If you want to create a smaller welfare program to help those truly in need, fine. But don’t send $3000 checks to 615,000 people to do so, then tax 300,000 of them to provide all the services that the original amount could have paid without the extra cost of an extra agency (and all their gold plated benefits).

        • The two bureaucracies criticism is a common dismissal but I think there’s a possibility of a creative solution. I’d like to see resource revenue and permanent fund earnings treated more like tax credits for the purpose of a state income tax. It would create more connection to the resources in the ground, the earnings in the bank and the tax dollars coming out of our pockets.

          I disagree with your fundamental assumption that we the check serves no purpose. It was created with the purpose of giving us a stake protecting the fund and it’s serving that purpose as we have this conversation.

  • As most Alaskan’s only pay motor fuel tax and “sin taxes” they have no skin in the game. We live in a state where the government pays us more to live here than we pay in taxes for services. Hmmm is that socialism’s?

    • It’s not socialism, it’s more like communism. We collectively own and benefit from the natural resources held in common. It’s the Owner State.

      But the part that comes along with that ownership that I think we’ve been ignoring over the past couple of decades is that “corresponding obligation.”

      If we had been collecting taxes for the past thirty years and had been responsible about saving, we might today be looking at a sovereign wealth fund perpetually providing for state services while also paying dividends.

      It’s not too late to work towards that and it’s what we’re going to need once the oil supply or prices dwindle.

  • Thanks for your clear-eyed analysis and high quality presentation, Pat. The son of life-long republicans, I was also raised to understand that people don’t value something as much as when they have some skin in the game. That’s why they made me pony up my fair share for my first bicycle, drum set, car, education, etc.

    Instead of raiding the PDF and giving pols a free check, its past time for all those who work in our state to pony up their fair share- just like we used to before we got used to BIG Oil paying for everything.

    • Thanks Clay, I agree.

  • Thanks, Pat – great job explaining some complicated concepts in such an accessible way. Thanks especially for your efforts to tamp down the rhetoric and generate reasoned conversation around an agreed-upon set of facts.

    • Thank you Rebecca.

  • Your video seems to only address the revenue side without talking about the expense side. So, Pat, how would you improve our K12 education system? More money? Do you believe the State should maintain all the rural airports, including those in the North Slope Borough which is so awash in $$ that it has its own Permanent Fund?

    • My video does address the expense side. It points to our expenses being as low now as they have been in the past 40 years.Sure, we can make some cuts and find some efficiencies. But ultimately we need to raise revenue to support our state services.

      It’s simply understood that if you need to fix your car it will take some extra cash. When education needs to be “fixed,” politicians often think you can change out the engine for free. It’s a process that takes time and/or up front investment for payoffs down the road.

      I’m not sure about the rural airports, I don’t know much about that program. I do think the state has an obligation to serve and support rural Alaskans and I suspect access and shipping are high priorities for them.

      Many of our resources come from rural Alaska. Much of our wealth is extracted from remote communities. I don’t think it’s fair to take that wealth and just concentrate it in few metropolitan areas.

      Have you been to the North Slope Borough? It isn’t like they’re all driving around in gold cars and building opulent sky scrapers with their oil wealth.

  • Most Alaskans in Southeast, Southcentral and the Interior not only pay motor fuel tax (planes, cars, boats, ATVs), cigarette tax, alcohol tax (depending upon lifestyle) and property tax. Even renters pay property tax, they just don’t see it. Additionally, communities like Palmer, Houston, Wasilla and others more rural and remote pay a general sales tax along with the surrounding non-citizens of those cities and towns.

    A Flat Tax won’t help because it still takes money from those who have none to give. A state sales tax would garner $$ from tourists, out-of-state workers and each of us. The difference is, WE decide how much we spend for Alaska.

    But, we don’t need any kind of tax. We have the Earnings Reserve, gold mines, timber, fishing, bed taxes, jade, rare earth, jade, lime, copper, coal … and a whole industrial area at Pt. MacKenzie for value-added manufacturing. Getting these going will generate more of those resource extraction, etc., fees and fines than any personal taxes could ever achieve.

    • The sales tax has historically been the domain of the municipality. If the state cuts into that revenue or adds more viscosity to trade by adding another layer of sales tax, I think we’ll hurt the municipal bottom line.

      The state budget solutions are a shared burden but as much as possible, we should avoid shifting our problems from state government to city government.

      For gold, timber and jade to make meaningful contributions to the state budget, we’re going to need to see a monumental level of growth in those sectors. And that growth would come at the cost of thinning services because without an income tax, growth is a curse. The more we grow, the less there is to go around because no one contributes.

  • First off, I love computer animated stuff you do. Nice work!

    I am ALSO a graduate of UAF (Broadcast/TV/Film) and am also concerned about the direction
    of the state. AND I am a registered independent. I don’t think either party has all the answers.
    Too often, the answer’s that either party has for a problem, helps those who are it’s ‘core voter’s’
    and hurts the ‘core voters’ of the other party. Logical for a politician wanting to be reelected maybe
    but not good for the state or country as a whole. So here goes my solution which will basically
    make both parties mad with me.

    While I agree with much of what you say, I differ slightly in the approach I would take to the fiscal crisis/’situation’. First, I would like to return to the ACES oil tax structure which I might add, was championed by Republican Gov. Sarah Palin (yes that Sarah Palin) and co-championed by many Democrats in the legislature, such as D-Hollis French from Anchorage. (I know this, because I worked covering the legislature as a TV news videographer/editor for about 10 years.) When Democrats and Palin agree on something, either the world is ending, or maybe there is an actual good idea in there somewhere!
    Secondly, I favor a ‘POMV’ approach to the Permanent Fund with a targeted amount to go to fund state government every year. This can help a good bit. However, we need to continue to ‘inflation proof’ the fund. That is VERY important. As for Dunleavy’s approach to ‘pay back’ the PFD’s from the last couple years, I’d rather that money stayed in the Permanent Fund and continued to make money to fund our state into the future. Taking a ‘short term’ view of ‘give me some money now’ at the expense of future Alaskan’s seems selfish.

    Now these two ideas are nothing new. They actually form two of the ‘three legged stool’ approach,
    favored by Democrats in the last legislative session. So far the Republicans are mad at me and the
    Democrats are generally happy with my proposal. However, now we come to the ‘revenue generation’
    portion of the ‘three legged stool’. And this is the place I have a bit of a different approach to things.
    I am NOT in favor of an income tax. At least not the one initially proposed…which was using the
    Federal income tax as a guide and having Alaskan’s pay a percentage of what their Federal income
    tax was as a state income tax. Now this is what will make the Democrats mad at me, because they
    seem to think that the income tax is the only revenue generation tool which is ‘fair.’
    But before we get into this too much, let’s first, lets talk about income taxes.
    Many will mistakenly claim that Alaska has ‘no income tax.’ Which isn’t exactly true. It IS true,
    that if you work for the government (as many in Juneau do) you do not pay a state income tax.
    If you work for someone else, you are not paying any sort of income tax……not to mention your
    employer pays half of your Social Security and you may even get health insurance and some
    sort of retirement plan. However, if you do not have the privilege of a government job, and instead
    make your living in the private sector, as a business owner, things are a bit different. Alaska actually
    DOES have a corporate income tax. And guess what? It’s actually one of the highest in the nation!
    /Users/gabestrong/Desktop/AK income tax rate.jpg
    https://taxfoundation.org/state-corporate-income-tax-rates-brackets-2018/
    Now many people these days seem to associate ‘corporations’ with ‘rich, evil, greedy, bastards.’
    No sympathy is wasted on corporations. However, most small businesses are actually…..
    a form of a corporation! (care to guess what the C in LLC stands for?). Look at the above link.
    Now let’s take a small business/corporation and assume makes a profit of what would be considered
    a ‘upper middle class lifestyle’ in Juneau…..maybe $150,00 per year. But, that’s not the same as a
    government worker who makes $150,000 per year. See the owners of the corporation has to pay for
    their own health insurance. Their own retirement. AND they have to pay income taxes…..because their
    profit is income taxed at the corporate income tax rate….again you can look at the above link to see what
    percentage a small corporation will pay on their profits in Alaska. But hey, they are just a ‘evil corporation’
    so who cares right? (yeah I’m being sarcastic here.) As I mentioned earlier, another problem I had with
    the initial income tax which was proposed, was that it was based off of your federal income taxes.
    According to Market Watch, 44% of Americans pay no federal income taxes
    (https://www.marketwatch.com/story/81-million-americans-wont-pay-any-federal-income-taxes-this-year-heres-why-2018-04-16)
    Now Alaska already has a small population. If we take 44% of the population out of the mix, because
    they pay no federal income taxes, you are basically asking 56% of an already low population to
    ‘carry the load’. If you are a middle class small business owner, struggling to get by, and you
    already pay corporate income tax, maybe you can see why this wouldn’t be a popular option for you.
    However, I’m not here just to rip on ideas but to propose alternate solutions, including a scenario
    with an income tax…..which admittedly is not my first alternative.

    Let’s start with the issue of tourists. As anyone in Juneau knows, they use our roads, our parks, our trails,
    our hospitals and emergency services, and on and on. And they pay nothing. Because of this I would
    propose a statewide sales tax instead of an income tax. This would allow tourists to contribute to
    the cause. It would also be an easier ‘sell’ to many Alaskans as a sales tax is generally seen as
    less ‘invasive’ than an income tax (you can limit your tax burden by limiting your spending.)
    However, most Democrats will not even discuss a sales tax as they claim it disproportionately harms
    lower income people who must after all buy groceries. To combat this, I would exempt food purchases
    from the statewide sales tax. This would be my preferred ‘revenue generation’ source.
    However, in the interest of working with those who see things differently than me, I will offer
    yet another idea. As I said, an income tax is seen by many Democrats as the ‘preferred’ alternative
    as it targets the ‘rich’ and exempts the ‘poor’. If an income tax was to be implemented, I would propose
    a credit be given to anyone who is already paying a corporate income tax. This would reduce or eliminate (dollar for dollar) any statewide income. tax which they would otherwise owe. Further, I would propose
    that EVERYONE pay something. No ‘get out of taxes free’ because your income is too low here. If we
    want people to have ‘skin in the game’ then EVERYONE should have skin in the game. It could be capped
    at $100 for low income people. It could be a percentage of your income. I don’t really care how that works
    but I sincerely feel that if we are asking some residents to pay an income tax, everyone should pay something.

    Just my thoughts on the matter. Thanks for reading!

    • Thanks for sharing Gabe, the details are going to be hard to work out but it does sound like you’re thinking in the same general direction. The solution needs to be a balance of many approaches and perspectives and it’s good to hear your thoughts.

      I do think turning back the clock to ACES would be an uphill battle. But we can move forward and we should constantly be evaluating our relationship with industry to make sure we’re getting the best deal for Alaskans. Something that balances solid returns for the state with high production standards and a mutually beneficial production environment.

      • In the interests of fairness I would like to clarify that not all
        LLC’s pay income tax in Alaska…..some S corps are also exempt
        (it depends on how you are setting up your business and it’s very important to have good professional help here so as to know what
        the best options are for you.) So, hopefully people don’t misunderstand. But the point is, that there actually are those (even ‘middle class’ types) who are paying income taxes in Alaska. Not everyone earns their living through working for someone else, and sometimes it seems that there
        is a basic lack of knowledge about the issues that business owners have.
        I recently had a discussion with someone about the additional expenses that an employer has for each employee. This person swore up and down
        that employees pay all of their own Social Security taxes and did not
        understand that an employer actually pays half of the employee’s
        Social Security tax for them. Business owners (who already pay a
        good amount of taxes in many forms) are pretty important to keep
        Alaska’s economy going….not everyone can just work for the government!

        I do think the solution needs to be a balanced solution so as not to put too much of the burden on any one group. I also think some sort of
        ‘readjustment’ on oil taxes should be part of the solution. Not wanting
        to screw the oil companies over either, I’m pro business after all, but
        what is currently happening doesn’t seem quite right.

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