Alaska: Richest state to ever go broke

PERMANENT FUND REACHING HISTORIC MILESTONE

The Alaska Permanent Fund is about to make history again.

The international investment market is strong, the Fund’s portfolio is robust. On Monday, barring a weekend catastrophe, Alaska’s piggy bank will very likely top $60 billion.

For perspective, Bill Gates’ net worth is about $89 billion. We Alaskans have about 67 percent of the Gates fortune. We’ve never been richer.

Or broker, according to Gov. Bill Walker and the Democrats, who want to implement a tax up to $700 million on residents.

The Permanent Fund is making nearly 9 percent gains this year. Not bad for a little sovereign wealth fund that started with merely $734,000 in 1977.

The Earnings Reserve Account portion of the Permanent Fund is now about $11.7 billion. That’s the money that can be used to pay for state government. In addition to that fund, the government has nearly $5 billion in the Constitutional Budget Reserve, the CBR, as legislative types know it.

There are a few other accounts around state government, but those are the big chunks. Together, the State has well over $65 billion in its piggy bank, and $16 billion of it is more or less available for appropriation.

And yet, the Democrats in control of the House won’t pass a budget unless they get an income tax that would take $700 million from Alaskan families. HB 115 is their vehicle, which was designed by Governor Bill Walker’s Department of Revenue.

In his latest compromise package, the governor asked the Senate to accept a “head tax” (aka still an income tax) that would bring in $100 million.

But with the House Democrats quickly rejecting his proposed compromise, the governor is likely to ratchet up his request for taxes to something closer to what the Democrats want.

Over in the Senate, controlled by Republicans, lawmakers say no tax is needed. All that’s needed are some modest cuts and a restructuring of the Permanent Fund, per Senate Bill 26, which is the governor’s bill.

The House agrees in principle with the framework of SB26, but are holding it hostage in order to force through their taxes.  The upshot is that pink slips have gone out to state workers in advance of a government shutdown on July 2.

[Read: Walker’s plan: Camel’s nose under the tent tax]

Stay tuned for Monday, when the Senate should hear back from the governor with his responses to a list of questions asked by Senate leadership that pertain to the compromise Gov. Walker is trying to reach.

Very likely, some of those answers will be unpalatable because they will involve even higher taxes than his first compromise offer of $100 million.

Senate leadership sent a letter to Gov. Walker last week asking for answers for why the governor:

• Offers no spending cuts, but actually agrees to the Democrats’ $200 million increase in state spending.
• Cuts down his tax request, while providing no documentation to the public as to why he needed $700 million two months ago, but only $100 million now.
• Accepts a shortfall of $300 million that could be paid for with savings, even though just weeks ago he said he would not accept anything but a fully funded plan.
• Shrinks the Permanent Fund dividend.
• Accepts the Senate’s version of SB 26, a restructuring of the Permanent Fund.
• Establishes a compromise on oil taxes, but only if he gets his “head tax” and only so long as there are no cuts to the budget.

Insiders at the Capitol say it is no secret that the governor’s head tax is a gateway tax, to get something on the books, and come back later for more. His team has told several people in the Capitol this week that the tax is just to get the infrastructure in place.

MICCICHE ON ROLE OF GOVERNMENT

Senate Majority Leader Peter Micciche, a Republican from Soldotna, says the struggle is over the philosophies about the role of government. Democrats see government as the economy and have little concern for the private sector, he said.

“This Permanent Fund milestone proves the percent-of-market-value numbers in our SB 26 model is conservative, and doesn’t even reflect the gains made by the fund this year,” he said.

“We began this ‘fiscal gap’ discussion at the end of 2014 with a $4 billion deficit. I believe the House majority and the Administration have failed to adapt to the fact that because of increased oil production,an improved price environment and budget reductions, our deficit has been roughly halved to $2.2 billion,” Micciche said.

By using the Senate’s model, government is funded through the use of earnings of the Constitutional Budget Reserve and the Earnings Reserve Account, without consuming savings, he said.

“Considering the many layers of conservatism built into the modeling…the fact that we are not crediting the 16 percent earnings year of the Permanent Fund, increasing production, improved pricing, etc., the Senate majority feels that we are in a position to fund our government without the burden of new broad-based taxes,” Micciche said.

“Our plan provides the quickest and most economically healthy way to deliver Alaska out of this current recession; providing more private sector jobs while still preserving critical government services,” Micciche said.

DUNLEAVY SAYS TAX ISN’T NEEDED

Sen. Mike Dunleavy of Mat-Su, has been an opponent of an income tax. He’s a Republican who no longer aligns with the Senate Republican majority because of his budget hawk approach that is stridently anti-tax.

“This has nothing to do with the budget. They don’t need a tax. They want a tax,” Dunleavy said.

“This is like begging your relatives for money and telling them you’re broke when everyone knows you aren’t broke. The public isn’t buying it. They know you can live on your savings for at least 13 years. Meanwhile, you get your other investments going, like Armstrong and Caelus (and other oil companies) and you put more oil in the pipeline.”