SB 26 – to stabilize economy – heads to Senate floor this morning

Senate President Pete Kelly explains the three principles behind the Senate Majority’s plan for fiscal stability.

Two different visions are emerging in the House and Senate, as the Alaska Legislature heads into the second half of this session.

House Democrats, firmly in charge with a budget-bloating 22-vote bloc, say that to avoid an economic crisis, the State is going to need more State spending, and heavy new taxes to pay for it.

The tax-and-spend majority, of course, has the help of two indeterminates (Dan Ortiz and Jason Grenn) and three Democratic-aligned Republicans (Gabrielle LeDoux, Paul Seaton, Louise Stutes).

The alliance marching under the Democrats’ flag believes state spending must grow, not shrink, even as private sector jobs flee the state.

On the other side, Senate Republicans are saying we must not only bring down State spending, we must cap it to provide stability to the rocky fiscal situation State government faces.

Let’s limit revenues, use our Permanent Fund Earnings Account wisely, and give our state some breathing room as it bumps through the recession, Senate leadership says.

Senate Bill 26 is the vehicle for that philosophy. Originally offered by the governor as a “spend-more” bill, SB 26 has been gutted, and the language from Senate Bill 70 placed in its stead.

SB 26 is now a “limit government and protect the dividend” bill.

It limits state spending at $4.1 billion, paring down the governor’s spending request of $4.3 billion.

It limits what can be used out of the Permanent Fund Earnings Reserve Account for government, and it puts a temporary cap on the Permanent Fund dividends Alaskans get each year.

SB 26 reflects a credo of government living within its means.

“The state is in a recession, there’s no question about it. We’re not in a recession because the government spends too much or too little — in fact the government does spend too much,” said Senate President Pete Kelly in a recorded message.  But past legislatures have pushed agency operations to unsustainable levels, he said, and it’s time to bring spending down out of the statosphere.

“The math is simple but the politics are a little bit difficult,” Kelly said. Difficult may be an understatement, but the Senate is in alignment with a solid solution that doesn’t include taxing the working men and women of Alaska.

“There sometimes is a lot of noise that comes out of Juneau. It sounds like a of kind of madness,” he said. “The Senate is not on that page. We have a solution, we will deliver it, and it will work.”

Few will claim that SB 26 is a perfect solution, but it is a solution that is mindful of some important things:

Alaskans are in the mood for a smaller state government. There are about 144,000 registered Republicans in Alaska. Those are your smaller government people — and they want less government, not more taxes.

They are the people who voted for Donald Trump or Libertarian Gary Johnson for president — 182,000 Alaskans voted that part of the ballot.

As for Alaska Democrats, 116,000 voted for Hillary Clinton.

SB 26 with its spending and revenue caps is closer to what two-thirds of Alaska wants.

Alaskans want their Permanent Fund dividends, but they’re willing to cap them. SB 26 guarantees a dividend for Alaskans, which seems to be a sticking point for many, including conservatives who don’t normally like seeing people get government checks.  Some view the Permanent Fund as a birthright, while others praise it as a welcome stimulus for the Autumn economy.

Whichever it is, $1,000 per Alaskan is what SB 26 provides, which is more than what the dividend was in 2013 and 2014, but less than what it was in the salad days of the Palin Administration, when the governor distributed $3,269 to every man, woman, and child.

The legislative intent language says the Legislature will reevaluate the use of Permanent Fund earnings reserve in three years.

But for now, instead of allowing the governor to choose how much to pay each year (as he did in 2016), SB 26 provides some certainty: For 2018,  2019, and 2020, the dividend is $1,000, higher than in some recent years, lower than in others. But still a welcome deposit into family bank accounts.

Alaskans will not tolerate an income tax. Living in Alaska is expensive enough already and fewer Alaskans are working, which means an income tax would impact middle class Alaskans the most.

In addition, giving all Alaskans a Permanent Fund dividend with one hand, and taxing them with the other, is certain political death for anyone who attempts it.

The Democrats running the Alaska House will push for an income tax, because they’re pushing for higher spending and they’ll need to come up with the money somewhere. Many of their constituents won’t have to pay the tax. They envision Alaska’s future as one big income transfer program, where some are taxed to support spending and dividends for others. In other words, it’s government Democrat style.

The governor is on record supporting an income tax, and his poll numbers have fallen through the floor. The income tax will likely cost him his re-election.

Alaskans want stability in their economy. With a recession well under way in Alaska, an additional 7,500 jobs will be shed this year. Alaskans don’t want the public sector to become a larger share of the economy as private sector jobs dissolve. A State employee workforce of 18,000 means there is already one state worker for every 50 Alaskans, which is not a sustainable model. And the boom and bust of oil prices, coupled with the roller coaster of oil tax changes the state has bumbled through, has not helped.

Imposing an income tax while the economy is in a free-fall is a prescription for accelerating job losses — an economic disaster. It would deepen and lengthen the already sharp downturn of the past 24 months.

By contrast, SB 26 would stabilize the economy by injecting fresh money. It would buy us time to continue to manage state spending downward, as most Alaskans know that we must do.

SB 26 deserves consideration. The bill will reach the Senate floor on Wednesday, March 15 at 11 am. We predict there will not be much chest-beating from Republicans, although SB 26 does have its detractors.

This is serious legislation. Thoughtful members of the Senate will likely prevail when it comes time for them to hit the red or green buttons — that is, when they are called upon to make serious, grown-up decisions.