- Associated Press - Sunday, January 17, 2016

JUNEAU, Alaska (AP) - Alaska’s gaping budget deficit is expected to be the focus of the legislative session beginning this week. But the road to a solution may be rocky, with differing ideas for how to help close the deficit and difficult choices that could significantly impact state services.

A continued drop in oil prices adds urgency to legislators’ work, as does the ongoing draw-down on savings to help cover state costs. North Slope crude peaked around $66 a barrel last year, a crash from the prior year, and fell below $30 last week.

For Rep. Mark Neuman, co-chair of the House Finance Committee, the bottom line question is: How much government do people want?

“How much government do we have to have to make sure that we have the essential services?” asked Neuman, who as part of the budget discussion wants to reduce agency regulations that add to department workloads but may not be needed. Progress was made in cutting the budget last year, and people want to see greater reductions, the Big Lake Republican said, expressing a view shared by other Republican leaders.

Senate President Kevin Meyer has mentioned a goal of cutting about $700 million from next year’s budget. He said there’s agreement in the Senate majority that there’s still “fat” to cut, duplication to get rid of and more reforms that need to be instituted.

That level of cuts is only part of the estimated $3.5 billion deficit, said Gunnar Knapp, director of the Institute of Social and Economic Research at the University of Alaska Anchorage. The inevitable discussion facing state officials focuses on things like taxes and use of earnings from the Alaska Permanent Fund, he said.

The permanent fund is the centerpiece of Gov. Bill Walker’s proposal to move away from budgeting around volatile oil prices. His plan involves putting oil tax revenue and about half of resource royalties into the fund, and beefing up the earnings reserve account of the fund through a transfer from savings. The administration has estimated the state could annually begin drawing $3.2 billion to help finance state government. Walker has called this element a must-have.

The plan would change how the annual dividend checks that most Alaskans receive are calculated, putting them at $1,000 next year, about $1,000 less than last year’s payout. The historical average is about $1,150.

Rep. Sam Kito III, D-Juneau, said he’s concerned about the long-term viability of a dividend based, as Walker has proposed, on the remaining resource royalties. The dividend currently is tied to the fund’s performance.

There is interest among legislators in looking at a use of permanent fund earnings, though not necessarily adopting Walker’s approach. At least two lawmakers have proposed different takes on the topic and legislators could end up with a hybrid, Meyer said. The Anchorage Republican believes some use of permanent fund earnings will be needed to make significant progress on the deficit.

Walker also has proposed increases in industry taxes, reinstituting a personal income tax and changes to the state’s oil tax credit system.

Meyer said he doesn’t favor any of the taxes now. He had suggested that a sales tax be part of the mix if lawmakers begin discussing an income tax, for comparison sake, but said he doesn’t plan to introduce such a bill.

Some legislators want to pursue cost savings in Medicaid and the state correctional system and to consider oil tax credit changes.

Senate Finance Committee co-chair Anna MacKinnon, R-Eagle River, said the size of state government needs to shrink. But she also wants to understand the consequences that cuts will have on jobs and the economy, noting possible impacts to the number of people filing for unemployment or retiring from state service. She said she wants to keep politics to a minimum. “Right now, we need to be Alaskans,” she said.

For Senate Minority Leader Berta Gardner, D-Anchorage, the economic concerns hit close to home. Her son recently made an offer on a house in her district; his wife is a teacher. Gardner said she’s thrilled but wonders what that house will be worth in a few months or a year or two and if this is a good place for her daughter-in-law to work on her career.

“I know that there are legislators who are prepared to take it on the chin and do the right thing,” Gardner said. Stability for the state and families “means action right now,” she said.

The legislative session opens Tuesday.

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