Guest speaker paints stark revenue picture
If you were to imagine Alaska as a single household, the annual income has dropped more than 80 percent and the “savings account” has been drained from $130,000 to only $25,000. The state deficit is a $3 billion problem, Pat Pitney said.
Pitney was the state budget director in 2015 and is the current director of Alaska’s Office of Management and Budget. On Feb. 14, Pitney gave a lecture in Schaible Auditorium on Governor Walker’s Fiscal Plan for FY 2018.
There are three steps to solving the budget crisis, according to Pitney. The state must reduce spending, draw from the Permanent Fund Dividend to support state services and increase revenue. To do this, the Governor’s proposed plan includes a Motor Fuel tax increase, the Permanent Fund Protection Act and a broad-based income tax.
Pitney emphasized that the budget has already been significantly cut. She cited some examples like that twenty-five health centers, trooper posts, maintenance stations and Department of Justice Offices around Alaska have closed.
“Cost considerations and reducing spending is important … but even the most draconian amount that people are talking about for spending is way less than ten percent of our problem,” Pitney said. “The problem we have is revenue and we’ve got to have a revenue solution.”
The proposed motor fuel tax is projected to earn $40 million in the first year and $80 million in the second.
“The longer the state goes without a revenue solution, the ore uncertainty there is in our economy,” Pitney said. “Businesses need certainty to invest. The businesses that have money … often times they’ll want their money to work for them so they’ll invest out of state rather than in state because of the uncertainty. So we’re foregoing all of that until we solve this problem as well as losing a lot of jobs and watching people leave the state.”
Pitney answered a question about how to talk to legislators about the budget. The legislator might say that they’re looking various programs that could receive cuts, however, there is a $3 billion deficit so more than just small cuts need to be made.
An audience member wanted to see whether attendees supported a sales tax or an income tax by hand raise. Of the over 70 people in the room nearly everyone raised their hand for an income tax. A few members still supported the sales tax with at least one person raising their hand for both.
Budget cuts have taken the state back to the amount of spending that it had in 2006, accounting for inflation and population increase.
“Even with all these reductions we’re still serving this population,” Pitney said.
The state government offers Alaskan citizens services like medicaid, however, this is not the way that it is handled in many other states. Pitney used Arizona as an example of where the state’s counties handle those services.
“All of these things need a tax base,” Pitney said. “The question is where is that tax base going to come from.”
Money spent in Alaska does not circulate as fast as in other states because of geographic barriers. If someone buys something in a village, it is less likely for that money to continue to spent in the community. This makes the recession worse, Pitney said.
The lecture was sponsored by the Students Who Enjoy Economic Thinking student organization and the League of Women Voters.