|Protecting Your Rights: Serving Sand Lake, Spenard, and Turnagain|
|April 15, 2016
Dear Friends and Neighbors,
Over the past few weeks, I have received many emails, letters, and calls from Alaskans on a number of major issues. I appreciate hearing from so many Alaskans and encourage you to continue letting us know your suggestions and concerns.
The Legislature has several issues to address before the end of the session: Permanent Fund restructuring, oil and gas tax credits, the Criminal Justice Reform Bill, and various other bills and resolutions. And the most important issue remains the budget and reaching agreement about a responsible action plan for Alaska.
New Permanent Fund Restructuring Proposal
Restructuring the Permanent Fund is a key piece of a responsible fiscal plan to balance the state budget. Senate Bill 128and House Bill 245, is the Governor’s proposal to restructure the Permanent Fund. Senator McGuire and Representative Hawker also proposed plans to restructure the Permanent Fund in their own sponsored legislation. We reviewed these plans in an earlier newsletter.
On Tuesday, the House and Senate introduced a rewrite of Governor Walker’s restructuring plan. The rewrite is a hybrid of the Governor’s, Sen. McGuire’s, and Rep. Hawker’s proposals.
Central to the hybrid plan is allowing appropriation of 5.25% of the total market value of the Permanent Fund to fund state government. This analysis is called a Percent of Market Value approach, commonly described in the Capital as “POMV.” For next year’s budget (FY 2017), total market value of the Permanent Fund is approximately $52 billion and the “POMV” amount would be approximately $2.73 billion. 20% of this amount, approximately $546 million, is dedicated to paying the annual dividend, and 80% of this amount, approximately $2.18 billion, is directed to pay general government expenses.
The proposal sets the annual dividend at $1,000 for the next three dividend years (2016, 2017, and 2018). Governor Walker’s original proposal guaranteed a $1,000 dividend for 2016, but then projected lower dividends in the following years unless oil prices rise and oil royalties increase. After 2018, the dividend would be based on a percentage of the total value of the Permanent Fund (20% of the 5.25%, which is 1.05% of the total value) and 20% of the prior year’s oil royalties.
All of the Permanent Fund restructure proposals follow the Alaska Constitution requirement to deposit 25.5% of oil royalties into the Permanent Fund Principal and the Public School Trust Fund. Thus, under all proposals, the Permanent Fund Principal will continue to grow.
With only a few days left in the 90-day session, the hybrid proposal appears to have support in the House and Senate majorities. The hybrid proposal appears to meet Governor Walker’s demand for Permanent Fund restructuring.
Oil and Gas Tax Credits
Currently, Alaska offers tax credits as incentives to encourage oil and gas companies to develop new oil and gas resources and help with Alaska’s economic development. With the recent drop in oil prices, however, those oil and gas tax credits exceed the revenue received from production taxes.
Before the low oil prices, credits to oil and gas companies in FY11-FY14 ranged annually from $716 to $918 million and state revenue from production taxes ranged from $2.598 to $6.146 billion. In FY15 credits spiked to $1.292 billion while production tax revenue plummeted to $398.7 million. Thus, Alaska lost roughly three times as much in credits than it received in production taxes in FY15.
In the next fiscal year, FY17, Alaska’s oil and gas tax credit liability is projected at $825 million while production tax revenue is projected at only $190 million. Since 2007, Alaska has paid out $8 billion in credits to oil and gas producers and developers.
Facing a $4 billion budget, Alaska can’t afford a tax system that creates hundreds of millions of dollars in oil and gas tax credits if there is not enough tax revenue to pay those credits.
At the beginning of the legislative session, Governor Walker introduced House Bill 247 to increase oil taxes and rewrite the state’s tax credit program. As originally introduced, HB 247 would raise $100 million more in taxes from North Slope oil companies and reduce the tax credits by $400 million next year. The total combined savings and revenue from the Governor’s bill is approximately $500 million for next year.
The House and Senate majorities do not support the Governor’s bill and have proposed alternatives. The version of HB 247 from the House Finance Committee will have an estimated fiscal impact no greater than $20 million for next year. HB 247 has been further amended on the House Floor, but has been postponed four times since Sunday. There were not enough votes to pass the bill and, as of Wednesday evening, HB 247 remains on hold.
Criminal Justice Reform
On Saturday, the Senate passed its version of the Criminal Justice Reform Bill, Senate Bill 91. On Monday, we considered SB 91 in the House Judiciary Committee where we have been evaluating its companion, HB 205, a bill I discussed in a previous newsletter. The House Judiciary Committee has now reconciled SB 91 with HB 205 and I am pleased to announce that SB 91 moved out of House Judiciary on Thursday. I am optimistic that the Legislature will approve Criminal Justice Reform before the end of the session.
It looks like the Legislature will not complete our work in the 90 days directed by Alaska voters in the 2006 voter initiative. With a bi-partisan group of representatives, I introduced a resolution to let Alaskans vote on a constitutional amendment to reinforce the need to complete our work in 90 days. While I am disappointed in our inability to finish our work in 90 days, I will work to complete the session as soon as possible. I will also continue working to strengthen the 90 day limit.
As always, please let us know if you have other suggestions or concerns.
Rep. Matt Claman
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