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Note from Rep. Les Gara
Note from Rep. Les Gara  
Good Budget News; Corporate Fiscal Plan
that Will Harm Schools, Opportunity
Note from Rep. Les Gara

June 7, 2016

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Dear Friends and Neighbors:

A lot of good and bad things have happened since I wrote last.  Here’s the good, bad, and, well, sorta’ secret stuff people should know about.  And, on a revenue plan especially, I’d like to hear from you!

Protecting Dignity and Opportunity for Children, Seniors, and Those With Disabilities

I and my Independent Democratic Caucus worked across party lines and reached a budget compromise that reverses earlier-passed harmful, excessive budget cuts.  Those cuts were to children, foster youth, seniors, schools, those with disabilities, pre-k, victims of sexual assault, Troopers, and other things that create opportunity, safety and fairness in this world.  Please write the Governor if you don’t want him to veto these budget items as we approach a July 1 Government Shutdown date (if the budget is vetoed) (write him at Benjamin.Robinson@alaska.gov). 

We were also able to reverse a devastating $50 million cut to the University, and return it to the more modest proposed $15 million reduction by the Governor.  We got as far as we could in negotiations with a GOP-led caucus that outnumbers us, and both sides compromised honorably, though many weeks later than I’d have wished.

And last week the Legislature unanimously passed our foster youth opportunity and stability bill, HB 27, and the Governor’s Adoption bill.  Thanks to all in both parties for their unanimous votes, the Governor and First Lady for joining this battle, and to all in the community who pushed these bills past the final roadblock to a vote in the Senate. thebristolbaytimes.com/article/1622new_alaska_foster_care_laws_only_part_of_the

$3.5 billion Budget Deficit:  GOP Blocking Balanced Fiscal Plan Bills That Would Have Corporations, Wealthier Alaskan Share In Burden

It would be a fib to say that we don’t have to find a balanced way to raise revenue.  So far the GOP-led House and Senate have blocked votes on any significant legislation to allow a fair contribution by corporations and those with great wealth.  They have placed the burden on working and poor Alaskans who earn the least, and passed a rarely-mentioned “poison pill” Permanent Fund provisions that will make funding good public schools, help for seniors and those in need, and needed infrastructure very difficult.   Lobbyists for those hired to protect their wealthier clients aren’t asking for a balanced fiscal plan. 

I grew up believing we are all in this together.  Some people think just sticking it to people who earn little is OK.  Given what I will be allowed to vote on (nothing that gets a fair share from those with privilege), I face a Hobson’s choice that I’ll explain.

Corporate Welfare For Oil Companies: Big Oil Keeps Their State Subsidies

The plummeting price of oil, and a weak oil law that pays hundreds of millions of dollars in corporate subsidies to oil and gas companies have led to a crippling deficit $3.5 billion.  The low price of oil would have done that alone, but the oil company subsidy law we have, and that needs to be changed, adds insult to injury.  A very weak bill, that does almost nothing to the law that requires Alaskans to pay our largest North Slope oil and gas companies for 35% of their losses when they lose money, passed yesterday.  It will cripple our budget into the future. 

I know, I know.  When your small business loses money, it would be nice if the state paid 35% of your losses too.  But only oil and gas companies get this sweet deal in Alaska.  A compromise effort that would have rolled back these big company subsidies, which passed the House with Democratic and Republican support, was replaced by this subsidy-laden bill supported by more conservative GOP Senate and House leaders on Monday.

Permanent Fund-Only Fiscal “Plan” – And A Few Hidden Poison Pills That Need To Be Fixed

The Senate did pass a Permanent Fund and Dividend Cut plan that raises some revenue.  All Permanent Fund plans are not the same, and the GOP-led Senate passed on that includes provisions you probably never heard of, but should know about if you care about funding schools, senior services, and helping give people a fair shake in life.  It requires a lot of fixes in my view, even if you strongly support a Permanent Fund-Only revenue plan

For those who wanted an income tax to balance the burden of a fiscal plan between wealthy and less wealthy folks, that is being blocked from a vote.  The Governor’s Revenue Commissioner said in the press that he’d given up on pushing for votes on an income tax in March.  If you support an income tax to spread the burden to out-of-state workers and those with higher incomes, you won’t like that a bill by Republican Rep. Paul Seaton, which would have raised $550 million, or a significant chunk towards the deficit, was never allowed a vote

The Governor proposed the lowest income tax in the nation – roughly 1 – 2% of a person’s income.  It taxed at one-fifth the national average income tax.  It also didn’t move, and in fairness, wouldn’t have put any real dent in the budget deficit. Skeptical constituents were right that with a $3.5 billion deficit, a lowest-in-the-nation income tax, of passed, would likely be raised over and over again by the Governor and legislators, which isn’t great policy in my view.  A senior citizen on a fixed income, who loses $1,000 under the current PFD-reduction bill, would pay as much as a much wealthier single person earning $100,000/yr. would pay under the Governor’s proposal.  That’s a vastly disproportionate burden on those who struggle.  It’s an almost unnoticeable burden on someone lucky enough to live in great comfort.

Any Corporate Taxes To Spread The Burden?

I filed legislation to close a gaping loophole in Alaska’s corporate tax law.  C-Corporations and Alaska Native Corporations pay our corporate tax.  If you make vast profits, but own one of the 6,000+ corporations that file as an S-Corporation, LLC, or Professional Corporation, you pay no corporate tax.  Zero.  No matter how high your profits.  My bill would have imposed a modest corporate tax only on bigger corporations that earn over $250,000 a year.  It was also not allowed a vote.  That could have provided at least some balance to a fiscal plan.

That Leaves…… The Permanent Fund (And a Few Provisions I Bet you Never heard About)

Let’s set out a few facts on both sides of this debate.  First, while I support the Permanent Fund and Dividend, you can’t fill a $3.5 billion budget gap without a little contribution from everyone who can afford it.  But the plan we see out of this Legislature isn’t balanced, and is a product of a trail of bills that were killed in committees, and that could have spread the burden so the least able to pay didn’t bear the brunt of our budget woes.  According to a study by the University, the PFD constitutes 20% of income for 50% of Alaskans.  Cutting it in half takes 10% of the income from this half of Alaskans.  I know a lot of wealthier people, and executives, who believe they or their companies should chip in.  But lobbyists for the more self-interested, who don’t want to chip in, are winning the day in this Legislature.

The Permanent Fund bill that passed the Senate cuts the projected $2,000 Dividend to $1,000.  It covers roughly half the $3.6 billion deficit.  And it has two provisions in it that almost no one knows about, that will put this state on a path to austerity.  You might ask how a bill that raises revenue can do that.  Basically, leading GOP legislators, and The Governor’s Attorney General who has been an Administration point person on Permanent Fund issues, support these provisions. 

The Plan for Austerity: I get not wasting money. I’ve voted against the expensive Anchorage Legislative Office; against the $6 billion Susitna Dam and the $2 billion Knik Arm Bridge.  We don’t have money to waste in this state.  But I don’t get constraining our ability to help seniors, fund schools, or maintain roads and public safety.

One provision in the bill passed by the Senate says that when oil prices rise, and the state should receive more revenue, we won’t.  Today’s budget, with understaffed schools, and a University that has suffered slashed funding for many years, and that doesn’t fund much in the way of any energy or needed  maintenance projects around the state, sits at roughly $5.3 billion in State General Fund spending.  That is over $1 billion lower than three years ago.  Adjusted for inflation, it is lower on a per person basis than every budget between 1979 and 1993.

So where does the austerity come from?  Under the Senate GOP bill, when oil prices rise to roughly $75/barrel, and at all prices above that, the total revenue allowed to be used to pay for schools, troopers, and other state services will remain flat, at about $5 billion.  Here’s the trick. 

At roughly that price-point, for every extra dollar that comes in to the state as oil prices and oil revenue rise, one dollar less will be allowed to come from the Senate’s Permanent Fund Plan.  That means a flat-funded, stagnant budget into the future, and reduced funds in inflation-adjusted dollars every year.  In real terms, pressure will be placed on school funds, funds to help seniors, and others, so that they receive less and less every year.  It will starve core state functions. 

What happens to the extra money?  It doesn’t go into Permanent Fund Dividends.  It stays in the Earnings Reserve part of the Permanent Fund.

Here are charts showing the spending cap, and what would happen to state revenue without it.

Spending Cap chart

Then, when oil hits roughly $105/barrel, revenue for schools, Troopers, construction, roads and other core services will remain flat.  Funds will continue to lag behind inflation.  At that price level the extra funds, which will not be allowed to be used to fund schools, public safety, roads, ports, construction or other core state services, will go into the Permanent Fund or the state’s constitutional savings account.  Nice if you can afford it.  Not great if you want vibrant schools, job training, help for those with disabilities, and don’t want to see cuts to core services.

I’d rather be careful with spending, fund needed core state functions, and not starve opportunity.  This plan just doesn’t attract me all that much.

Still, I face a Hobson’s choice.  I want to hear your thoughts.  I would like a more balanced plan, which the GOP leadership won’t allow.  I would like a higher dividend, and part of me says I don’t want any dividend cut if no one living with great privilege is going to chip in to bear the burden.  And I know we have a crippling deficit.

I’m not one to take all my marbles and go home when I don’t get everything I want.  I’m also not one to let someone else control my conscience.

As always, let me know if I can help.  And I hope summer is treating you well.

My best,

[signed] Les Gara

 

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