| April 8, 2016
April 17th marks the end of the 90-day session, so we’re in the final stretch. Read on for an update on a handful of the bills that the Legislature is working on.
Operating Budget (House Bill 256)
We are moving towards the end of session now, and we have moved the operating budget into what is called the Conference Committee. The operating budget conference committee consists of three members from the House Finance Committee and three members from the Senate Finance Committee, and they are tasked with reconciling the differences between the House and Senate versions of the operating budget. The Conference Committee will come up with a final committee report that will appear in front of the House and Senate for final approval. This final budget consensus will be voted on by both the House and Senate on the last day of session, and if there is an agreement on the contents of the budget by both bodies, and the House Minority (us), there will also be language in the bill authorizing a reasonable draw from the Constitutional Budget Reserve account, or CBR.
With the appointment of the conference committee, we are now under what is called the 24-hour. The 24-hour rule means that committees only need to give 24-hour notice to schedule a hearing on a bill or issue. Bills can move quickly during this time, so be sure to check BASIS periodically if there are specific bills that you are interested in.
Capital Budget (House Bill 255)
This year, much like last year, the capital budget will be much smaller than in previous years. The capital budget funds construction projects including transportation infrastructure (roads and airports), as well as major improvements to facilities and other public infrastructure across the state, this spending has a big impact on our construction industry. Cuts to the capital budget will result in negative impacts to that sector, in addition to contributing to growing deferred maintenance costs that will have a long-term negative impacts on our state facilities. One of the priorities for the capital budget is to maximize matching funds from federal capital programs. Last year, approximately $180 million of state general funds leveraged an addition $950 million of federal capital funds.
Currently, HB 255 is in House Finance.
Senate Bills 207, 208, 209, & 210
On March 28, the Senate Finance Committee unveiled a quartet of bills that would have a detrimental effect on our communities and schools. Senate Bills 207 and 209 transfer tens of millions of dollars in costs of the state’s pension systems to school districts and local governments. Senate Bill 208 would phase out the Alaska Performance Scholarship (APS) by 2022. The APS started in 2011 by then-Governor Sean Parnell, and awards scholarships based on grades, test scores and coursework to Alaskan students attending college or job training programs in Alaska. Senate Bill 210 would restructure Alaska’s community revenue sharing program, reducing the overall program amount.
These bills will have negative effects either resulting in reduced services, increased classroom size, or an increase in local taxes, or some combination of all three depending on the community. I do oppose all of these bills. They were rolled out in the waning days of the session, without sufficient consultation with local governments or school districts, or adequate opportunity for the full impacts to be understood by the public, local governments or school districts. Previous adjustments to the local contribution rates were done in full consultation with municipalities and school districts and the resulting product was better thought out, creating a known expectation of future liability. Municipal governments and school districts have already developed their budgets for the upcoming year, and to implement such dramatic changes at the last minute will make it difficult to address without laying off teachers or cutting municipal services.
After getting a financial analysis on the measures, the Senate Finance Committee has reconsidered SB 209 and, at this point, seems to have abandoned it. The other three remain in play, and I will be watching them closely.
Representative Paul Seaton’s House Bill 365
As a result of the fiscal situation facing our state, Representative Seaton (R – Homer) has proposed House Bill 365, which establishes an income and long-term capital gains tax on residents and nonresidents, changes the Permanent Fund Dividend (PFD) to a Permanent Fund Refundable Tax Credit, and directs a moderate portion of the Permanent Fund Earnings Reserve account to the General Fund to support state services. The income tax will be applied to residents and nonresidents, but only qualifying residents will be eligible for the PFD Refundable Tax Credit.
The Refundable Tax Credit will first be applied to pay a resident’s state income tax. The remaining amount from the Permanent Fund will be sent to the resident as a refund. The tax credit will be taxable income on an individual’s Federal taxes, as the Permanent Fund Dividend is currently. Residents who qualify for the Refundable Permanent Fund Tax Credit will be given the option to apply some or all of their credit to Pick Click Give and/or their child’s college fund, similar to the dividend’s current structure.
The bill also establishes an individual income tax on residents and nonresidents who earn income within the state. The tax is equal to 15% of the taxpayer’s total federal income tax, but the state income tax payments can be claimed as an itemized deduction on Federal taxes. Long-term capital gains are taxed within the bill by multiplying the taxpayer’s long-term capital gains for the calendar year by the lesser of: 10%, or the difference between the taxpayer’s federal income tax rate on ordinary income and the taxpayer’s federal tax rate on long-term capital gains. It is estimated that HB 365 would have generated $1.3 billion to the General Fund in the year 2015.
Representative Seaton’s proposal is an important option to consider as we work to address Alaska’s fiscal challenges. We need a responsible action plan for Alaska, and we need it this session.
Please feel free to call, email, or stop by my office if you have any questions or concerns. Things are busy, and it’s always nice to hear from friends and neighbors.