The Alaska Files: House Ways and Means 02/08/23

This might become a series, let’s see how it pans out. The following are my thoughts after listening to the February 8th meeting of the Alaska House Ways and Means Committee. This meeting can be viewed here, courtesy of Gavel Alaska.

This is not necessarily a response to anything from that meeting, it’s just a meditation on the issues that were discussed.

The big huge issue is that Alaska’s state revenue is based on the oil industry and investment accounts. Alaska does not have a sales or income tax, so our state budget year-to-year can fluctuate wildly based on the price of a barrel of oil, or the performance of global markets.

What that causes down the line is instability in state spending, which means a lot of the foundational elements of an economy that the state government can subsidize… might not get subsidized some years.

Right now, one of the big topics in Alaska is teacher retention: because school funding has been treated as a political football by the current governor, there have been years where school districts have not been able to tell their teachers whether they will have a job until a few weeks before the school year starts. If you aren’t sure you’ll be back at your job next year, you’re more likely to search for a guaranteed job in another state. If you look around and see that your salary and benefits are staying stagnant while people in other regions of the country with your same job and experience are seeing them go up, maybe the desire to leave gets a bit stronger. And we’ve seen that happen in Alaska with many of our veteran teachers.

So, to my mind, what we need to avoid those crises where we don’t know if we can pay our teachers (among other fundamental expenditures), is a consistent base of funding. If we know that we’ll have a certain level of income, we can ensure that certain essential functions are paid for and then look at more volatile revenue sources like resource extraction and investment accounts as a bonus for short-term projects, or to make one-off corrections.

What that would mean, in essence, is a new tax. Problem. People don’t like new taxes. Someone long ago made us all read his lips because of how much people don’t like new taxes. But maybe we can be creative.

This is, after all, essential to the future of this state. We can’t try to develop new industries if we don’t have the funding to invest in them. Or worse, what if one year we have funding to start, say, a tech incubator in Anchorage, and then the next year we don’t have funding and we have to abandon it. Anyone who invested their time and effort in that incubator has a sour taste in their mouths now, and people will lose faith, justifiably, in future state projects designed to expand our economy.

We can’t attract high-quality talent to the state if we can’t guarantee them commensurate compensation. And I think there are a lot of talented and skilled people out there who would want to move to Alaska, if they could make it work financially.

So what are some options? First let’s rule out a sales tax. Alaska is fairly unique in that basic consumer staples are more expensive in some areas than anywhere else in the country. Making those prices artificially even higher is not an option statewide.

So what about income tax? Nobody wants an income tax, and there’s an argument that instituting one will cause people to leave the state in even greater numbers than they already are. But surely there are some people in the state who are receiving so much money by living here that a small tax won’t be enough motivation to leave. What are they going to do, move to a state where they’ll have a lower salary and even higher taxes? I don’t think there’s an appetite for that in Alaska today, but if the federal government increases taxes on people earning over $1 million annually, and if that ends up being viewed positively, it might spur movement on the state level.

But those people making more than $1 million annually will tend to have disproportionate influence on whether or not a new tax is instituted. And they won’t like that. So what if we create a tax that specifically affects an industry that isn’t yet common in Alaska, and then at the same time incentivize that industry to migrate here?

I’m not sure how that would look, this is just a half-baked thought right now. But if we find the right industry, with the right incentive structure, maybe we kill two birds with one stone by diversifying the state economy while simultaneously creating a new, more consistent revenue stream. And since that tax will be status quo when the industry (hopefully) moves in, there won’t be so much opposition.

Maybe that idea isn’t feasible. But it’s creative. And maybe if we come up with enough creative ideas, we’ll eventually find one that is feasible.