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Day 112: 'Capitulation would be nice'
We're into the final week and a half of the regular session without a whole lot of resolution on the session's big issues.
Good morning, Alaska! It’s Day 112
In this edition: We’re into the final week and a half of the legislative session, and the budget has yet to pass the Senate as leadership appears to be working to hammer out some compromise between the conflicting positions of the House and Senate over the size of the dividend and whether it’s wise to spend down savings. Meanwhile, there’s been quite a lot of talk about oil taxes that sounds a lot like the last time the Legislature talked about oil taxes. Also, a more substantial election bill is working its way through the system. Oh, and there’s also the reading list.
Current mood: 🤨
No budget deal in sight
The Legislature has fallen off a draft schedule circulating the building as public-facing work on the budget has ground to a halt. The state’s operating budget currently sits in the Senate Finance Committee, where it was supposed to emerge last week, as the House and Senate continue to hammer out a deal behind the scenes. Still, the deal’s details and whether there’s been progress is anyone’s guess.
Each chamber has its sticking point that, frankly, seems utterly incompatible with each other.
The House is pushing for a larger dividend of $2,700 that, combined with the rest of its budget and pending legislation, will require drawing between $600 million and $800 million from the state’s $2.5 billion savings account. However, several members of the Republican-led House Majority have indicated that $2,700 is the absolute minimum size dividend they’d be willing to entertain, calling it a compromise from their long-standing position of a full, statutory dividend (well north of $3,000). The House bill also technically contains $175 million for K-12 schools, but that portion is unfunded because the House couldn’t wrangle the supermajority needed to tap savings.
Meanwhile, the Senate has made it pretty clear they have zero interest in drawing down savings, and the chamber’s current version of the budget in the Senate Finance Committee still does just that… by cutting the dividend down to $1,300. That budget, which could still change before it returns to the House for a concurrence vote, also contains that $175 million boost for schools without any strings attached.
Without some miraculous form of new revenue—whether it be an unexpected boom in oil prices or… a lucky run at the roulette table—there’s no realistic way for the two positions to meet without compromise in either chamber.
Asked if he’s looking for compromise or capitulation at last week’s news conference, Senate President Gary Stevens joked that “capitulation would be nice” but conceded that they would need to work on some compromise. On Friday, Stevens told the Alaska Beacon that nothing had changed.
What’s next: The Senate holding onto the budget shouldn’t be seen as an indication of some internal drama in the Senate. By all accounts, the Senate has the votes to advance the budget. Instead, holding onto the budget allows the Senate to make some significant changes depending on how the negotiations go. That could prove critical because once the budget is sent back to the House and a conference committee, negotiations are limited to the differences between the two budgets. Then, of course, there’s also the matter of the capital budget.
More coverage from the Alaska Beacon: Alaska House and Senate leaders say they don’t have a final budget solution yet
Oil taxes are back on the table
The Senate Finance Committee, meanwhile, spent much of last week working on legislation that would increase oil taxes and hearing from industry officials who, surprise, opposed the legislation in its totality. But, of course, none of it is shocking for those who’ve been following the oil tax debate for the last decade with talk about profitability, government share, internal rate of return and just about everything else.
The legislation makes a lot of changes around the edges, but the central element would be to treat S-Corporations like other existing corporations in terms of the state’s corporate income taxes. This would specifically target Hilcorp, which bought up BP’s Alaska assets. As an S-Corp, Hilcorp’s revenue is taxed at the personal income tax level, which Alaska doesn’t have, rather than via corporate income taxes. This would change that.
If you need to understand how the industry and legislators feel about the proposal, here’s an exchange between Sen. Lyman Hoffman and Alaska Oil and Gas Association’s President/CEO Kara Moriarty at last Monday’s hearing.
Hoffman: “So, are you saying that you’re not supporting leveling the playing field and therefore are opposed to that particular provision?”
Moriarty: “AOGA is opposed to every provision of the bill, as it stands.”
Hoffman: “And not favoring the leveling playing field. They want to support a dual system for tax structure for the majors on the North Slope.”
Moriarty: “The Oil and Gas Association works by unanimous consent, and I would not be able to testify today that we oppose all sections of the bill unless that was true. We oppose all portions of the bill.”
Hoffman: “That’s why we are the policymakers.”
The one thing that is particularly interesting to me is this fiscal note prepared by the Department of Revenue:
Setting aside all the debate on whether a tax hike is warranted or whether we should trust the industry on this one, Senate Bill 114 raises revenue this year. The bill’s current form would bring in about $1 billion in the upcoming year, more than enough to cover the House-favored dividend, an increase to school funding and plenty left over to put into savings.
The Legislature has hardly scratched the surface of the sales or income tax discussions, but the last time the Legislature dug into the tax discussion, the logistics, infrastructure and timeline of a new system was a significant point of discussion. I don’t have the old bills in front of me right now, but I recall they would take a year or several years to implement (along with a pretty sizable investment in infrastructure), meaning new revenue would be a year or several years away from coming online.
It doesn’t appear much has changed on that front, either, as a proposal to replace the current by-weight tax on recreational marijuana with a sales tax doesn’t would give the state until 2025 to implement.
Why it matters: If legislators are looking for the fastest path to new revenue to cover the state’s budget deficit and pay for that larger dividend, there’s nothing else other than an oil tax hike on the table right now. The tax proposal’s revenue falls off pretty significantly in future years, though, so new taxes would still need to come online, but it could give them some buffer time to go online.
More coverage from KDLL: Bill would extend state taxes to cover Hilcorp
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A bigger discussion on election issues
While we were concerned with legislation to repeal ranked-choice voting in Alaska, several other election-related bills have much more momentum behind them.
The key one to watch is a bipartisan package advancing in the Senate that largely mirrors the bipartisan Senate Majority’s approach to legislation this year: A bunch of broadly popular, generally uncontroversial measures while the controversial measures are left on the chopping block.
Senate Bill 138 would implement a ballot curing process, actual signature verification and ballot tracking. It would not repeal ranked-choice voting, but it doesn’t try to reinstitute campaign finance limits to Alaska’s election.
Still, the changes around ballot curing and signature verification could be a big deal for Alaska. The state requires people to sign their ballots and get a witness signature. However, it has conceded over several lawsuits that they have no way to verify the signatures and have never been used to identify fraud. All the provision has done to date is result in loads and loads of by-mail ballots being rejected, particularly in areas of the state with higher concentrations of voters for whom English is not their primary language. That witness signature requirement would be repealed and replaced with software-based signature verification (similar to how Anchorage currently operates).
Why it matters: Backers are hopeful the legislation can pass this year, but watchers are wary that any election-related legislation could become a target for the more controversial election provisions. I doubt that anything like a repeal of ranked-choice voting could “sneak” through the process, but it could undoubtedly sink the legislation.
More coverage from the ADN: Alaska lawmakers advance bipartisan election bill to implement ballot curing, signature verification