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Reinstated House Ways and Means Committee holds first hearing to help solve Alaska’s fiscal crisis

Alaska State Capitol
Alaska State Capitol(KTUU)
Published: Mar. 30, 2021 at 7:34 PM AKDT
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JUNEAU, Alaska (KTUU) - Tasked with helping to solve Alaska’s fiscal crisis, the newly-reinstated House Ways and Means Committee held its first hearing on Tuesday morning.

Anchorage Democratic Rep. Ivy Spohnholz chairs the committee and says it has three main targets: limit government growth, find efficiencies in state spending and discuss the possibility of new revenue options.

Lawmakers heard presentations on Tuesday from the Legislative Finance Division and the Office of Management and Budget. The presentations showed the drop in state revenue since oil prices crashed and the related depletion of the state’s savings accounts over nearly 10 years of deficit spending.

Committee members are set to take a tough look at diverse subjects such as Medicaid and proposed changes to the Permanent Fund dividend formula. That will include hearings on legislation that would put the PFD in the Alaska Constitution.

“I think if we don’t resolve the PFD formula, we are not taking our responsibility seriously as leaders,” Spohnholz said.

Neil Steininger, director of the Office of Management and Budget, gave a presentation about Alaska’s 10-year fiscal plan. He told the committee that Gov. Mike Dunleavy wants the dividend question answered this year before any broad-based taxes are implemented.

Spohnholz said the committee would be discussing more modest revenue proposals, including legislation that would increase the state’s motor fuel tax with a similar bill before the Senate. Discussions about implementing a broader revenue measure, like a statewide tax, would go beyond the end of the legislative session into hearings throughout the year, she added.

North Pole Rep. Mike Prax, one of two Republicans who sit on the Ways and Means Committee, said he wants to diversify Alaska’s economy, and cut spending, but says he doesn’t support any broad-based revenue measure.

To begin any conversation on new taxes, Prax said a spending cap would, “at the very least,” need to be implemented first. Spohnholz introduced a bill to do that, largely to bring reluctant Republicans to the table to discuss new taxes.

Dunleavy long-supported a full-statutory dividend, but has recently said the PFD formula should change after that change is supported by an advisory vote.

Prax has another idea.

He says the entire $16.1 billion in the Permanent Fund’s Earnings Reserve Account should be paid to Alaskans in one lump sum. That payment would be roughly five times the size of the $5,000 in dividends the governor has proposed be paid to each Alaskan in 2021 to help during the COVID-19 pandemic.

“The money should go into the pockets of the general population first, then they will be more engaged in the discussion of what we really want,” Prax said about his proposal, possibly leading into discussions about new revenues. “That would be my ideal solution.”

Spohnholz, speaking about the potential downsides of the governor’s proposal for a second $1,900 dividend in 2021, said the state faced permanently higher taxes if there is a one-time overdrawing of the Permanent Fund. Fiscal analysts with the Legislative Finance Division have said every billion dollars taken out of the fund costs the state $50 million per year in investment earnings in perpetuity.

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