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OPINION: Juneau has the right pieces for a fiscal deal

May 12th, 2017 | Charles Wohlforth, Alaska Dispatch News Print this article   Email this article  

The Legislature can solve Alaska's fiscal crisis with a grand compromise. The pieces are in place. The missing ingredient is a negotiator who knows how to make it happen.

I've heard plenty of ideas and have come up with some of my own. But we're at a point where personalities are as important as ideas. After talking to insiders this week, I think the biggest question is whether the Capitol has a broker who can close a deal.

If not, the most likely outcome is another year of failure, as Alaska's savings run out.

If you haven't been keeping up (and who can blame you after two years of deadlock), here is the state of play.

The Republican-led state Senate has a plan that calls for cutting the Alaska Permanent Fund dividend to $1,000, making big budget cuts to education, and spending savings to fill a reduced deficit.

The Senate is still working on oil taxes, but seems ready for progress on that. For once, oil taxes shouldn't be the sticking point.

The Senate also wants a spending cap and its leadership has opposed an income tax.

The Democrat-led state House's plan for the Permanent Fund would give us a $1,250 dividend, but that bill contains a poison pill that kills the measure if an income tax and oil tax increase don't also pass (in that case, the full dividend would go out, unless vetoed). The House majority opposes deep budget cuts or a spending cap.

Which savings accounts the state would tap to get through next year is a complex but essential additional question that also must be resolved.

The bad news for a quick resolution is that power is balanced, with neither side holding a decisive edge. Both sides have vulnerabilities, leverage, and difficult, dogmatic members. Neither leader can be entirely confident of controlling his caucus, although their risks are different.

The only way out of this deadlock is to find a compromise that addresses all parts of the problem at once. Following the traditional process of individual bill passage and conference committees is hopeless amid this complexity. Every piece affects every other.

But the shape of a grand compromise is not difficult to see.

The House will not sign on to a fiscal plan without a broad-based tax, its preference being the progressive and ideologically pure income tax written by House Finance Co-chair Paul Seaton, R-Homer.

The House majority already incurred the political price for passing Seaton's tax. Whether or not a tax ultimately becomes law, they will wear this target at election time.

Having become blood brothers and sisters in shared peril, the 22 majority members will likely hold firm.

On the Senate side, backing for President Pete Kelly, R-Fairbanks, is not as committed as that of House Speaker Bryce Edgmon, D-Dillingham, because Kelly's coalition, while stronger numerically, is all to his left.

As one of the Senate's most conservative members, Kelly could find himself isolated by a compromise that appeals to his colleagues.

At the same time, Kelly is one person who could make all this work. He is a brilliant politician. But he doesn't want to. His statements have drawn a line against an income tax.

Ideologically, Kelly wants to shrink government, so fiscal failure might not bother him as much as it would most of us.

On the other hand, Kelly also doesn't want to be embarrassed. If his group gets squishy, the right package could save face politically and hold them together.

Could broad-based taxes be made palatable to Kelly and the Senate?

A sales tax rather than an income tax might close the deal. An income tax would be better for Alaska, but sales taxes are more popular with the public.

But that option may be closed. No one has introduced a sales tax and time is running out.

Rep. Matt Claman, D-Anchorage, introduced a form of an income tax designed to appeal to its biggest opponents — the rich. Claman's tax makes everyone pay something and caps the amount big earners have to contribute. It is unfair, but it would be a reasonable compromise.

An income tax could also have a sunset clause, or a provision to discontinue if oil revenue rises.

My own idea, which goes closer to the point, would be to link the tax to a spending cap — if spending rises above a ceiling, the tax would go away.

This idea would address the concerns of conservatives that an income tax would let government spend more. It would be an incentive for legislative frugality.

Any cap would need to rise with inflation and population and include spending room for a capital budget. But, as Claman pointed out, it's a concept that has worked in Anchorage, with our tax cap.

If the House swallows a spending cap, the Senate would have to accept some form of tax and an end to education cuts. Passage of a deal wouldn't be easy, but legislators would get a win and they could come back and fight the issues again next year.

In the past, we usually had a master politician in Juneau who could manage a deal like this — although, perhaps, never one as hard as this. We may not have that person now.

Gov. Bill Walker has shown no aptitude as a power broker.

Kelly and Edgmon reportedly communicate effectively, but Kelly isn't motivated to deal as long as he thinks they can control his caucus.

Senate Finance Co-chair Lyman Hoffman, D-Bethel, has a good working relationship with Edgmon and has been meeting with him. But I doubt Hoffman has the temperament to outflank Kelly with a plan that would also satisfy Edgmon's liberal coalition members.

But, unfortunately, that may be our best hope at the moment.

In a political body, personalities and emotions can grow to exaggerated size. Over the next few weeks, these personal relationships will determine the fate of Alaska's economy, education, public safety and, for many of us, even our ability to stay in Alaska.

That's a sad state of affairs, but it is where the matter stands. The arguments have been made. Now it is time to deal or fail.

The views expressed here are the writer's and are not necessarily endorsed by Alaska Media, which welcomes a broad range of viewpoints. To submit a piece for consideration, email


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