Oil Prices Down, And So Is Alaska's Revenue
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Alaska Governor Bill Walker, facing a profound fiscal crisis, has proposed the imposition of a personal income tax for the first time in 35 years. State lawmakers, who recently moved into a palatial new office building on Anchorage, where they work when not toiling in the far-off Capitol in Juneau, are now seeking less costly digs. And a state budget that was a point of Alaskan pride — and envy from around the nation — lies in tatters as revenue that flowed from selling crude oil from Prudhoe Bay over the past four decades has been swept away.
With oil prices down along with oil production, the state is facing a shortfall: Two-thirds of the revenue needed to cover this year’s $5.2 billion state budget cannot be collected.
Many Alaskans are not old enough to recall times this bad. This is the nation’s least-taxed state, where oil royalties and energy taxes once paid for 90 percent of state functions. Oil money was so plentiful that residents received annual dividend checks from a state savings fund that could total more than $8,000 for a family of four — arriving each autumn.
Walker, an independent, is proposing to scale back those dividends as he seeks to get Alaska back on a stable financial footing with less dependence on oil. "It will move us back to where we were before," he said in an interview. "We can do it."
Every resource-dependent corner of the globe is in stress these days as commodity prices from copper to soybeans have collapsed to multiyear lows. States like Texas and Louisiana are also grappling with the oil downturn, but Alaska’s situation is unique.
The 800-mile Trans-Alaska Pipeline, which was approved by Congress in the depths of the mid-1970s energy crisis and was completed in a crash-course construction cycle only a few years later, allowed crude oil to be shipped from oil fields emerging in the Arctic to the port in Valdez. With every barrel of oil, the state collected a royalty and a production tax that paid for most of state government and the creation of a multibillion-dollar Permanent Fund savings account.
The fund has paid dividends to residents every year since 1982, from $300 to $500 a person in the early years to more than $2,000 in 2015, based on the fund’s investments.
Walker’s recovery plan would take more from residents through the income tax and would give them less as well, by changing the formula under which the dividend is paid. The income tax would be six percent of the amount an Alaskan currently pays in federal taxes, so a person who owed $10,000 to the Internal Revenue Service would also need to write a $600 check to Alaska.
Dividend payments would be tied directly to royalties that decrease or increase with oil production. Because oil production is down, next year’s payout would be cut by roughly half under the proposal, to about $1,000 a person. The governor would also raise taxes on alcohol and tobacco and would collect new taxes from the fishing, mining, energy, and tourism industries.
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