Walker’s budget plan includes income tax, reduced PFDs

Gov. Bill Walker unveils his 2016 budget plan Wednesday, Dec. 9. (Photo by Rachel Waldholz/APRN)
Gov. Bill Walker unveils his 2016 budget plan Wednesday, Dec. 9. (Photo by Rachel Waldholz/APRN)

Gov. Bill Walker released his battle plan Wednesday for dealing with the state’s behemoth budget deficit. It includes Alaska’s first income tax since 1980 and a complete overhaul of how the state uses the Permanent Fund — effectively cutting dividend checks in half next year.

The plan would also raise taxes on mining, fishing and tourism; on alcohol and tobacco; and on fuel for cars and trucks, boats and planes. And it would abolish the state’s expensive system of tax credits for oil and gas producers, replacing it with a loan fund.

The governor announced the plan at Lynden Hangar in Anchorage. His team said the proposal aims to spread the burden of state operations as widely as possible to avoid drastic cuts to state services.

With oil prices hovering around $40 a barrel, Alaska is facing a deficit of more than $3 billion next year and into the foreseeable future.

The governor’s plan would shift the state away from a direct reliance on oil revenue and the boom-and-bust cycle of oil prices.

Instead, the plan would direct oil and gas taxes into the state’s massive reserve funds — including the Permanent Fund — and transform those funds into an endowment, using earnings to fund state operations.

The administration estimates it could withdraw about $3.2 billion annually to fund the state budget while still allowing the state’s savings to grow.

Permanent Fund earnings currently fund Alaskans’ Permanent Fund dividends. Walker’s plan would instead fund dividends with half from state royalties from oil, gas and other resource development.

The change would cut PFD checks by half next year, from an estimated $2,000 under the current system to about $1,000. The governor’s team argues that at current rates, the state will burn through its available savings within the decade, putting future dividends at risk.

The plan would impose fewer cuts than last year’s budget. Walker is proposing about $100 million in new cuts and $360 million in new taxes. He also proposes phasing out half a billion dollars in tax credits available to the oil and gas industry.

The governor’s plan is just the first step in the budget cycle. Lawmakers will have a chance to make their own proposals when the regular legislative session begins in January.

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