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Alaska's Fiscal Situation: Where We've Been, Where We're Headed (10.26.2019)

  1. Alaska’s Fiscal Situation Where We’ve Been … … Where We’re Headed Brad Keithley Managing Director, Alaskans for Sustainable Budgets October 26, 2019 1
  2. About Alaskans for Sustainable Budgets ... Similar to the efforts of the Committee for a Responsible Federal Budget, Concord Coalition and Peter G. Peterson Foundation at the federal level, Alaskans for Sustainable Budgets is a project focused at the state level on increasing awareness about the nature and urgency of key fiscal challenges facing Alaskans, and developing and advocating for reasoned approaches in response. 2
  3. Where Have We Been … FY2013 - 20 2013: SBR Drawdowns 2015: CBR Borrowing 2017: PFD W/holding Total $20.72 B in deficit financing 3
  4. Where Are We Headed … FY2020 - 29 Average annual deficits = ● Traditional Revs: $2.5bn (52% of spending) ● Current statutes: $1.3bn (27%) ● POMV 50/50 PFD (Sen. Shelley Hughes): $0.8bn (20%) Zeroing out through “cuts only” would require -1.45% nominal (- 3.7% real) cuts annually 4
  5. But that is overly optimistic … 10-year revenue projections are based on $66 oil and rising, but … … current futures markets are telling a significantly different story 5
  6. What Are The Options for Closing the Gap … ISER (2016) ITEP (2017) 6
  7. What Are the Effects ... ISER: Assesses income & jobs effects of revenue generating measures (i.e., “taxes”) ITEP: Assesses distributional effects of the same 7 Using PFD cuts as an example ...
  8. “Reductions in the PFD are steeply regressive, having a far larger impact on families with lower incomes. Figure 5 demonstrates that while a $784 cut to the PFD payout could free up approximately $500 million for Alaska’s budget, that gain would come at a high cost for Alaska’s most vulnerable residents. Low-income families could expect to see their incomes cut by 7.2 percent under this change while the impact on middle- income families would amount to 2.5 percent and high-income Alaskans would see impacts well below 1 percent of their incomes. “... the impact on the bottom 20 percent of earners (at 7.2 percent of income) is nearly ten times as large as the impact faced by the top 20 percent (at 0.8 percent of income).” Comparing the Distributional Impact of Revenue Options in Alaska Institute of Taxation and Economic Policy April, 2017 8
  9. ISER conclusions ... “ The impact of the PFD cut falls almost exclusively on residents, and it is highly regressive, so it has the largest adverse impact on the economy per dollar of revenues raised.” -- Short-Run Economic Impact of Alaska Fiscal Options (May 2016) “ A cut in PFDs would be by far the costliest measure for Alaska families.” -- How Much Might Closing the State Budget Gap Cost Alaska Families? (Feb 2017) 9
  10. What Do We Support and Why ... Three pronged ● PFD based on POMV 50/50 (Sen. Shelley Hughes) ● Limit overall spending growth to no more than inflation ● “Flat Tax” (based on AGI) to close the remaining gap (1% = $250 million) 10
  11. What Do We Support and Why ... Why a “Flat Tax”? ● Equitable ● Broad Based (low rate, low economic impact) ● Critically, ALL Alaskans have a financial incentive to reduce costs 11
  12. A Very Quick Word on Oil Taxes ... At forecasted oil prices, production taxes are projected to average $517 million/year over next 10 years Initiative would add $1 billion/year (raise tax levels 3x) No “substantial analysis of impact” 12
  13. Questions (and thank you) ... 13 Alaskans for Sustainable Budgets … and Tuesday’s from 6:20 - 7:00 am on The Michael Dukes Show