President's Message

Combination of compromises needed to boost state budget


It’s tax season, so it seemed like a good opportunity to talk a little bit about some proposed state taxes that could affect all of us — maybe even for the better.

Back in January, I traveled with the executive board and other members of our organization to Juneau for our legislative fly-in. We met with legislators and with Gov. Bill Walker and his team. The governor asked AGC for its support on a 1.5 percent tax on payroll and self-employed earnings, which would end in three years. When we got back to Anchorage, AGC Executive Director John MacKinnon and I drafted a letter to both the AGC executive and general boards about that proposed tax as well as a proposed increase in the gasoline tax.

Board members gave us some good feedback. The majority of the comments were in favor of AGC, as an organization, writing in support of the taxes. But we also heard from some members who asked, basically, how AGC could support raising taxes on its workers? It’s a fair question. Raising taxes of any kind is obviously a compromise, which is something that many of our legislators both in Juneau and in Washington, D.C., seem to want to avoid. But making compromises is how things get done, even if it’s not always popular.

Though prices for Alaska oil have nearly doubled since their lows in early 2015, the state is still running a big budget deficit. We have the highest unemployment rate in the country, and the size of our construction industry has shrunk dramatically. Some members of the state legislature think that cutting our expenses and expanding our oil production will get us back in the black. Maybe it will, but maybe not. How long would it take, and how long would it last? Some belt-tightening is definitely in order, but the situation also demands we do more than just fall back on our old habit of planning on the never-ending flow of more oil money.

Some tax revenue is one way to reduce our vulnerability to the fluctuating price of oil. The 1.5 percent tax on payroll (House Bill 281/Senate Bill 139) would be used for deferred maintenance, to repair things like state roads, state buildings and state airports. It’s infrastructure we all depend on and have put off repairing during this ongoing financial crisis. Repairs get more expensive the longer you put them off. It’s also worth pointing out that AGC members would likely be the ones making many of those repairs.

The gas tax (House Bill 60) is similar. It would raise the state tax over two years from the 8 cents per gallon that it has been since the ‘60s — currently the lowest in the country — to 24 cents per gallon. That might sound like a lot, but it’s about the average among the states.

These are relatively small taxes on the individual level. Neither would fix the budget deficit on their own, but they would help.

I don’t like paying taxes. My guess is that most of the AGC executive and general board members feel the same way I do. I also think that the welfare state has gotten out of hand, both in the country and in this state. At the same time, I believe in the benefit of having public infrastructure, both as an individual who uses it and as a contractor who spent decades building infrastructure projects across the state. But public infrastructure is paid for with public money, which means taxes, whether it’s on the oil companies or on Alaska workers. If we want public services of any kind, then somebody has to pay for it.

Some of our elected leaders have drawn a line in the sand and said, “No taxes of any kind.” Any tax proposal before them would be dead on arrival. Some have made promises to return us to the full dividend. Some think we can cut our way out of the problem — though it is mathematically possible, apparently it is not politically possible. And, there are those die hards who want to wring still more taxes from the oil industry.

To return to the question of how AGC, as a business organization, can advocate raising taxes: The answer is that it’s not just a question of implementing a couple of relatively small taxes, which, again, won’t close the budget deficit on their own. It’s a question of recognizing that as citizens of the state, what is good for the state is usually ultimately good for all of us. That doesn’t necessarily mean taxes, and it doesn’t necessarily mean a

smaller or no permanent fund dividend or cuts to social programs.

But it might mean some combination of the above. It means coming to the table with offers, not demands, and realizing that not getting exactly what you want is a sign of leadership, not weakness. AGC has clout in this state, and maybe it can make some statements that individual politicians can’t or won’t make. These aren’t fun things to talk about or think about, but let’s have the discussion anyway.