Walker proposes three-year payroll tax to pay for ‘Alaska Economic Recovery Plan’

Gov. Bill Walker. (Governor's livestream)

Gov. Bill Walker’s answer to the state’s lagging economy and budget problems is an $800 million, three-year spending plan that will rely on a temporary tax on paychecks earned in Alaska.

Walker proposed what he’s calling the “Alaska Economic Recovery Plan” as part of the annual roll out of next year’s budget. It relies on a 1.5 percent payroll tax on roughly the first $150,000 earned in Alaska (the tax caps at twice the dividend), which would expire after three years.

It’s overall another attempt by the governor to convince the Legislature (specifically the Senate) to approve new revenue outside a still-pending restructuring of the Alaska Permanent Fund. Walker said he hopes the time-limit and the specific use, which he said would reach more than 60 communities, would help get legislators (specially senators) on board with the plan.

“There are a couple things that are different about it now. Now it’s limited to three years that wasn’t there before. Now it’s limited specifically to deferred maintenance–jobs for Alaskans–that wasn’t there before,” he said. “We’ve made some changes. There aren’t that many options, every state has one form or another is a broad-based tax.”

The projects fall under deferred maintenance on existing infrastructure in Alaska, including maintenance at the Port of Anchorage, low-income housing and weatherization projects, maintenance at the Pioneer Homes, the University of Alaska and local schools. The first year proposes to spend $280 million and total $800 million at the end of the three years.

Much of the spending requires matching money from the federal government and, more interestingly, from local governments, which have already been complaining that they’re shouldering an unfair amount of the state’s fiscal crisis. Walker’s expecting $205 million in matching money from local governments over that three-year period, but the funding mechanism outside of K-12 school maintenance and the Port of Anchorage is unclear as much of what’s targeted in the budget are state-owned projects.

The operating budget

The governor’s operating budget is slightly smaller than current year’s budget. Walker proposes cutting spending from $4.7 billion to $4.6 billion, but is proposing shifting around money to popular spending areas like public safety, where he’s proposing increasing spending by $34 million to hire additional prosecutors, additional investigators and fund substance abuse treatment.

The dividend is still reduced from the statutory equation, as it has been in the last two years. The governor plans to continue with the halved dividend at around $1,216 and make a withdrawal from the Alaska Permanent Fund’s earnings reserve as is envisioned in pending legislation to restructure the fund’s earnings of somewhere in the neighborhood of $2 billion. (Though a new report out of the Alaska Permanent Fund Corporation casts serious doubt about the viability of this plan.)

The state is expecting a slightly smaller deficit of $2.25 billion after the release of updated revenue projections based on increased oil production and climbing prices. Walker proposes closing the remaining gap with a motor fuel tax and the proposed payroll income tax above.

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