‘Perhaps we could talk about sales taxes.’ Dunleavy administration seeks money for tax team

Gov. Mike Dunleavy submitted an historically large supplemental budget today to make up for gaps in the current year’s budget caused by higher-than-expected firefighting costs, unattainable Medicaid vetoes and breakdowns on the Alaska Marine Highway.

Of the total $285 million request, there are few areas where the governor is proposing money to go to entirely new programs, but one is surprising.

The proposal, which was presented in the House Finance Committee today, asks the Legislature for additional funding to bring in outside help to review potentially raising new taxes or—and this is what’s surprising given the governor’s repeated opposition to taxes—proposing an entirely new tax.

“To be quite candid, we are actually hoping at the Department of Revenue that folks here in the Legislature would like to take up the subject of new or incremental changes to existing taxes,” said Department of Revenue Deputy Commissioner Mike Barnhill. “In specific, perhaps we could talk about sales taxes.”

The $350,000 is intended to cover the next three fiscal years and would go to bringing in “tax expertise, economic impact analysis and legal analysis” that the department says it currently doesn’t have. Though it wasn’t raised at the meeting, it doesn’t appear the money would go to hiring state employees and rather would be used to contract outside help.

Legislators were skeptical that the state didn’t already have such expertise, but OMB Director Neil Steininger said it doesn’t currently exist “at the level the department believes will be necessary.”

Barnhill elaborated on the situation, focusing on the potential for a sales tax.

“Right now, the department does not have the expertise it needs to support vigorous and robust discussion about sales taxes within this building,” he said. “So, we’ll be looking for legal experts to potentially review legislation that could be proposed—perhaps even draft legislation that could be proposed—as well as economic experts that can opine on direct and indirect impacts to the Alaska economy.”

The budget request seeks to draw the funding out what remains in the Department of Revenue’s fund for due diligence on the now-defunct AKLNG project.

Why it matters

So far, the governor has sent mixed messages on taxes. His administration has said that all options to address the state’s budget should be on the table but said they wouldn’t be proposing any themselves. Meanwhile, Dunleavy has been largely against taxes in his public appearances. Barnhill’s statement is first sign that the administration could be interested in leading the discussion.

Still, nothing about today’s news would suggest Dunleavy’s budged from his demand that all new state-wide taxes should go to a vote of the people before being implemented. Barnhill’s offer of potential drafting also doesn’t mean the bill would necessarily be carried by the Dunleavy administration.

What also wasn’t explored today was any potential connection to the Fair Share Act ballot initiative that would hike taxes on large and established oil fields.

Despite legislative calls for a balanced fiscal plan, there’s been little agreement on new revenues.

Legislative leaders have shown little interest in broad-based taxes like an income tax or sales tax, arguing that the dividend formula needs to be tackled first. There’s been some around-the-edges revenue proposals like Sen. Click Bishop’s bill to raise motor fuel taxes or Dunleavy’s pitch for a state lottery, but they aren’t expected to raise a significant amount of revenue ($35 million and an estimated $10 million to $15 million, respectively).

Still, much of the hesitancy about taxes in the Legislature has been caused by Dunleavy’s opposition to taxes and the assumption that he would veto anything passed by the Legislature. Dunleavy also has enough allies to thwart an override of a legislative veto, which requires two-thirds of the Legislature or 40 total votes.

Last week, Sen. Lyman Hoffman, D-Bethel, complained that the administration was not only abdicating his leadership on the fiscal plan but was hamstringing the Legislature’s ability to respond.

“How are you helping us when you’re giving us no solutions. Instead of working with us and finding solutions, you’re saying that we will not look at additional revenue from the industry, which is a large amount,” he said. “It’s going into a fight with one hand tied behind our backs.”

Whether the Legislature bites on a sales tax—which several legislators have criticized as regressive and also costly to administer—has yet to be seen.