Rep. Kito gives view of state ferries, budget, oil taxes
Residents should expect more dramatic cuts to the ferry system starting in July 2017, state Rep. Sam Kito, D-Juneau, said during a recent visit here.
Kito said last-minute changes in the summer ferry schedule occurred because the ferry system developed its schedule under Alaska Gov. Bill Walker’s projected budget.
“When it got to the legislature, there was a push-back on that amount,” Kito said. “So they had already made the schedule for this summer, then there was concern about what was going to be taken away. Ultimately, we ended up with relatively minor impacts for this current year.”
Three ferries – the Taku, Fairweather and Chenega – will be tied up most of the winter, reducing service in places like Tenakee to fewer than one boat per month in mid-winter. But next year, cuts may be more severe, Kito said. “The decreased budget will really hit next July. We have to look at the possibility of a deeper cut then.”
Kito said he hoped that in the coming year the Department of Transportation would begin “creating efficiencies” in the system.
“Where can the system absorb increased fares? Where can we upgrade vessels to make them operate more efficiently? Is there a way we can operate the system so it serves the ports more efficiently?” he said. “There are things DOT can look at and actually decrease the amount of subsidy (ferries) require. So if we see a bunch of cuts, they will have the ability to absorb that in their operational plan.”
The state’s $5 billion general fund has a $3 million hole filled last session by savings from the Constitutional Budget Reserve, a state savings account that holds $12 billion to $16 billion. “Considering we’re going to need some of that leftover for construction of a (natural) gas pipeline, we have two to three years of budget savings available.”
“We have to look at a variety of ways to raise revenue for the state, the two big ones being utilizing the earnings reserve from the Permanent Fund and some kind of broad-based tax, in addition to looking at some amount of resource tax” on fisheries, mining, or timber, Kito said.
An income tax, Kito said, would bring in up to $500 million, so other sources are worth discussing, including a state lottery and a tax on marijuana sales. A marijuana tax would bring in an estimated $5 million to $10 million.
Asked whether he thought the current legislature was capable of instituting an income tax, Kito said: “I do have concerns – based on actions I’ve seen over the last few years – that it might be difficult for the legislature as a whole to take positive action in those ways.”
As long as the legislature is taking money from savings, there’s going to be strong pressure to continue cutting government, he said.
Kito said his goal would be “to never have to go into the principal of the permanent fund, but to use the earnings – or a portion of the earnings – to help support state programs.”
Legislators also should look at “modifying oil tax credits or modifying the oil tax regime,” Kito said. “We’re not going to get all of our money from oil taxes. Right now, with oil prices where they are, we just can’t close the gap.”
The state has been paying $700 million in oil tax credits, its third-largest single budget expense, following $1.2 billion for education and about $900 million in health-care spending, Kito said. Gov. Walker vetoed $200 million of $900 million last year.
“We’d probably benefit from having some kind of incentives for (oil) exploration and production. Exploration tax credits should increase production. The idea on the production credits is to incentivize production. What we need to know is, are we getting more out of what we’re putting into credits, even if it’s out at a future year. We don’t know those answers right now.”
The state needs to have its tax division working on audits that would determine that, he said. “My feeling is that we’re putting too much (money into tax credits), but we shouldn’t be putting in zero.”
Kito was asked to respond to a public perception that the oil industry has a stranglehold on the Alaska Legislature.
“If you go back through the past 10 years, I do believe there has been a fair amount of influence from the oil industry on construction of tax policy. I think we need to keep an open mind in looking at tax policy and making sure the State of Alaska is receiving what we need for a fair representation of revenue from the oil industry,” Kito said.
Kito said “it would be nice” to establish an endowment within the government to fund education, as some past leaders have proposed.
“The problem we have is with our constitution that says we don’t have dedication of funds,” Kito said. Also, such a change would set a precedent, leading to demands for other dedicated funds. Tucking money aside for education also “would impede the ability of the legislature to make financial decisions,” he said.
The permanent fund dividend program isn’t a dedicated fund because the legislature doesn’t have to provide citizens with an annual PFD check, Kito said. “The legislature could choose to not fund a dividend program, but I don’t think the legislature would ever choose to not fund the dividend program.”
As far as capital funds, there will be money to meet federal match grants for items like roads, airports and water-sewer projects.
“Next year it seems we’re hearing we’re not going to see any capital funds beyond that, but at a certain point you need to provide for major renovation and construction of schools and public facilities,” adding that the state needs a long-range plan for capital project funding not subject to fluctuation with oil values.
Funding things like a bear monitor at Chilkoot Lake “depends on whether or not we’re able to come up with some kind of stable budget scenario that has a revenue source that doesn’t involve significant withdrawals from savings.”
Kito spoke for extending the the legislative session from 90 to 120 days, noting that legislators this year took 140 days to finish their work and took 95 days in 2014.
The legislature meets in special session next month to discuss a natural gas pipeline. Kito, who represents Haines, Klukwan, Skagway, Gustavus and downtown Juneau, is seeking re-election to his seat in 2016.