Since oil prices crashed, Alaska has been like a family living on its savings.

Lawmakers have relied heavily on the Constitutional Budget Reserve, the state’s main piggy bank, to fill multi-billion dollar budget gaps. But, that is no longer an option because the fund has shrunk to the point where there’s not enough to cover the state’s massive deficits.

Those who track the state finances, like Ralph Townsend and Bob Loeffler, at the Institute of Social and Economic Research say lawmakers have no choice but to turn to the earnings of the Permanent Fund, which has grown to about $15 billion.

But ISER says that’s probably not enough to help lift the state out of recession. They say the state needs to spend more on its capital budget and to raise the money will have to impose a new tax.

Last year the state budgeted only about $130 million for capital projects.

“Of course it used to be ten to twenty times as large,” said Loeffler who teaches courses in government policy and resource development. “There are some costs in the future that are going to come home to roost.”

“The capital budget has been cut to a bare minimum,” said Townsend, director of ISER. “We’re not repairing schools. We’re not repairing university buildings. We’re not repairing the infrastructure of the state. Obviously, the construction industry is hurt substantially by that.”

As part of his Alaska Economic Recovery Act, Governor Bill Walker has proposed a temporary payroll tax to raise money for capital projects.

“No question, our prosperity hinges on solving that problem,” Walker told lawmakers gathered for his State of the State address on Thursday.

The Walker administration says state spending has been reduced by about 40 percent in the last five years.

The governor told the legislature the economy needs more capital spending to create jobs and capture income from out-of-state workers.

Republican leaders in the legislature have opposed new taxes, because of their potential to suppress an economic recovery.

But there is general agreement across both sides of the aisle about tapping the Permanent Fund earnings to close the deficit. The only question is how to do it – and whether other income or sales taxes should be a part of the mix. Last year, that debate was never resolved, despite a record 211-day session.

While earnings have been used to pay for dividend checks and other government programs, they’ve never been used to fill the lion’s share of the deficit.

“So we’re going from an oil-dominated budget to a finance-dominated budget,” Loeffler said. “And that’s part of what’s historic.”

On Sunday, KTVA’s Frontiers program takes a look at the economic crossroads lawmakers face this session. This week’s show, “Juneau 2018: Legislative Crystal Ball,” airs at 4:30 and 10:30 p.m. on Sunday, Jan. 21, on KTVA-Channel 11. 

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