Alaska Governor Wants Financial Reforms, Even If They Cost Him His Job

Gov. Bill Walker called on lawmakers Thursday night to plug the hole in Alaska's sinking financial ship by approving the three major pieces of his budget plan: budget cuts, new taxes, and spending some of the Permanent Fund's earnings.

By Nathaniel Herz

Gov. Bill Walker called on lawmakers Thursday night to plug the hole in Alaska's sinking financial ship by approving the three major pieces of his budget plan: budget cuts, new taxes, and spending some of the Permanent Fund's earnings.

In his second annual State of the State speech, he urged senators and representatives gathered in the House chambers to "pull together" even as he acknowledged that approval of his proposals could ultimately come at a political cost to him.

"I did not run for governor to keep the job," he said. "I ran for governor to do the job."

Wearing a dark suit, a Haida-themed tie and an Alaska pin with two pipelines, Walker compared the state's financial plight -- it has a $5 billion budget with a nearly $4 billion deficit -- to that faced by his family in Valdez after the catastrophic 1964 earthquake, which destroyed the Walkers' construction business.

Instead of declaring bankruptcy, his family members cut spending and found every job possible to pay the bills, with Walker starting a dog-sitting business for tourists.

"We survived through hard work, and pulling together as a family," Walker said.

His speech set the stage for what's expected to be a contentious legislative session, with lawmakers divided over the mix of cuts, taxes, and Permanent Fund earnings that should be used to fix the deficit.

Lawmakers' reactions Thursday were largely positive, even as they said that they didn't agree with all of Walker's ideas.

"He set up a good conversation," Sen. John Coghill, R-North Pole and the Senate majority leader, said at a news conference afterward. "We're grateful."

Walker is asking lawmakers to approve comprehensive financial reforms this year; without them, the state is projected to spend one-third of its savings. He's flexible on the details, he told legislators.

"I am not flexible, however, on the need to get there this year," he added. "It's time to fix the hole in the boat."

Walker's plan would create a small income tax and reduce the size of Permanent Fund dividends, but it would also insulate the state from swings in oil revenues as commodity prices go up and down.

For decades, those oil revenues have been used by lawmakers to pay Alaska's bills. Those revenues have dropped sharply over the past year with the crash in oil prices and the natural decline of production of the mammoth North Slope oil fields.

The governor's proposal to create taxes and reduce dividends have generated sharp opposition from Republican and Democratic legislators.

But in his 45-minute address, Walker stressed twice that even if approved, Alaska would remain the only state to write its residents checks every year. And Alaskans would still confront the second lowest tax burden in the country, he said.

Walker spent the first part of his speech reviewing his administration's initiatives and achievements in his first year in office, and describing a few new ideas, like the creation of a public integrity unit in the state's Department of Law to investigate corruption, deaths in state custody, and officer-involved shootings.

And he mentioned a few areas of potential growth, like tourism and agriculture. For the second straight year, he cited the "incredible" carrots produced by Alaska farmers, saying he has lobbied national food chains to carry the state's produce.

But, citing comments by a state senator, he said the top three priorities this year are "the budget, the budget and the budget."

Walker pushed back against criticism that his administration hasn't been aggressive in finding savings within government, citing the $400 million that he and lawmakers cut from the state operating budget last year. In October, he said, the state had 587 fewer employees than the previous year.

But cuts alone won't solve the problem, he added -- firing every state employee would still leave a multibillion-dollar deficit.

The state's crisis is now so dire, Walker said, that Alaska is spending $400,000 from savings each hour. If the problem isn't fixed quickly, he added, lawmakers will be forced to spend money from the Permanent Fund's earnings account to cover the budget gap.

"The Permanent Fund dividend will go to zero dollars in just four years," he said.

Lawmakers from both sides of the aisle offered generally warm responses to Walker's speech, though the state Republican Party immediately issued a sharp attack.

"What he said tonight sounded less like vision for the future, and more like a vision of bigger, bloated government," the party said in a statement.

Other Republicans, even some who have criticized Walker's administration in the past year, used softer rhetoric.

"I think, in general, we are supportive of working in the same direction as the governor," said one of those critics, Sen. Pete Kelly, R-Fairbanks. "But we probably are going to disagree with some of the details."

Kelly has almost exclusively focused on government cuts in discussing fixes to the state's budget crisis. But Thursday evening, he acknowledged that "we probably have to do some other things.

"And I will look very closely at the governor's Permanent Fund process," he added.

Rep. Adam Wool, D-Fairbanks, said he thought Walker's speech "showed leadership."

"We need that," he added.

Asked if he thought the Legislature would follow Walker's instructions and pull together, though, Wool chuckled. Then, he responded: "I think something's going to happen."

"We're not going to kick the can down the road," he said.

(c)2016 the Alaska Dispatch News (Anchorage, Alaska)

Caroline Cournoyer is GOVERNING's senior web editor.