Since unveiling his proposed FY2027 budget in mid-December, Governor Mike Dunleavy (R – Alaska) has said he will introduce a fiscal package to deal with the $1.5 billion deficit. The deficit exists mainly because of the full statutory Permanent Fund Dividend (PFD), which Dunleavy has insisted on since taking office in 2018. With no PFD, there would be an $800+ million surplus in Dunleavy’s proposed budget.

Legislators have consistently rejected Dunleavy’s full PFD request, instead approving increasingly smaller dividends that don’t rely on savings draws or taxes. The one exception was in 2022, when legislators approved a $3,284 PFD in an election year after oil prices skyrocketed following Russia’s invasion of Ukraine. Part of that large PFD included an energy rebate, but it was still below the statutory amount of approximately $4,200 per person. 

The last time a full statutory PFD was paid was in 2015, one year before former Governor Bill Walker partially vetoed the PFD amid a $3+ billion deficit due to low oil prices. 

Until now, Dunleavy’s fiscal plan has been a mystery. Through multiple sources, the Landmine has learned the details of what Dunleavy plans to unveil in his final State of the State address on Thursday night.

The plan deals with four key areas: oil and gas taxes, corporate income taxes, a sales tax, and the Permanent Fund. Here are the highlights:

• Raising the minimum oil production tax floor from 4% to 6%. The minimum tax typically kicks in under a combination of high investment and/or low oil prices. They estimate the increase to bring in an additional $130 million. This would start in 2027 and would return to 4% in 2032.
• A 15 cent per barrel fee for Alyeska Pipeline to support maintenance on the haul road and along the pipeline. This would be passed on to the oil companies. This would start in 2027 and would not end. Estimated revenue is $25 million. 
• A reduction in the corporate income tax from 9.4% to 2% over seven years. The estimated revenue decrease between 2031-2035 is $135 million, and then $514 million between 2036-2042. 
• A statewide sales tax that would move between 2% and 4%. The tax would be set at 2% between October through March and 4% between April through September. This would go down to 0% in 2032. They estimate the revenue at $765 million per year. 
• A constitutional amendment to combine the Permanent Fund corpus and Earnings Reserve Account into one account, a maximum 5% yearly draw, and a 50/50 PFD based on the annual draw. The 50/50 PFD would start in 2028 and would be estimated at $3,600 per person per year. 
• Limit growth on spending to 1% through a statutory spending cap. 
• Establish a sunset and reauthorization process. 

There are many unknowns in this plan. The biggest one being how the sales tax would be structured. Would it stack on top of local sales taxes or would there be partial remittances to local governments that heavily rely on sales tax revenues? Will there be any exemptions? Rural and Southeast legislators will likely be strongly against a statewide sales tax. 

The constitutional amendment is also a heavy lift. That would require two-thirds of each body passing it (14 Senate, 27 House) and then voters would have to approve it. The last constitutional amendment was passed in 2004.  

Once Dunleavy introduces the legislation required for his plan, changes will likely be made by legislators in the committee process and on the floor. 

For some historical context, the last time the Legislature took up oil taxes was when they passed Senate Bill 21 in 2013. The key players in the Parnell administration then were people with significant experience, knowledge, and credibility in Juneau. They included:

• Senator Dan Sullivan (then Natural Resources commissioner)
• Santos SVP Joe Balash (then Natural Resources deputy commissioner)
• Alaska Housing Finance Corporation CEO Bryan Butcher (then Revenue commissioner)
• Former Revenue Commissioner Bruce Tangeman (then Revenue deputy commissioner)
• Lobbyist Mike Pawlowski (then special assistant on oil and gas)
• Lobbyist Heather Brakes (then legislative director)

Dunleavy still hasn’t designated a Revenue commissioner to replace Adam Crum since his resignation in July. Janelle Earls is in an acting role. There has not been a deputy Revenue commissioner since Fadil Limani was let go in April. And the Tax director has been acting since the previous Tax director left in May. All of this leaves uncertainty as to who will shepherd Dunleavy’s ambitious fiscal package through the legislative process. 

Dunleavy’s proposed plan is sure to set ignite a big debate within the Legislature as well as in the public. The Landmine is in Juneau covering the session and will be tracking things closely.