Total Budget: -$1,254 million dollars

That's $2,000 per Alaskan

Key Choice: Permanent Fund Dividend

Since the early 1980’s, the state has paid citizens a dividend based on a formula tied to the Fund’s investment earnings. Since creation 41 years ago, nearly $30 billion in dividends has been distributed, for an average dividend of $1,269.40.

In 2018 the Legislature approved a new formula that says 5% of the Fund’s earnings goes to the state to help pay for state services and for dividends (prior to this, earnings had only been used for dividends). In practice, the individual dividend amount no longer is based on a prescribed formula; instead, legislators decide each year how much can be spent for dividends, just as it does in funding other programs. The total cost for this year’s dividend is $882 million, which is about 25% of the fund’s earnings; the other 75% is funding state services. Under this same formula, next year's dividend is projected to cost $915 million.

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Revenue: Corporate Income Taxes

Alaska taxes corporate income at graduated rates ranging from 0% to 9.4% divided over ten tax brackets and is based basically on Federal taxable income. Total amount collected last year was $413 million, of which oil and gas companies paid $301 million; other businesses paid about $112 million.

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Revenue: Mining Taxes

The Alaska Mining License Tax (AMLT) is assessed on any mining operation with a net income exceeding $40,000. The large mines in Alaska paid the majority of the $54 million in taxes collected last year; this was in addition to rents, leases, royalties, corporate income tax, motor fuel tax, local property taxes.

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Revenue: Commercial Fisheries Taxes

The State collects about $83 million from commercial fisheries in taxes, fees, and self-assessments to manage fisheries. Of this, the Legislature directs certain amounts to local governments or other fisheries-related programs. The value of fish taxes collected is tied to the value of fish, which means state revenue goes up and down with fish volume and global markets.

Of the amounts collected last year, the State used $31 million to help manage the fisheries; another $31 million was shared with local governments; and $19 million went toward specific projects and marketing. The Fisheries Business Tax is the largest revenue generator (FY 22 it collected $55 million). The State could keep new revenue from any future increase, instead of sharing with local communities.

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Revenue: Oil & Gas Taxes

Oil and gas producers in Alaska pay a production (or severance) tax, corporate income tax, property tax, and royalties on each barrel of oil. They also pay a property tax that is shared with local governments where oil and gas infrastructure is located ($449 million was paid last year to local governments).

The state constitution requires that at least 25% of all oil and gas royalties go into the Permanent Fund ($539 million last year); the remainder ($1.3 billion last year) goes to the state’s general fund. Oil prices averaged $91.41/barrel (ANS West Coast) last year and revenue from oil and gas totaled $3.5 billion, which was 50% of the state’s total unrestricted general fund revenue.

The value of production tax collected is tied to the price of oil, which means state revenue goes up and down along with the world price of oil. Last year the state collected $1.8 billion from oil and gas production taxes. This compares to $126 million collected five years ago. The dramatic swing is due to the change in oil prices caused by decreased demand/oversupply in the world market.

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Revenue: Excise Taxes

Alaskans pay $120 million in excise taxes (aka “sin” taxes“ on tobacco, alcohol, marijuana). Of this amount about half of the revenue goes to the state’s general fund; the rest is designated by law to particular programs. Any new increase could have all new revenue go to the general fund.

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Revenue: Fuel Taxes

The state’s fuel taxes raised $45 million last year. The highway fuel tax is $0.08 per gallon; marine is $0.05/gallon; and aviation gasoline is $0.047/gallon. Airport fuel revenue goes to fund airports; marine fuel tax revenue helps fund harbors; and highway taxes go to the Department of Transportation. Alaska has the lowest motor fuel taxes in the United States.

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Revenue: Income Tax

Alaska repealed its income tax starting in 1979 when revenue from oil started flowing (at that time it had a progressive tax with brackets from 1 to 10.9%). Currently Alaska is one of seven states without an income tax.

A flat tax is a fixed rate in which everyone pays a percentage of their wage or net earnings (if self-employed). Nine states have a flat tax that ranges from 5% in Massachusetts to 3.07% in Pennsylvania; the average is 4.42%. Because everyone pays the same percentage, this tax is viewed as regressive because it takes a larger percentage of a low wage earner’s income compared to high earners.

A progressive tax is based on the taxpayer's ability to pay. It imposes a lower tax rate on low-income earners than on those with a higher income by creating tax brackets based on income ranges; some states tie the rate to that of a taxpayer’s Federal income tax liability.

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Revenue: Sales Tax

Some consider a sales tax a more transparent way for government to collect tax revenue because consumers anticipate and see taxes paid as they purchase goods and services. If the tax applies to all purchases (no exemptions), it is viewed as “regressive” since low income families pay a greater percentage of their income. A total of 45 states have a sales tax in place, with rates from 2.9-7.25%. While Alaska currently has no state sales tax, many local communities do. The two largest"Anchorage and Fairbanks"do not and instead, rely on property taxes to fund local services.

The revenue estimates below are for a broad sales tax on the purchase price of sales of goods and services to consumers and businesses with no exemptions.

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Revenue: Lottery

Alaska currently doesn’t have a lottery. There are several ways the State could generate revenue from this form of gambling. A lottery that offers a drawing only (such as Lotto and Powerball) is estimated to generate about $5 to $8 million in revenue. A lottery with both a drawing and instant (scratch-off) games is estimated to generate about $35 million; a lottery with draw and instant games as well as video lottery terminals (video gambling), is estimated to raise about $135 million.

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Spending: K-12 Education

K-12 education is the largest program in the state, at $1.3 billion this year. K-12 funding pays for 13 grade levels, including salaries for teachers and support staff, building maintenance, books, transportation, etc. A per student formula (Base Student Allocation, or BSA) is used to distribute funds to school districts. Some additional funding is added for other factors such as cost-of-living differences. School districts also receive funding from local and federal funds.

There had been no substantive funding increases to the BSA since FY 2015. For this year, there was a one-time $340 increase to the BSA that brings the basic allotment to $5,960 per student (that then is adjusted for factors such as school location, special need students, pupil transportation cost). One national study estimated that Alaska’s K-12 spending per student is $18,732 per year, which would be 7th in the nation.

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Spending: Early Learning

Last year the State spent $5.7 million for grants to school districts to develop/provide voluntary pre-Kindergarten programs; another $2.3 million is being spent this year. Studies show early education before kids enter kindergarten can improve school readiness and increase reading proficiency.

Full implementation of the Pre-K component of the “Alaska Reads Act” will require the State to spend $17 million, which will serve approximately 80% of 4-year-olds in voluntary Pre-K programs.

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Spending: University of Alaska

UA offers a variety of programs from vocational training to doctorates at 15 campuses and training centers around the state. Regional campuses allow people to stay close to home where they can continue to be part of their families and communities, during and after graduation.

Currently there are over 21,000 students enrolled and about 4,000 graduates annually. UA received $371 million in state funds in fiscal year 2015; between 2016 and 2022, the university’s budget was reduced $94 million. The university received some increases over the last two years and its budget now totals $308 million in state general funds. Student tuition has risen steadily over the last ten years with periodic increases of around 5%; however, tuition has largely remained frozen the last two years.

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Spending: Medicaid

Medicaid provides health coverage and long-term care services for low-income Alaskans. It is jointly (federal and state) funded and administered by the state within federal guidelines. The State’s cost for the Medicaid program is $694 million plus an additional $1.8 billion in Federal funds.

As of last January, 262,114 Alaskans were enrolled in the program. Post-COVID, some no longer are eligible for coverage, which will reduce some costs going forward; however, the rate that the State must match Federal funds is increasing from 50% to 56.2%. At the same time and due to a lack of funding, more than 400 Alaskans with disabilities are on a waitlist to receive Home and Community Based Services.

In recent years Medicaid reform legislation has resulted in over $150 million in state cost savings annually through program efficiencies, federal tribal reimbursement, drug price negotiations, and targeted case management.

While the Federal government mandates certain services be covered under Medicaid including nursing home care when needed, it also has other services considered "optional," which range from dental services, at-home personal care services, to prescription drugs. These can be less expensive than what would otherwise be a mandatory alternative such as home care versus nursing home care or preventive dental care versus emergency. Over 90,000 Alaskans have been able to access optional services.

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Spending: Senior & Disability Services

The Division of Senior and Disabilities Services makes grants to senior centers and other non-profits to provide community based supportive services to families and individuals experiencing Developmental Disabilities (DD), Alzheimer's Disease and related Disorders (ADRD), family caregivers of seniors aged 60 and over, grandparents raising grandchildren aged 55 or over, seniors aged 60 and over, and/or frail or disable seniors who need assistance in the home. These services are available to individuals who are waiting or do not qualify for Home and Community Based services under the Medicaid Waiver program, or who only require minimal support that can be provided by the grant services.

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Spending: Mental Health & Substance Misuse

The Behavioral Health Division provides services that range from prevention and screening to brief intervention and acute psychiatric care at API. The State awards $11 million to organizations to provide mental health and substance misuse services.

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Spending: Children's Services

Children’s Services is focused on ensuring the safety, permanency, and well-being of Alaska’s children by working with families and communities. The State is spending $107 million for these programs, which includes $46 million for social workers focused on child protective services, and $32 million for foster care and subsidized adoptions. Foster care subsidies are paid to families to assist with the care of children placed with them; rates are augmented for a child with special needs.

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Spending: Corrections

Corrections’ budget is $367 million; it operates 13 correctional centers, halfway houses, and probation/parole services. With increasing pressure to take action against growing crime, Alaska’s prisons currently are at around 80% capacity, of which about 55% are those that are awaiting trial or sentencing. Last year Alaska’s cost per prisoner was about $176/day.

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Spending: Public Safety

About 78% of the Department of Public Safety's $242 million budget is for the Alaska State Troopers ($168 million) and Village Public Safety Officers ($21 million). The department also operates the Crime Lab ($8 million) and provides $15 million in state funds for the Council on Domestic Violence and Sexual Assault. Alaska has one of the nation’s highest rates for domestic violence. The Council awards grants for emergency shelter, victim assistance, and battery intervention programs.

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Spending: Criminal Prosecution & Defense

The Law Department's Criminal Division prosecutes violations of state criminal law committed by adults and a large portion of the serious crimes committed by juveniles. Its budget is $46 million. The Public Defender (PD) Agency and Office of Public Advocacy (OPA) provide court-directed legal advocacy and guardian services to vulnerable Alaskans and constitutionally mandated legal representation to indigent clients charged with a crime; its budget is $74.4 million. As crime increases and more arrests made, their respective workloads increase.

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Spending: Court System

The Court System’s $136 million budget includes operation of the state’s appellate, trial, and therapeutic courts. Offices and courtrooms are in 40 communities throughout the State. The system is still struggling to catch up on court cases that were delayed due to COVID.

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Spending: Fish & Game

The department's job is to protect, maintain, improve, manage, and develop the state’s fish, game, and aquatic plant resources. This is to be done in the best interest of the economy, the well-being of Alaskans, and consistent with the sustained yield principle.

Last year’s budget totaled $233 million, with only $61 million coming from the state’s general fund. The largest program is management of commercial fisheries, with a budget of $42 million in state funds; the Anchorage and Fairbanks hatcheries cost about $4.9 million in state funds. Other department programs are almost fully self-supporting through license and permit fees.

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Spending: Transportation

The Department of Transportation and Public Facilities has responsibility for state roads, airports, state-owned buildings, and the ferry system. This year’s budget is $168 million in general funds, of which 52% ($87 million) is for maintenance of highways, aviation, and facilities, and $70 million is to run the ferry system. Inflation is dramatically driving up costs of the commodities the department uses; when costs exceed the amount budgeted, the only option the department has is to do less maintenance, fewer repairs, and/or reduce ferry service.

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Policy Option: Spending Limit

In recent years the state has used savings to balance the budget, primarily due to fluctuating oil prices (between 2012 and 2022, the state spent nearly $20 billion from these reserve accounts). In the last two years, the budget has been balanced without using savings, primarily because of the law that gave annual access to some of the Permanent Fund earnings to pay dividends and for state services.

New or increased taxes also have been proposed to balance the budget, but none have yet been passed. Those potentially impacted by these tax proposals are concerned it only will lead to more spending and not replace declining revenue. They suggest a spending limit will protect against this from occurring.

The State currently has a Constitutional spending limit, but it has never been effective because of unrealistic assumptions initially used. A limit also exists in State law, but it is easily overridden by a Legislature approving additional spending.

Some Alaskans suggest that a realistic, effective limit needs to be put in the Constitution before any new taxes are implemented. Others believe the Legislature should use its best judgement at the time and spend or tax as necessary to meet the State’s needs.

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Policy Option: Permanent Fund Endowment

In 1976 voters approved creation of the Alaska Permanent Fund, into which at least 25 percent of oil revenues were to be deposited. The idea was to save money for future generations, which would no longer have oil as a source of income.

The Fund is divided into two parts: Principal (non-spendable) and Earnings Reserve (spendable), both of which are invested using the same asset allocation. The Alaska Constitution states that the Principal can only be used for income-producing investments. The Earnings Reserve account, established in state law, is available for spending. This is the account from which funding comes for dividends and state services.

The Fund’s financial advisor has predicted the Earnings Reserve Account could be depleted in a few years due to lower-than-expected earnings. This would mean dramatically less could be available for dividends and state operations because only money in the Earnings Reserve can be accessed.

The Fund’s Trustees recommend the Fund be restructured as a true endowment by which it is one fund with a specified percentage of its value paid out each year. This would require voter approval to amend the Constitution accordingly. They believe this will allow the Fund to grow and assure that Alaskans will receive the promised benefits from when the Fund was created.

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