The plunge in oil prices has given a needed break to drivers this
holiday season, but it’s causing some real pain in states that rely on
oil revenue to fuel their economies and shore up their budgets.
Perhaps nowhere is the impact more pronounced than in
Alaska, where Gov. Bill Walker is proposing a raft of new taxes,
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Gov. Bill Walker is proposing a raft of new taxes |
including the first personal income tax in over three decades, along
with budget cuts to offset the damage from the price drop for the
oil-reliant state.
“This is a major paradigm shift in how the state of
Alaska conducts business,” Walker said in a statement as he announced
the plan in December. “That’s because we cannot continue with business
as usual and live solely off of our natural resource revenues.”
The price of Brent crude in the United States has fallen below $40 a barrel – more than $30 lower than in May of 2015.
Alaska is a state so reliant on, and accustomed to,
big oil revenue that residents share in the profits. In a sign of
changing times, Walker’s plan would redirect some of that money to the
government itself, making for smaller dividend checks for residents.
According to the Walker administration, the income
tax component of the New Sustainable Alaska Plan could generate up to
$200 million in revenue a year. Under the plan, the average Alaskan
family would pay a rate of roughly 1 percent of their gross income. This
would coincide with cuts for everything from obesity-focused education
programs to grants for emergency communication.
“Never before has the state faced a deficit so large
that we’re draining more than $9 million from savings every day,” Walker
said in a statement. “Fortunately those who came before us had the
wisdom to set aside money for a rainy day. Well, it’s raining now.”
Given the financial straits of the government,
Walker, an independent, has garnered bipartisan support from lawmakers –
but still faces reluctance on pursuing an income tax.
In a statement, House Operating Budget Chairman Mark
Neuman, a Republican, said Walker “deserves credit for proposing some
difficult options for filling our income gap.” Still, he said the plan
could use more budget cuts. House Capital Budget Chairman Steve
Thompson, also a Republican, echoed that critique and said he doesn’t
want residents to pay an income tax “unless it’s absolutely necessary.”
Under the plan, taxes on the oil and other industries also would increase, as would alcohol and tobacco taxes.
Alaska is in a more vulnerable position than a big oil state like Texas, which enjoys a more diverse economy.
Chris Bryan, a spokesman for the Texas Comptroller of
Public Accounts, told Fox News that while the state is projecting lower
oil-and-gas tax revenue, “the state’s diverse economy coupled with a
large beginning balance and a conservative budget from the 2015 Texas
Legislature should allow the state to absorb this reduction in projected
revenues.” He said the government is still predicting economic growth
in Texas north of 2 percent for fiscal 2016 and 2017.
Yet in North Dakota, where an oil and gas revolution
has transformed the state, the drop in prices also threatens to do
significant damage.
A recent
Moody’s Analytics study
reportedly said the state could be nearing a “full-blown recession,”
citing the $27 oil price in North Dakota, the lowest since 2008.
According to a
Watchdog.org report, North Dakota’s general fund tax revenue was about $152 million, or 8.9 percent, less than forecasted by lawmakers.
“It doesn’t seem like the revenues are going to
rebound in the very near term,” state Sen. Gary Lee, a Republican, told
Watchdog.org.
But according to Sheila Peterson, director of the
Fiscal Management Division of North Dakota’s Office of Management and
Budget, the falling oil prices are not crunching the budget as much as
they are in Alaska.
“The only direct oil revenue that goes into our
general fund is about $300 million out of a $6 billion budget,” Peterson
told Fox News. “We still expect to get the $300 million from direct oil
taxes.”
According to North Dakota’s OMB, the oil tax composes only 5 percent of North Dakota’s general fund revenue.
North Dakota runs on a 24-month budget, which will be re-evaluated for updated revenue forecasts by mid-to-late January 2016.
“Although revenues are indeed running below forecast
right now, it’s not as though we’ve run out of money,” Peterson said.
“Depending on what the next forecast shows, we’ll decide if we need to
take action, and if so, what those actions will be.”