A cash-strapped state of Alaska long looking for a way to make a buck off non-resident workers and tourists might turn its attention to France which is about to impose an “eco-tax” on airfares.
“The amount of the tax will depend on the type of ticket being bought,” the BBC reported. “Economy class tickets on flights within France or the EU will have a tax of €1.50 ($1.87) imposed. Business class tickets for flights out of the EU will have the highest tariff of up to €18 ($22.44).”
This sort of tax just might present the opportunity to create the 49th state “admission fee” of which many Alaskans have dreamed for decades.
Taxing nonresidents at the state level in the U.S. is tricky because of the Commerce Clause (Article I, Section 8) of the U.S. Constitution which has been read to generally prohibit “state laws and regulations that interfere with interstate commerce” or discriminate against residents of differing states.
Alaska’s revenue-raising efforts have run afoul of the Commerce Clause in the past (more on that below), but the Ninth Circuit Court of Appeals last fall cracked open a door when it upheld the Oregon Clean Fuels Program.
The program imposes a limit on the amount of carbon in transportation fuels. The justices concluded this is legal because it discriminates “against fuels based on lifecycle greenhouse gas emissions, not state of origin.”
The court then went even farther writing “that none of the alleged
discriminatory statements cited by (oil industry) plaintiffs undermined the Oregon Program’s stated purpose of reducing greenhouse gas emissions.”
There are parallels to an eco-tax or better yet, for public-relations purposes, an “eco-fee,” and the fuel program.
Charging air travelers to raise revenues to deal with the costs of climate change to Alaska infrastructure (hey, the friggin’ permafrost beneath our roads is melting!) is simply another way of dealing with in-state fall out from greenhouse gas, and there is a strong case to be made for singling out air travel given the latest findings on contrails.
“A 2011 study suggests that the net effect of these contrail clouds contributes more to atmospheric warming than all the carbon dioxide (CO2) produced by planes since the dawn of aviation,” Science Mag reported last month.
The story was sparked by a peer-reviewed study published in Atmospheric Chemistry and Physics at the end of June concluding the global-warming-linked contrail problem isn’t going away but only getting worse as air travel and air shipping continue to increase.
Add all of this together, and an Alaska eco-fee aimed at “mitigating” damage from “greenhouse gas emissions” might well pass muster in the federal courts, an important consideration given the state’s long-running issues with the U.S. Constitution when it comes to taxes and spending.
The best-known conflict involved the state’s Permanent Fund Dividend (PFD). Originally, it was supposed to pay Alaskans $50 per year of residency. So if you got here last year, you’d only collect $50, but if you’d done 30 years in-country, you’d collect $1,500.
The important stuff
Now forget the legalese important only as something the state Department of Law must consider and turn your attention to the economic and political realities the state today faces.
Alaska has budget problems and needs new revenue.
If you’re unaware of this, you’re either a tourist just off the cruiseship from far away, or you’ve been holed up in a trapper’s cabin in the remotest part of the Brooks Range for the last several years.
Alaska’s fiscal woes have been headline news since before former Gov. Bill Walker cut in half the PFD in an effort to grab $1 billion or so to shore up the state budget, and the only real shift in the news under new Gov. Mike Dunleavy has been that the type in the headlines has grown bigger as he has tried to seriously cut the state budget in order to pay full dividends and refund the money Walker snatched.
To get the state budget within sight of balance, Dunleavy was forced to veto more than $400 million in Legislature-approved state spending, a move that ignited a firestorm of protest from many angles.
The subhead below declared “Legislature must save Alaska” as if the state might die from lack of state spending. It won’t.
Fairbanks does, however, have a lot of skin in the game considering that Dunleavy’s biggest veto scratched $130 million destined for the University of Alaska (UA), and UA Fairbanks is the biggest employer in the Interior city.
University backers have claimed the cut will destroy the institution, and they are angry. Others could care less and would rather have their PFDs.
As with so many issues in the U.S. these days, this one has gone partisan along political, ideological and class lines. Suffice to say, the state once famous for its troublesome rural-urban divide now faces divides on many fronts: left-right, white collar-blue collar, resident-nonresident, and more.
How big the overall rift is best summed by a Legislature that convened in dueling special sessions with 21 Republicans meeting in Wasilla and 39 Democrats, Independents and a smattering of Republicans meeting in Juneau.
Since the Legislature first gathered in January, emotions have risen to the point some lawmakers can’t stand being around each other. Thus the meetings in cities more than 500 miles apart almost two months after the legislative session was scheduled to end so the state’s citizen lawmakers could enjoy the summer.
Then again, maybe this was the summer to meet. Some are saying the 2019 is too hot and smoky to enjoy anyway. Air-quality warnings were issued for both Wasilla and Juneau in recent days.
They were blamed not on the legislators but on smoke from nearby forest fires linked to a heat wave in Alaska and northern Canada. Both Alaska cities have been smoking hot compared to normal standards with Wasilla in the mid-80s, and Juneau in the usually cool, damp coastal rain forest of the Panhandle in the low-80s.
Amidst all this, Alaska’s political leaders – who Wednesday failed in a bid to override Dunleavy’s vetoes – need something to agree on, and what better than the nation’s first “eco-fee?”
Taxing nonresident workers and tourists would seem something agreeable to most Alaskans who are generally agreed they don’t like taxes, except on the oil industry. And even the minority willing to endorse taxes on individual Alaskans can spend endless hours, days, weeks and months arguing over which sort of tax is “fairest”: sales, income, business or commodity.
None have won any support. The Legislature refused to even increase taxes on commercial fishing (a commodity tax) to fully cover the costs of managing, policing and promoting the fisheries.
Every tax proposal is inevitably met by the argument “it’s not fair” because it singles out one Alaska interest group or hits harder at one class than another.
An airline eco-fee would largely skirt that issue. The airlines take no hitchhikers. Everyone traveling by air can already afford to pay. The poor aren’t cheated to any greater degree by an eco-fee than they are already cheated by life in general.
Poverty is a difficult pit to climb out of as John Hopkins University sociologist Karl Alexander has now well documented in a detailed, 30-year-long study of the struggling neighborhoods of Baltimore.
And in Alaska the poor stand to be among the beneficiaries of any money collected from the approximately 800,000 tourists per year who arrive in Alaska on air carriers, according to the Resource Development Council, and the more than 6.5 million people who can afford to fly in and out of the Anchorage and Fairbanks airports every year, according to the Alaska Department of Transportation.
At $20 per head, 6.5 million people would be good for $130 million. That’s not going to close the state’s $1 billion fiscal gap, but it would be an easy way to start. It’s about a third of the $396 million a study by the University of Alaska Anchorage’s Institute of Social and Economic Research (ISER) estimated for a 3 percent flat-rate income tax.
And along with generating revenue, an eco-fee to deal with climate change would help burnish the image of a state sometimes nationally and internationally portrayed as a lawless, crime-ridden, selfish, penny-pinching land occupied by wolf-murdering, eco-destroying outliers.
If, of course, the Legislature is careful to make it clear the eco-fee is intended primarily to help the state defend itself against damage from “greenhouse gases” even if some of the climate-change models make it look like Alaska might be as much winner as a loser in the big unknown of global warming.
How an eco-fee is portrayed is important because the U.S. Supreme Court has in the past expressed its unhappiness with Alaska doing anything that made it look like the state was trying to make Outsiders pay for their use of the 49th state.
The state, in the view of the high court, violated the Commerce Clause when it charged nonresident, commercial fishermen a premium on their limited entry permits. That case illustrates the tricky path Alaska would need to navigate to impose an eco-fee.
Nonresidents tend to be the wealthiest Alaska fishermen. Nonresident drift gillnetters in Bristol Bay, for instance, have average earnings more than $30,000 per year above those of local fishermen and more than $10,000 above non-local Alaskans who fish the bay, according to the state’s Commercial Fisheries Entry Commission (CFEC).
The bay supports one of the state’s most lucrative salmon fisheries. The CFEC calculated nonresident earnings there from the start of limited entry in 1975 to 2016 came to almost $120,000 year – not bad for a couple months of work.
Nonresident commercial fishermen sued, arguing that being required to pay three times as much in annual permit fees as residents was unconstitutional.
The so-called “Carlson case” dragged on for years in both the state and federal courts, but the nonresident fishermen eventually won. The Alaska Legislature in 2010 appropriated $75 million to reimburse nonresident fishermen for fees the U.S. Supreme Court ruled illegal even though the legal action rolled on in state courts even after that.
The state ended up spending unaccounted for millions defending against the lawsuit, and eventually the Legislature was forced to up the maximum fee for all commercial fishermen to cover the management costs of limited entry. They capped it then at $3,000.
The maximum fee is today imposed on trawlers working in state waters and longliners over 90 feet. Bay gillnetters still pay only $600, $150 less than the old cap on non-residents but four times the fee paid by Cook Inlet drifters.
In the wake of the Carlson case, state hopes for collecting more from nonresidents – be they tourists or part-time workers – has focused largely on a state income tax thought to reach into the pocketbooks of workers with high-paying jobs in the Alaska oil patch, or a sales tax, which would collect revenue from tourists and some nonresident workers.
A 2016 study by the University of Alaska Anchorage Institute of Social and Economic Research estimated a 3 percent, statewide sales tax with exclusions for education and health care could net $45 million per year from nonresidents.
The same study pegged the revenue from nonresidents at $28 million to $29 million if a 2 percent flat rate income tax was imposed or the state collected a 10 percent surcharge based on federal income tax earnings.
It’s impossible to say how much an eco-fee might squeeze out of non-Alaskans, but a potential $16 million from 800,000 tourists is not bad, and there are millions more to be had in eco-fees on oil patch workers, businessmen, conventioneers and others flying in and out of the state.
Under any tax scenario, unfortunately, tourists and nonresidents contribute only a tiny share to Alaska revenues, but at least they could be made to contribute to the state’s big, communal problem spawned by decades of growing government while living almost wholly off taxes on North Slope oil.
The state budget has been shrinking in recent years, but the deal agreed to by the state House and Senate this year still called for $4.3 billion in state spending. There are now about 330,000 people employed in the state of Alaska, according to the Department of Labor.
If they were individually required to support the cost of state government, the average, per-person payment would amount to more than $13,000 per person per year or about 38 percent of the U.S. Census estimate of an Alaska average per capita income of $35,065.
Luckily, Alaska still enjoys the luxury of oil revenue – income most other states lack.
Individual, working Alaskans would only need to pony up about $3,000 per head – less than 10 percent of the annual per capita wage – to close the fiscal gap. And, of course, supporters of an income tax are quick to argue that by making it progressive lower-income workers would pay an even smaller shares.
Budget activist Brad Keithley does, however, make a good case for a simple, “flat tax” as a means to mobilize more Alaskans to encourage the Legislature to avoid acting like the average American with a bad tendency to grow his or her lifestyle as big as family income will permit with little consideration of the future.
It was that sort of thinking that helped Alaska get into the mess it’s in today. It was easy to give various interest groups what they wanted when oil revenues were covering about 90 percent of the state budget.
Oil revenues now account for about 60 percent of the state’s income. But they still total about two and half times all revenue other than investments, the latter being primarily related to a state Permanent Fund today worth $64.4 billion.
Alaska is far from broke, but it has a cash-flow problem, and an even bigger social problem: How to devise a politically acceptable scheme to balance costs and revenues without digging into the state savings account.
An eco-fee wouldn’t solve the problem, but it might do a little to help in a way most Alaskans could accept.
And just think of how environmentally friendly it would make Alaskans look.