Commentary

Alaskaland entry fee

denali park

Denali Park visitors take in the sights/NPS photo

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 U.S. Supreme Court, however, ruled that plan violated the Equal Protection Clause of the Fourteenth Amendment by discriminating against new arrivals. 

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 state’s second largest newspaper – the once conservative Fairbanks DailyNews-Miner – resorted to 2-inch type on a red background to headline “OVERRIDE” above a front-page editorial.

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.

Angry fishermen

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.

In an effort to keep some of that wealth in state, Alaska in 1984 increased fees for permits, capping the maximum resident charge at $250 but tripling it to as much as $750 for nonresidents.

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.

Scared off

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.

Even with oil prices holding below $70 per barrel, the oil industry will generate about $2.6 billion in taxes and royalties this year, according to the Department of Revenue.

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.

 

 

 

 

 

 

 

 

 

 

21 replies »

  1. What a mess of bad tax and spend ideas. Generating tax ideas that produce a couple hundred million when you need at least 10-20 times that isn’t going to resolve what is going on financially within Alaska government spending. Taking it from oil will only make oil go somewhere else. New tax’s and a 10% spending reduction for 2-3 years might work but not one or the other like some want. It is unbelievable how nobody even suggests any new revenue producing state products or services. Like why not create a new state agency and called it the “value added agency” and it only does one thing, figures out how to take state waste and convert it into state revenue? Great idea right?

    Alaska has wasted hundreds of billions of revenue dollars wholesaling its natural resources when it could be retailing them. It wastes those resources by wholesaling them for 10% of their actual retail value. Timber, oil, minerals and fisheries are all sold for 10% of their actual retail value. That agency would do nothing but construct projects to capture that lost revenue.

    Since state agencies have problems doing anything efficiently funded the agency only when it generates cash for Alaska? One billion dollars in “recovered value added revenue” equals x agency jobs and x standard salaries. Two billion dollars equals x agency jobs and salaries. There’s one idea, where’s yours?

  2. “Alaska has budget problems and needs new revenue.”

    This sentence should read Alaska has budget problems and WANTS new revenue. Or Alaska has A SPENDING problem and needs new revenue TO SUPPORT THE SPENDING PROBLEM.

  3. “Alaska has budget problems and needs new revenue.”
    And yet AK’s Oil Industry Controlled Government under Sean Parnell (ex ConocoPhillips executive) implemented $B 21 and hands over nearly $1.5 billion dollars each year to subsidize the industry?
    This while budget cuts hurt the elderly, mentally ill, public radio, education and low income families throughout Alaska…
    I would say more than Alaska needing “new revenue” we need “new leaders”, but the problem now is Citizens United allows “dark money” to protect and promote the “suits” of outside choice.
    Unfortunately for this state that held so much in resources and potential we are destined to return to a “banana republic” economy as Alaska makes less money per barrel off its exported oil than a dictator in the middle east gets?
    I guess Rex Tillerson was correct when he chose NOT to invest in the gasline claiming:
    “Alaska is its own worse enemy!”

    • Steve, to claim we are “subsidizing” the extraction of our oil at $1.5 billion per year is disingenuous.The tax credit system may or may not be equitable depending on your point of view and I will be the first to call for an independent evaluation of the recent history. I can’t claim to be an expert – but I can read. Can you cite any independent evaluation by someone with the necessary expertise?
      My gut feeling on this subject is that 90% (at times) of our State income has been produced by oil and helped us create a $65 billion endowment which now provides more income than all other non-federal income combined. How sorry do we feel for ourselves?
      I will be the first guy to call for a new look at oil taxes – right after we end the Dividend (as currently structured).

      • Here is how I would change the Dividend.
        1. Establish a separate Fund, managed similarly to the PF.
        2. Each Alaskan will have an individual account within the fund (tax exempt or deferred).
        3. Each year the legislature makes a contribution to the Fund (instead of the Dividend) – which is apportioned to each account-holder in the Fund. The amount of the contribution will be whatever is left of the 5.25% draw from the PFER
        4. The total Fund is invested by professional managers like the PF so the principal can grow.
        5. There are restrictions on the use of the funds in the individuals account (in order to qualify for the tax exempt status). Therefore only certain uses are permitted like education and health care or even retirement.
        6. If you just let the account accumulate – you will increase the principal at a parabolic rate.
        7. The longer you reside in Alaska the greater the accumulated benefit
        8. Unproductive use of peoples use of the Dividend will decline.
        9. We avoid the federal tax liability of the current Dividend.

    • And currently under SB 21 the state is bringing in more revenue on more throughput of TAPS than what we would if we had kept ACES in place. In fact with where prices have been since SB 21 became law and we were instead still under the previous taxing scheme the state would have brought in little or no revenue from oil. Thankfully SB 21 was passed and the regressive environmental stooges were unsuccessful in their effort to overturn a tax law that has kept the state afloat during this time where oil is not sky high.

      • Source? I would genuinely appreciate a reputable source to back-up this assertion (better-off w/ SB 21), as I have heard it before and am unsure if it is correct, thank you.

      • Ed King, before he went to work for Dunleavy, did the best analysis i’ve read. we’re marginally better off with SB21 than ACES, but only because ACES would have been so bad.

        at oil prices in 2015 and 2016, the revenues would have been underwater, and they would have barely broken the surface in 2017.

        https://kingeconomicsgroup.com/did-sb21-cause-our-budget-problems/

        but then you have to figure in the tax credits, which dragged SB21 revenues down to ACES in 2017 and took another bite out of them in 2018 although SB21 produced about a quarter again as much revenue as ACES would have produced.

        the summation, however, was this by King:

        “The data to date cannot confirm an assertion that the State’s revenue picture improved because of SB21.”

        in other words, SB21 didn’t generate enough revenue above and beyond ACES to change anything. factor in the tax credits, and there was only a $136,000 dollar difference between what ACES would have produced ($575,000) and what SB21 did produce ($711,000).

        $136,000 get lost in the noise of the state budget.

      • Thanks Craig for providing that link, although I suspect a few people might consider the source unreputble. It looks like a fair summary by and economist to me.

        Here are some points from the article that are worth sharing.

        “But, if you compare the amount of money the State collected under SB21 since it passed to what it would have collected under ACES under those same conditions, you’ll see that SB21 actually generated more revenue for the State than ACES did (holding all else equal).”

        “In fact, ACES charges a lower base tax rate than SB21 at all prices in which the “production tax value” is less than $55 per barrel. That equates to a spot price (which we are all more accustom to seeing) of around $95 per barrel. SB21 will raise more revenue before credits at all prices below that price.”

        “If ACES had been in place in 2014-2016, then the State would now be on the hook for even more tax credits than it is.”

        “However, SB21 was not intended to raise more taxes than ACES on a per barrel basis. The goal was to encourage more exploration and development. Those activities would eventually lead to more production, which would translate into more royalty and tax payments.”

        Is the $136,000 you mentioned below a measurement of thousands of dollars, or maybe a daily/monthly total?

  4. “Alaska has budget problems and needs new revenue.”
    And yet our oil industry controlled leaders implemented $B 21 and continue to hand over $1.5 Billion a year in “tax credits” to some of the most profitable companies on the planet (while cutting off assistance to the elderly/mentally challenged and low income families)?
    This continues in light of the fact that Alaska makes less off of a barrel of (their) oil than dictators do in the middle east?
    I guess Rex Tillerson was correct when he said: “Alaska is their own worse enemy”.

  5. Craig, your headline has a typo.
    Also, we do not need more revenue. We are the most fortunate State in the Union with a savings account capable of providing $3 billion per year (and growing) which negates the need to tax individuals through sales or income taxes
    What we do have is a greed problem where many people believe that the Dividend is an entitlement. I am all for reining in excessive government but it is evident now that the Dividend is the greatest excess of all.

    • thanks, Chris. don’t know how i missed that.

      i think everyone agrees, or should, that the dividend is an entitlement. i’m not sure that makes it bad or makes Alaskans any more greedy than most.

      greed is inherent in nature. all animals want to get fat.

      the intent of the PFD was to share the statewide oil revenue with the masses and let local governments use taxes to claw back what they needed to school their children and provide basic services. but there turned out to be so much oil money the state took over a lot of those responsibilities, especially in rural AK.

      living, as we do, in a “consumer-driven economy,” there are good arguments for the PFD as it now exists. on the other hand, there are some good social and psychological arguments to be made for getting rid of it, the biggest one being that it reinforces the idea that government “owes” people things.

      we’ve certainly gone a long way in a different direction since JFK suggested Americans “ask not what your country can do for you but what you can do for your country.”

  6. Of course you could do it the easy way and put more oil in TAPS. At 2018 average prices and revenues, each additional 100,000 bbl/day brings the SoA an additional $577 million. Increase flow rate to 800,000 bbl/day and there is no deficit.

    There are a lot of ways to do this. Being ugly with the Oilies isn’t one of them, as they will simply quit investing in repair work on the existing infrastructure, stop exploration and shift all those monies to the Permian Basin or similarly friendly production locations in the Lower 48. Cheers –

  7. I think an eco-tax on high-end recreational gear and equipment made from petrochemicals makes a lot of sense. PrimaLoft from Costco would be underneath the threshold for taxation but everything from Patagonia would be over. No packrafts would be under. Any manufacturers of fly fishing equipment that donate to Trout Unlimited would obviously have to be over the threshold.

  8. Starting to see what a money grabbing, taxing sham “Global Warming” is? Another scam France is pulling off to pay for their welfare states. Pretty soon they will be taxing the breaths we take. We gladly will pay because after all, the governmemt is saving us from ourselves.
    You said it yourself “How to devise a politically acceptable scheme to balance costs and revenues”.

    • Central planners wet dream – Evergreen reason to tax without the need to yield results EVER! Virtue signal plus rip off outsiders – this idea is gonna get some traction. Since Federal $$$ sent to AK exceeds Federal taxes taken maybe the entry fee has already been paid in full.

      • The “more Fed money in than out” argument is puerile and simplistic, as even a moment’s reflection shows.

        The Feds have to pay to maintain Federal lands, material, and treaty obligations (basically every dollar going to Alaska Native programs). The State and People of Alaska have no way to control that spending of tax dollars.

        60%+ of Alaska is owned by, and thus the responsibility of, the Feds, with only token payments returned for all that land kept out of state and private hands, and thus state revenue generation.

        That Fed tax money into Alaska includes the generally higher than private sector, federal wage and benefit costs in Alaska for Fed employees. It also includes the much higher logistical costs of maintaining government property in rural Alaska than in suburban Delaware (3% Fed land ownership).

        Only about half of Alaska residents actually are employed, (see Fed ownership of land and ability to receive fed benefits instead of working as a reason in part) and fewer make more than the absurdly low requirements to pay net taxes each year.

        It’s a stupid and overly simplistic argument.

  9. Good start . Then change Alaska regulations to be more buisness friendly. Manage our fish , game and minerals better . Charge a higher fee for their harvest and extraction. Aside from subsistence take . Change statues for on land fish farms . Promote our colleges by increasing the important part of curriculum such as medical, veterinary, engineering, tech . Have Craig medred go over every constricting law to show pros and cons so our state can be more proactive.

    • it is pretty simple. Dunleavy cuts 3 million from VPSO budget. At the same time the feds are giving Alaska 10 million dollars to fund greater law enforcement in the villages.

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