Alaska Budget Deal Averts Government Shutdown. Now Comes The Hard Part.

Alaska’s legislature approved a budget on Thursday that averts a government shutdown and ends a weeks-long political impasse. Now, talk turns to making state finances less dependent on the price of oil, including a once-unthinkable state income tax.

According to the Alaska Dispatch News, the $5 billion state budget for fiscal 2016 includes $30 million in pay increases for state employees that had been a sticking point of negotiations between the state House and the state Senate. Republicans control both chambers, but needed the approval of three-fourths of the legislature to pass the budget, because it authorized the use of money from the state’s rainy day fund.

Alaska had faced a $3.5 billion budget deficit due to the sharp decline in oil prices. About 90 percent of the state’s general revenue comes from oil royalties and fees.

State legislators, deadlocked over worker pay raises and other spending items, twice extended the legislative session, which normally ends in April. The additional sessions cost the state an estimated $430,000 as of June 5.

The budget deal averts a threatened July 1 partial government shutdown. In preparation, the state sent layoff notices to 10,000 state employees on June 1.

While Alaskans were relieved, many argued the state should develop a long-term financial strategy less dependent on the volatile price of oil.

Gov. Bill Walker (I) met with more than 200 Alaskans at the University of Fairbanks on June 5 to talk about such a strategy. The state revenue commissioner broached what have historically been politically untouchable issues, like a state income tax and changes to the Alaska Permanent Fund, the portion of state oil revenues that is invested and used to pay cash dividends to residents.

Senate Majority Leader John Coghill (R) said in an interview that broader economic development in the state was essential to long-term fiscal stability. Coghill supports lobbying the federal government to open more lands to development, or at least allowing the state to build roads through them. The federal government owns more than 60 percent of Alaska’s land.

“We have got to diversify, there is no question about it,” Coghill said.

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