Randall J Hoffbeck, Commissioner Department of Revenue NSAP Overview

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Fiscal Challenge 3  Federal Funds  $3.4 billion (27%)  Permanent Fund  Inflation Proofing  & Dividends  $2.3 billion (18%)  Designated General Funds and Other State Funds  $1.5 billion (12%)  Unrestricted  General Funds Gap  $3.8 billion (30%)  Unrestricted  General Funds  $1.6 billion (13%)

4  nominal billions The Cost of Doing Nothing

5  nominal billions  L ONG -T ERM P ROBLEM

6  Alaska State Chamber of Commerce  Juneau Chamber of Commerce  Fairbanks Chamber of Commerce  Anchorage Chamber of Commerce  Kenai/Soldotna Chamber of Commerce  Ketchikan Chamber of Commerce  Sitka Chamber of Commerce  Juneau Rotary Clubs  Fairbanks Rotary Clubs  Anchorage Rotary Clubs  Mat-Su Community Townhall  Homer Community Townhalls  Ninilchik Community Townhall  Juneau Community Townhall  Dillingham Community Townhall  Wrangell Community Townhall  Fairbanks Economic Development  Rasmuson Foundation  Foraker Forums  Island Institute of Alaska  Anchorage Board of Realtors  Alaska CHARR Conversations with Alaskans  Commonwealth North  Alaska Annual Mayors Conference  Alaska Municipal League  Alaska Commission on Aging  Alaska Fiscal and Economic Forum  Alaska Pioneers Grand Igloo Convention  Southeast Annual Conference  Alaska Association of School Boards  Alaska School Business Officials Conference  Alaska Principal Conference  Alaska Superintendents Conference  Alaska Oil and Gas Association  United Fishermen of Alaska  Institute of the North  Alaska Federation of Natives  League of Women Voters  Odom Corporation  K&L Distributors  ConocoPhillips Conversations with Alaskans statewide dialog started in June. More than 50 events since then and many more scheduled.

7 Take action now, not later:  Government must be cut further  Protect essential services Use of Permanent Fund earnings is acceptable if:  Protect the Permanent Fund Corpus  Preserve a Dividend Program New Revenues are acceptable if:  They are not supporting a “bloated” government  The burden is shared equitably Message Received

Fiscal Challenge Options Path to Fiscal Stability 8

9 The Enemy of Fiscal Stability is not: The Government The Oil Industry Our Elected Officials The Enemy of Fiscal Stability is: Lack of a plan for what to do now that oil tax revenues have declined Redefining the Problem

10 Redefining the Solution  Future

Let us not despair but act. Let us not seek the Republican answer or the Democratic answer but the right answer. Let us not seek to fix blame for the past – let us accept our own responsibility for the future. John F Kennedy 1958 Let us not despair but act. Let us not seek the Republican answer or the Democratic answer but the right answer. Let us not seek to fix blame for the past – let us accept our own responsibility for the future. John F Kennedy Redefining the Solution

Fiscal Challenge Options Path to Fiscal Stability 12

Annual Revenues Funds Dividend 25% 100% Production Taxes Corpus Earnings Reserve Other Revenue General Fund $3.3B SNI > 4x Draw Mineral Royalties 75% 13 Manage Wealth 100%

14 Cut Government Spending

(Millions of Dollars) FY16 Budget $ 5,200 Alaska Permanent Fund Protection Act (annual draw) $ 3,300 Revenue from existing taxes and fees $ 850 Earnings on Savings $ 135 $ 4,285 Spending Reductions (estimated amounts) FY17 Cuts* ($ 140) Reform O&G Tax Credits ($ 400) FY17 Priority Investments $ 40 ($ 500) New Revenue Components (estimated amounts) Mining $ 6 Fishing $ 18 Tourism $ 15 Motor Fuel $ 49 Alcohol $ 40 Tobacco $ 29 Oil and Gas $ 100 Individual Alaskans (Income Tax) $ 200 $ Closing the Budget Gap  * $100 million in additional cuts scheduled over next 2 Fiscal Years

16 Share the Responsibility  Income Tax Simple tax of 6% of federal tax liability, less than 1% of income for the average family. Also taxes out of state workers as well as profits of S- corporations and partnerships. Estimated $200 million in GF revenue with withholding tax beginning in January 2017.

17 Share the Responsibility

Big Problems Require Big Solutions Big Solutions Require Difficult Decisions Difficult Decisions become More Difficult the Longer we Wait We Can’t be Timid. We need to Act Now. 18 The New Sustainable Alaska Plan

Delay will...  Reduce the sustainable draw  Risks a downgrade of Alaska’s credit rating  Damage the economy 19

Lower Sustainable Draw  Every year of inaction, we spend around $2 billion more than called for in the New Sustainable Alaska Plan That money could be invested and produce income indefinitely But, once it’s spent, it’s gone 20 Overspending reduces the sustainable draw every year, forever Reduction must be made up in future cuts or taxes Reduced Sustainable Draw (millions$) Excess Spending Years of Delay 1234 $500$75$150$200$250 $1,000$100$250$300$400 $1,500$125$275$350$450 $2,000$150$325$400$500

Cost of a Downgrade $1 billion in bonding Additional interest cost at A2  $5 million per year  $100 million over term of bonds When currently compressed credit spreads increase, cost of downgrade will increase 21

Damage to Alaska’s Economy  Lower sustainable draw from financial assets requires More taxes Less government spending (services and jobs)  Degraded confidence and less private sector investment  Direct impacts on Alaskans Job Market Home Values 22

The New Sustainable Alaska Plan New Sustainable Alaska Plan Existing Revenue New Revenue Past Deficits Lowest taxes in the nation. Receive a dividend. Grow our savings. Continue to provide essential services. Invest in future

 New Sustainable Alaska Plan FAQs  Overview Overview  Short Video Alaska Fiscal Situation (Youtube) Short Video Alaska Fiscal Situation