At the start of the 2017 legislative session, a budget deficit of hundreds of millions loomed over the coming months in Juneau. Around that time, an Alaska politician assured me that in spite of the ongoing failure to deal with our systemic revenue shortfall, he wouldn’t let Alaska’s fiscal trajectory “look like the last scene of Thelma and Louise.”
To spoil a classic film, outlaw heroines Thelma and Louise meet their end after being cornered by police on the rim of the Grand Canyon. With nowhere left to run, they point their car at the edge. Thelma floors the gas. As they sail over into the void, the picture fades to white.
Next month, our elected leaders will head to Juneau to gavel in for the 2026 session. The problems that prompted this cinematic musing nearly ten years ago have grown only more acute since. The state has run budget deficits almost every year since 2012. The exceptions — 2022 and 2023 — came thanks to Russia and the temporary spike in oil prices driven by their invasion of Ukraine. The shortfalls have been made up by drawing from a savings account that’s now a few deficit years away from empty. School budgets have suffered for years, and the effectiveness of state agencies is being hurt by the lack of resources. And our state’s leaders seem no closer to fiscal reform. The ’66 Thunderbird convertible of the Alaska state budget may not be free-falling into the Grand Canyon yet, but Juneau hasn’t managed to locate the brakes, either.
Senate Bill 92 – a tax reform introduced last year that may be on the Senate floor in early 2026 – isn’t the complete solution, but it’s the best first step toward repairing Alaska’s systemic budget shortfalls. It would close a tax loophole that has suddenly grown more important with Hilcorp’s ascent in the oil industry. Hilcorp is privately owned, making it an “S corporation” under US tax code, in contrast to “C-corporations” owned by stockholders who trade ownership shares in public markets. Alaska has adopted these designations into its own tax system, but unfortunately, it also adopted the mechanism of taxing the revenue of S-corporations via personal income tax on the returns to their owners, rather than the corporation income taxes paid by C-corporations. In Alaska, a state without a personal income tax, this means the very significant revenues Hilcorp earns from our resources aren’t taxed at all.
Taxing oil and gas S-Corporations in the same manner as C-corporations is an important first step in repairing Alaska’s fiscal foundations. As long as oil and gas extraction is a significant source of state revenue, Alaska will be undermining itself by preserving a loophole that allows Hilcorp, now the state’s major industry player, to profit from our resources without paying income tax that would be collected in any other state.
Income tax is unlikely to deter S-corporation drillers from making investments in oil and gas production, given that their tax-paying C-Corp peers have invested and continue to invest profitably in those same resources under the same conditions. Aside from the practical benefits of closing a revenue leak that has contributed to our substantial budget deficits, SB 92 establishes basic fairness. There’s no policy reason for excusing an S-Corporation from income taxes, thanks to its incorporation structure, while C-Corps earning comparable revenue are taxed.
Rather than creating a new tax, SB 92 applies our existing tax structure consistently. Until we make this basic fix, our ongoing fiscal crisis – with all its painful decisions about deficits, the dividend, school funding, and state services – will be in part a self-inflicted wound.
In spite of how it sometimes feels, Alaska’s fiscal situation — like our energy situation, and the ecological state of Cook Inlet — is not the end of Thelma and Louise. We are not cornered with nowhere left to go. In fact, we’re in open country, with clear possibilities in front of us. SB92 is one of them. With your continued support, Inletkeeper will insist that Alaska make better choices in 2026 and beyond.