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January 7: Anchorage Daily News on Gov. Tony Knowles and the growing fiscal gap

Posted: Tuesday, January 08, 2002

Tony Knowles opens the new year, his last as governor, in an awkward place on the ship of state.

He's the skipper of a ship that's going aground if it doesn't make a sharp turn, and soon. The owners and passengers aren't watching; they want to just stay the course. They'll challenge his command if he rocks the boat too hard by changing course too fast. But he knows they'll head for the lifeboats later if he doesn't.

Alaska's fiscal straits and the failure to manage them put Gov. Knowles in that spot. We have lots of money piled up in the Permanent Fund, and we pay ourselves to live here. But we've run a deficit for a decade now, and we're about to blow our reserves -- not because we're broke but because we get most of our revenues from one declining source, North Slope oil. One declining source is no longer enough and hasn't been for a long time.

Time is running out on solutions that, ideally, would be phased in slowly to give everyone time to adjust. But we've squandered our time. A few points' change in rudder position five or six years ago would have been relatively smooth and kept the ship in the channel. Today it would require a hard turn. Next year that wouldn't be enough.

Current revenue forecasts show us using up our reserves in about 2 1/2 years if we don't raise new revenue soon. Given the lead time on legislative decision-making, that means voting this spring on major revenue measures or making an even tougher adjustment next year.

Alaska has options and resources if it finds the will to use them. We can cap the dividend, use excess Permanent Fund earnings, levy sales and income taxes, hit up the oil industry further, and raise ''sin taxes.'' Do all that in a reasonably balanced way -- one that gives investors confidence that Alaska's political leaders can do their job -- and economic growth could kick in to help.

For two decades those things were off the table, politically, as we enjoyed the Prudhoe Bay revenue and socked away a Permanent Fund. Now, to balance the budget and stop draining our reserves, we have to do most or all of them. The job is getting harder and heavier. The time available is getting shorter. The problem is not only balancing the budget and keeping state services alive. It's also that Alaska is a lousy place to invest and build a business if we can't put our fiscal house in order.

That's where leadership kicks in -- and the governor's dilemma too. There's actually enough money left in reserve that Gov. Knowles could skin through his last year without immediate fiscal calamity and without spending much of his carefully guarded political capital on unpopular measures like taxes or dividend caps. Polls suggest voters like him about as much as they dislike the options. If he's lucky, he could leave office in a year without either fixing the $900 million and growing state revenue gap or paying much of a short-term political price for failing to. But then he'd be as responsible as anyone for the wreck that occurred a year or two later.

All of this means Gov. Knowles is forced to be either a politician or a leader -- a guy who either leaves the heavy lifting for the next governor or spends his considerable popularity on fighting for solutions. Sooner or later, some governor is going to have to lead Alaskans into some painful changes. Those changes are going to be necessary for long-term growth, though there are no guarantees. Gov. Knowles has to decide whether to pay the price now or push it off, perhaps until it's too late. In five years, whatever his accomplishments so far, he'll be remembered chiefly for what he does about this.

Tough spot. He has to figure out whether he wants to be the skipper the passengers liked or the skipper who kept the ship off the rocks. Doing either one will be hard enough. There's not much chance he can do both.



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