Legislature facing tough tax issues that promise tougher election

Posted: Sunday, January 13, 2002

JUNEAU (AP) -- Rep. Lisa Murkowski takes a fatalistic view of her political future.

First elected in 1998, Murkowski is part of a bi-partisan caucus of lawmakers who will try to convince the Legislature that Alaska's future is bleak without more than $900 million in new taxes and money from the state's Permanent Fund.

And she wants the politicians to do it this year, when all but three in the 60-member Legislature must seek re-election under a new redistricting plan.

''I am sure some of my colleagues are smiling at my naivete,'' Murkowski said. ''I'm not in there for life, and this is not a long-term thing.''

Murkowski and fellow members of a bi-partisan Fiscal Policy Caucus have devised a plan to slim down the state's projected $1.1 billion budget deficit.

The panel takes the plan to a House Majority Caucus on Sunday. There, Murkowski says, she'll ask fellow lawmakers to muster the political courage to pass statewide taxes in an election year.

Alaska is expected to draw $865 million from its Constitutional Budget Reserve to balance this year's budget and take another $1.13 billion for next year.

The budget reserve -- a savings account that for years has made up the budget shortfall -- is on pace to be empty sometime in 2004, the state Department of Revenue projects.

The fund, which came from various tax and royalty settlements, has been drawn down nearly every year since 1991. Because of interest from the fund along the way, it has provided $4 billion to help pay for state spending.

But the fund will be down to $2.3 billion by the end of the fiscal year, and there are no major settlements on the horizon to refill it.

Meanwhile, oil revenues that fuel state coffers are declining as aging fields become less productive, while the state Department of Revenue projects oil prices will stay below $19 a barrel.

''If we bury our heads collectively in the sand on this issue to remain politically popular, there comes a day of reckoning when it's flat out gone,'' Murkowski said.

Already, lawmakers are divided over what course will keep the state on a sound fiscal ground.

Senate Republicans have cautioned that any fix will be incremental. And key leaders have said nothing will happen without caps on state spending.

''It's the first step the public would insist on before you come to them and ask for taxes,'' Senate Finance Co-Chairman Dave Donley, R-Anchorage, said in December.

The Senate has proposed a constitutional amendment that would cap increases in most state spending at 2 percent annually. It's now in the House, and then would have to go before voters for approval.

The measure would require a two-thirds majority vote of the Legislature to raise spending more than 4 percent above the level of the previous year.

Officials in Gov. Tony Knowles administration say the plan is a delaying tactic from Republicans who seven years ago promised to find revenue streams after making deep cuts in state spending.

''They cut $250 million but haven't addressed the revenue side,'' said Annalee McConnell, Knowles' budget director.

McConnell said even further cuts in state spending would not close the deficit.

House Speaker Brian Porter, R-Anchorage, agrees with Senate Republicans that a spending cap will be a linchpin in any long-range plan to pay for state government. So, too, will some form of statewide tax.

''Whether we have the will to get one passed is another thing,'' Porter said.

The Fiscal Policy Caucus package contains a 3 percent income tax; a 2 percent sales tax; alcohol and motor fuel tax hikes; a cruise ship tax of $25 per passenger, and an annual employment tax of $100 per worker.

The group also suggests capping Permanent Fund dividend checks at $1,250 and using the money from the fund to pay for state services. That would raise $997 million by 2004.

Much of the work by the Fiscal Policy Caucus focused on convincing the public that the state faces a looming crisis.

The state still has a substantial cushion, though a politically touchy one. The Permanent Fund holds $3.4 billion in an earnings reserve account that legislators could use for state government.

Some polls and politicians say voters don't feel the breath of the dragon at their doors.

''The reality is, it's not a crisis yet,'' said Ernie Hall of Alaskans United, a grass roots group concerned with the fiscal gap. ''But if we don't address it now, in two years it will be a crisis.''

An informal poll at an Anchorage Chamber of Commerce meeting showed support among that group for capping the dividend and imposing a statewide income tax, Porter said.

But a statewide poll by the House Majority Caucus shows that 48 percent of the respondents are opposed to balancing the state's budget with surplus Permanent Fund earnings. And 52.5 percent believe the state is fiscally ''going pretty well.''

Alaska has had a chronic budget shortfall that has sparked past calls for taxes to sustain state services. But each time the problem seemed imminent, oil prices rose and spared state leaders from adding major taxes.

''We've had a fiscal gap for a long time, and always managed to come up with a miracle,'' Porter said.

Generally, the majority's poll shows Alaskans would back an increase in the alcohol tax and a levy on cruise ship passengers, but not a statewide sales or income tax.

The telephone poll of 387 registered voters was conducted by Hellenthal and Associates between Oct. 9 and 17. It has a margin of error of 4.98 percent.

Hall is not optimistic that a long-range plan will emerge from the Legislature this session. But he says it's becoming increasingly clear that the days of Alaskans paying nearly nothing for basic state services are waning.

''Ideally, we'd all like to see it happen with no one paying taxes or giving up their Permanent Fund dividend. But that's not going to happen,'' Hall said.

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