Budget idea draws cautious response

Alaska Legislature 2001

Posted: Monday, January 15, 2001

JUNEAU -- Gov. Tony Knowles' latest suggestion for solving the state's long-term budget problems -- new sources of revenue triggered only when cash reserves approach empty -- drew cautious and sometimes dubious responses from lawmakers during the Legislature's first week.

Knowles didn't lay out a detailed plan for closing the gap between state spending and general fund revenue. Instead, he urged lawmakers to attack the problem and suggested the trigger as a way to delay the pain of a solution that almost certainly would involve a statewide sales tax, an income tax, use of the earnings of the Alaska Permanent Fund, or a combination of those revenue sources.

''Let's take the steps today that we need to balance our budget tomorrow,'' Knowles said in his State of the State speech last week.

Here's how the trigger would work: When the Constitutional Budget Reserve drops below $1.5 billion, new revenue sources would kick in. The reserve, used to bridge the gap between spending and the general fund revenue that comes mostly from oil, holds about $2.7 billion now. The Department of Revenue expects it to run dry late in 2005, meaning the trigger would likely be tripped sometime in 2004.

The problem? That trigger would set off one of the political bombs that lawmakers tiptoe so cautiously around.

''We'd like to see what the rest of the gun looks like,'' said House Minority Leader Ethan Berkowitz, D-Anchorage. Berkowitz and other minority Democrats also pushed for a long-term plan this week, but stopped short of specific proposals.

House Speaker Brian Porter, R-Anchorage, says he's intrigued by the trigger, but realistic about his colleagues' lack of enthusiasm for what it might set off.

''You have to get into the nitty-gritty issues,'' said Porter, who expects hearings on long-range financial planning this year, but adds that he's doubtful about concrete action.

As Knowles pointed out in his speech, two of the potential weapons have already been at least partly disarmed.

The income tax Knowles proposed in his 1999 State of the State speech failed to win a single vote in the Legislature even though low oil prices threatened to drain the reserve within three years. Later that year, the Legislature's proposal to fill the gap entirely with earnings of the Alaska Permanent Fund -- a plan that would have decreased the fund's wildly popular dividend -- was rejected by more than 80 percent of voters in the Sept. 14 advisory election.

The voters' deafening statement kept most lawmakers away from the topic of long-range financial planning throughout the 2000 election year.

Even now, specific proposals for filling the fiscal gap come mostly from lawmakers in safe seats. Rep. Bill Hudson, R-Juneau, who was unopposed last year, still wants to devote part of the Permanent Fund's earnings to state spending, and veteran Rep. Carl Moses, D-Unalaska, refiled an income tax bill that has died quietly in committee in past years.

Meanwhile, higher oil prices have pushed the urgency of the problem far into the future in political terms. Two statewide elections will pass before the budget reserve runs dry, if the Department of Revenue's projections hold true.

Many lawmakers say the public simply isn't ready to accept a tax or a draw on the Permanent Fund and wouldn't be mollified by a delayed fuse on a bomb that would eventually destroy part of their yearly income.

''We have to have public consensus and engage the public before we put forward another plan,'' said Rep. Eldon Mulder, co-chairman of the House Finance Committee. ''If there's one thing we learned from the Sept. 14 vote, it's that the public isn't there.''

Others see bridging the budget gap as a burden of leadership that must be dealt with even if the solution makes voters unhappy.

''I wish we could just figure out a way to belly up and do it,'' said Rep. John Davies, D-Fairbanks, who joined with Hudson and a handful of other lawmakers last year to advocate a long-term plan.



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