Knowles to offer phased in $1.2 billion statewide tax plan

Posted: Wednesday, January 16, 2002

JUNEAU (AP) -- Gov. Tony Knowles plans to recommend imposing $400 million in statewide taxes to begin closing a $1.2 billion budget deficit within three years, an administration official said.

Knowles will outline his plan when he delivers his final State of the State Address to the Legislature on Wednesday.

The governor will recommend imposing $400 million in new taxes each year for the next three years to close a state budget shortfall that's expected to climb to $1.2 billion by fiscal 2004, said Knowles' Chief of Staff David Ramseur.

The Democrat governor will outline his plan before a Republican-controlled Legislature at a time when budget watchers warn the savings account used to balance state spending is two years from being empty.

Ramseur would not say what specific tax measures Knowles is recommending. But Knowles has supported imposing an income tax in past years only to be spurned by the Legislature.

''Twice in the past, he's proposed a grand plan that addresses the entire size of the budget gap and the Legislature has run the other way. So what he wants to do is propose an incremental approach,'' Ramseur said.

Alaska hasn't had an income tax since 1979 and relies heavily on oil revenues to fuel state services. In past years, any shortfall in the state's budget has been made up by the Constitutional Budget Reserve, the state's savings account.

But oil revenues have been declining -- Prudhoe Bay production last year was half of its 1988 peak -- further straining that reserve account.

Created by voters in 1990, the fund has injected more than $4 billion into state coffers through money derived from oil, gas and mineral settlements.

But no future settlements are expected and that fund will be down to less than $2.4 billion by the end of this fiscal year. The state Department of Revenue estimates it be empty by 2004.

Alaska is expected to use $865 million to balance the budget in this fiscal year and another $1.1 billion from the reserve account next fiscal year.

Legislative leaders have been under increasing pressure from junior lawmakers and business leaders to devise a plan to resolve the state's so-called ''fiscal gap.''

The Fiscal Policy Caucus, made up mostly of House members, wants lawmakers to consider a state income tax, a sales tax, cuts to state programs, increased taxes on the oil industry, alcohol taxes, and use of earnings from the Alaska Permanent Fund.

House Speaker Brian Porter, R-Anchorage, said Alaska needs a significant revenue generating measure enacted this year to begin the long process of erasing the deficit.

Porter said a consensus of House members agree some form of a statewide tax and permanent fund earnings are needed to close the deficit. But it's unclear whether there is support to implement it this year.

Redistricting has meant that all but three in the 60-member Legislature will face re-election. That plan, which pits a number of Republicans against each other in new districts, is under a court challenge.

Senate President Rick Halford, R-Chugiak, said he remains doubtful that a comprehensive plan can be achieved in one session.

''I have never seen a complete plan to solve a whole broad range of things adopted all at once,'' Halford said.

Halford said Tuesday that if a statewide tax is enacted, the Legislature should consider a sales tax before an income tax, and changes in the permanent fund only as a last resort.

Halford favors a head tax on cruise ship passengers -- something the Fiscal Policy Caucus has suggested as a modest revenue generator -- and said any plan must come with a constitutional cap on state spending.

Knowles has fueled anger among opponents with his $7.3 billion budget because it increases state spending by $179.9 million amid all the talk of deficits.

Republicans in the House and Senate have vowed to make cuts, including cutting Knowles' anti-terrorism measures offered up after the Sept. 11 attacks

''Obviously, that rate of increase can't be sustained, even without a fiscal gap,'' Halford said Tuesday.

After unveiling his budget, Knowles vowed to outline specifics on paying for the additional spending at his State of the State Address.

The tax plan to be unveiled on Wednesday will rely on three revenue generating measures in the first year and would phase in the tax burden on Alaskans, who pay almost nothing in state taxes now.

The governor has taken on an ambitious agenda in his final year by pushing to fix Alaska's deficit and resolving the contentious debate over subsistence. Knowles is in the last year of his second term and cannot seek a third consecutive term.

He formed a panel to craft a constitutional amendment that would grant a rural priority to subsistence users and also allow some in urban areas to hunt and fish under such a practice.

Knowles will also call on the Legislature to increase spending on education and children's health and safety measures.

''When he talks about the coming year's budget, he will be direct and as blunt as I've seen him be in a State of the State Address,'' Ramseur said.

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