Knowles calls for income tax in his last State of State address

Posted: Thursday, January 17, 2002

JUNEAU (AP) -- Gov. Tony Knowles called on the Legislature to bring back the first state income tax in Alaska since 1979.

In his last State of the State Address, the outgoing governor proposed a $350 million income tax along with an increased alcohol tax and a head tax on cruise ship passengers to balance the state's budget.

Knowles long-range plan would extend out to three years and calls for $400 million in new revenues each of those years to close a deficit projected to be $1.2 billion.

''Each year in this balanced budget plan requires heavy lifting and the first may well be the most difficult,'' Knowles said. ''Yet the do-nothing approach is a blueprint for future economic disaster.''

Speaking to a joint House and Senate chambers, the Democrat governor threw his support behind a Republican lawmaker's plan to raise the alcohol tax by a dime a drink.

That bill is sponsored by Rep. Lisa Murkowski, R-Anchorage, and would raise $30 million annually.

He also wants to impose a $30-per passenger tax on cruise ships that sail in Alaska's waters in an effort to raise another $20 million.

Alaska currently faces a $865 million deficit in this year's budget that is expected to grow to $1.1 billion by next year.

Lawmakers have been under increasing pressure to put a plan in place this year that begins to chip away at that deficit.

A Fiscal Policy Caucus, which Murkowski co-chaired, offered up several items that raise revenues. But few aspects of the plan have been embraced by Republican leadership in the House and Senate.

Knowles said his plan would phase in new taxes and other revenue measures, such as the potential of using permanent fund earnings for state services, for Alaskans over time.

''This is a serious and substantial start on filling the 1.2 billion-dollar budget gap that threatens Alaska businesses and families,'' said Knowles.

Knowles is in the last year of his second term and cannot seek re-election to a third consecutive term. He said the next Legislature and governor could take up the plan and close the state's deficit.

He cautioned against looking to the oil industry for more taxes, saying that oil taxes and royalties now account for 80 percent of the state budget.

The outgoing governor also pledged to make it a priority to resolve the state and federal conflict over subsistence. Knowles is offering a constitutional amendment that grants a rural priority for subsistence use and also allows some urban residents to participate.

In seven years, Knowles has been unable to make Alaska's constitution comply with federal subsistence laws and as a result federal managers oversee the practice on their own lands and waters.

Knowles praised Katie John, the Athabascan elder who successfully sued the state after being denied a fish camp on the Copper River. ''She has deservedly become an inspiration to many Alaskans.''

There was also a pledge to again attempt to raise the state's minimum wage, pass hate crimes legislation and increase spending on education and children's issues.

But overall, Knowles said the state of Alaska is strong.

''Our state is now in its 14th consecutive year of economic growth. More Alaskans are working than ever before ... Our savings accounts are the nation's envy.''

But those savings accounts are what concern budget watchers, who fear Alaska's Constitutional Budget Reserve may soon be empty.

The reserve account, which collects oil, gas and mineral settlements, will be at $2.3 billion at the end of this fiscal year.

Projected budget shortfalls are in excess of $1 billion for the next several years, prompting a statewide debate over imposing taxes on Alaskans who already pay almost no taxes all. The state has a $3.4 billion permanent fund earnings reserve account, but some lawmakers have feared the political repercussions of tapping into it.

Oil revenues have been declining in recent years, with Prudhoe Bay production last year dropping off to half of what it was in its peak year of 1988.

Knowles has called for reinstating the state's income tax twice during his term and it's been rejected.

This year's plan also comes with a $179.9 million increase in state spending, which has irked Republican lawmakers who have called for deep cuts in state spending.

Sen. Dave Donley, R-Anchorage, asked Knowles to institute a partial hiring freeze and to instruct department heads to prepare contingency plans to reduce spending. The Knowles administration had no immediate reaction to the plan.

Along with proposals for change, Knowles touted the state's successes, noting that:

-- Alaska added 30,000 jobs in seven years and now has the lowest unemployment rate in a generation.

-- The state's permanent fund is worth $25 billion despite reporting a loss for the first time this year.

-- Violent crime is down 40 percent since 1994 and 5,100 Alaskan families have left the welfare rolls for jobs.

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