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Permafund to cover deficits?

Proposal's sponsor: It's less painful than income or sales taxes

Posted: Friday, February 04, 2005

Legislative talk of a long-term fiscal plan is scarce in a year when the state expects hundreds of millions in windfall oil money.

But Sen. Gary Wilken, R-Fairbanks, said when high oil prices drop, the state will face the same fiscal gap it has over the past decade.

Wilken introduced a proposal Wednesday he said will have the smallest affect on Alaskans. The plan would fill half of future spending gaps with earnings from the Alaska Permanent Fund. The other half would be covered by the state's savings account, the Constitutional Budget Reserve.

Until now, the budget reserve, which is made up of cash settlements from tax and royalty disputes with oil companies, has covered annual gaps, but it will not be needed this year.

"The gravy years that we are experiencing this year won't last forever, so we will be back to a structural deficit," Wilken said. "We need to be ready for that."

Wilken said the plan would be less painful for Alaskans than an income tax or sales tax. A $550 million fiscal gap would use $275 million from the permanent fund and affect individual dividends in stages. The first year, less than $1 would come out of dividend checks, according to Wilken's analysis. About $3 would come out the second year, $10 in year three, $19 in year four and $32 in year five. A similar-sized fiscal gap in the following year would double those numbers, Wilken said.

Comparatively, Wilken said a $275 million sales tax or income tax would cost a family with two children more than $1,000 a year.

The budget reserve is expected to hold about $2.2 billion by the end of the year and a projection by the Alaska Permanent Fund Corp. puts the earnings reserve account at about $4.6 billion by the end of 2005.

"I'm willing to discuss every option, but it's not my first choice by a long shot," said Senate Minority Leader Johnny Ellis, D-Anchorage. "It is a permanent-fund-first solution and also a permanent-fund-only solution."

Ellis said the Legislature and public are not ready to tap the fund. He said many outside groups have recommended a multipronged approach incorporating taxes, spending caps and some use of the permanent fund.

He also said the Wilken plan doesn't fulfill Gov. Frank Murkowski's campaign promise to not use the permanent fund for state government without a vote of the people.

"People get to vote every two years on what we do here. Frankly, I think the governor misspoke," Wilken said. "We all know that the permanent fund is not touchable without a vote of the people. Permanent fund earnings are and we're set up that way to be available with a majority vote."

Wilken said he voted against a Murkowski proposal last year to tap the permanent fund for government under an endowment method known as percent of market value. Murkowski's plan failed in the regular session and in a special session held during the summer.

In his January State of the State speech, Murkowski told lawmakers to pass his plan laid out last year or "come up with one of your own."

"If I was going to vote no, I thought it was my responsibility to offer up my own ideas," Wilken said.



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