Fiscal solutions presented so far do nothing to diversify economy

Posted: Monday, February 16, 2004

Gov. Frank Murkowski hand-picked seven people to select 48 more people and orchestrate a 55-delegate conference, representing a wide cross-section of Alaska to work his agenda.

The Conference of Alaskans was to answer only the governor's four questions! It was clear from the beginning that the intent was to use the permanent fund earnings because our leaders have no viable fiscal plan, short or long term, and seemingly haven't a clue how to develop one after many years of talking its need.

Moreover, the Republicans do not want to hear any ideas from the Democrats, good or bad. To be fair, I haven't heard any really good fiscal plan ideas from the Democrats either.

Regarding the brief conference discussion on income taxes, a very high percentage of working Alaskans know that a progressive income tax would impact them less than giving up their permanent fund dividend, whereas the people, who would be in the higher income tax brackets, do not depend much on their dividends anyway it's just another free perk.

The governor would hear no discussion about income taxes, and Cheryl Frasca scared the hell out of the delegates, mayors, school boards and TV audiences when she announced the governor's intentions for his Draconian cuts of $470 million to the 2005 state budget.

However, use of permanent fund earnings, income taxes, tourist taxes and other nickel-and-dime fees, that have been or might be imposed, do essentially nothing to diversify or improve the long-term viability of Alaska's economy.

If anyone read Angus King's, former Maine governor, speech from the Alaska 20/20 Conference in Anchorage on Feb. 6, he admonished Alaska leaders for not attempting to diversify Alaska's economy while we still have sufficient money (Constitutional Budget Reserve, permanent fund, revenues) and the time to do it. And the only real chance of preserving the permanent fund and significantly diversifying our economy in the relative near term (about 5 years) is to market new natural gas resources, primarily from the North Slope.

For the reader's information, if we could magically multiply tenfold all of our state revenues from our natural resources, except from natural gas and oil, we would still fall far short of satisfying our state's budget needs. That information is in the public domain and you can prove it to yourself, if you are interested.

Thinking out of the box: However, by floating a long-term bond issue in 2004 for a North Slope natural gas pipeline in the same right-of-way as the Trans-Alaska Pipeline System, securing those bonds with some fraction of the permanent fund, that pipeline (a much simpler design and much easier to construct than was TAPS) could probably be flowing gas to Valdez three to five years from now.

Alaska owns those gas reserves and would have control of the marketing and the pipeline! The gas sales would pay off the bonds over their 20- to 30-year lives, provide additional revenues for state government operations and your permanent fund dividend would be preserved, although it might be considerably smaller for that three- to five-year construction period. Believe it or not, Alaska doesn't need money from foreign energy companies or the feds to do this. The job is much simpler than TAPS was. TAPS cost about $8 billion, and the time to construct it was 38 months. All the technology to do the gas pipeline, gas extraction and liquefication, and receiving and shipping is in hand.

With $28-plus billion collateral in the bank, Alaska ought to be able to obtain $5 to 10 billion in bonds to significantly diversify its economy for a significant time into the future! I believe this proposal is "win-win."

The state would establish a new, large, long-term revenue source, which would allow even more time for further economic diversification, and the permanent fund would be "permanent" for some undetermined time into the future. Think about it!

Richard Hahn


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