No new ideas on budget, say area officials

Posted: Wednesday, February 25, 2004

Recommendations coming out of the Conference of Alaskans in Fairbanks earlier this month presented nothing new, members of the Kenai Peninsula legislative delegation said this week.

But the 55 delegates largely accomplished what Gov. Frank Murkowski asked, and the exercise drew a good deal of attention from everyday Alaskans, which is important, they said.

Delegates emerged from three days of meetings with a package of four resolutions recommendations to the governor and Legislature about where to go from here. They recommended:

Limiting annual use of the Alaska Permanent Fund income to 5 percent of market value, or POMV;

Using part of that 5 percent for essential state services, but only after dividends have been paid, and further, that the governor and Legislature consider a personal income tax, other broad-based taxes and other alternative sources of income to balance the state's revenues and expenditures;

That a "reasonable percentage" of the fund money made available under the POMV system be constitutionally dedicated to dividends, but that all other uses of the fund money should be left to the Legislature to appropriate;

That "a prudent amount" be left in the Constitutional Budget Reserve account to meet the costs of unexpected events, such as fluctuations in oil production and prices.

After digesting those results, Kenai Peninsula state lawmakers responded to Peninsula Clarion questions about what the conference results meant to them personally, and what, in their views, the Legislature would do in response. They were asked whether they, personally, would support a percent of market value (POMV) approach to handling the permanent fund and how they felt about enshrining the permanent fund dividend program in the Alaska Constitution. They also were asked whether they could support any use of permanent fund earnings at this time, and about the prospects for income and sales taxes.

District Q Sen. Tom Wagoner, R-Kenai

"They were given a task and basically did it," Wagoner said of the conference delegates. "But they came up with some recommendations the Legislature won't buy," like the POMV.

Wagoner said the POMV approach might be the best way to manage the fund, but that has not been proven to him. The system, he said, is not broken. He said he might support putting the POMV question to the voters, but only after he was satisfied there had been adequate public education on the issue. Wagoner said he didn't expect the Legislature to go along with the POMV recommendation.

"There will be some who will push for it. Those will be the legislators who want to spend your money," he said.

The state still has about $1.9 billion in the Constitutional Budget Reserve, he noted, money enough to work with while addressing other spending and revenue issues outside altering the permanent fund program.

Wagoner said he opposes "constitutionalizing" the fund and its dividend. He fears that doing so would lead the Internal Revenue Service to try to tie earnings to corporate income tax laws.

"The one thing keeping the feds from taxing is the fact that the main purpose of the fund being instituted was that when the oil was gone it could pay for services," he said. "If we put it in the constitution that the main purpose is to pay a dividend, that could mean the feds putting on a corporate tax."

Wagoner said before he could support such an amendment, he would have to see a written assurance from the head of the IRS that the agency would make no move to tax the fund. Another prerequisite for him would be a constitutional spending cap.

If there is a focus lawmakers should have it is education, Wagoner said. It's more important than messing with the permanent fund.

"The main reason we are down here is to make sure children receive a quality education. "We aren't doing that right now," he said.

As for the future of taxes, Wagoner said that "if things go to heck in a hand basket," the state might have to consider income or sales taxes, but not yet. Lawmakers might look at changing the Economic Limitation Factor now applied to oil fields, he said.

District R Sen. Gary Stevens

The Conference of Alaskans didn't turn out quite as he expected, Stevens said. He had expected Gov. Murkowski to hand lawmakers a packet of new legislation based on the results. Instead, the Republican majority has promised to take up pending bills already addressing those issues beginning March 15.

"The plan is to concentrate on those for about three days, get them into committees so they can be discussed and have questions answered," Stevens said.

The percent of market value approach needs serious discussion, he said. There are really two issues on the table whether to apply the POMV approach, and how the annual 5-percent outlay would be divided between dividends and running the state government.

"As I have looked at the POMV, I think it makes some sense," he said. "One of the big issues is putting the dividend in the constitution."

It is an idea that leaves him uncomfortable, he said. First, the constitution should not be altered without very good reason. Second, enshrining a dividend, especially one for a specific amount say, $1,000 as has been suggested could prove a bad idea, especially if there were a dramatic jump in the population. What the idea really means is that no matter how bad things get, citizens would get their $1,000 first, even if it meant underfunding education, public safety, road maintenance and other essential programs, Stevens warned.

"I like the way things are now. It is the responsibility of the Legislature to fund the dividend and fund the budget. Those are closely connected," he said.

Stevens sees merit in spending some of the earnings of the permanent fund, something the Legislature currently has the power if not the political will to do. A senate education bill, for instance, has identified the permanent fund excess earnings as a possible source of that funding.

Stevens said he didn't much care for an income tax and with Gov. Murkowski having said he would veto such a bill, there doesn't appear to be much chance this year anyway.

District 33 Rep. Kelly Wolf. R-Kenai

Wolf had several immediate complaints about the conference and its delegates. First, he said, it had preordained conclusions to promote the percent of market value approach to the Permanent Fund and open the permanent fund to government spending.

"I couldn't have gotten better odds (on the outcome) if I'd gone to Vegas," Wolf said. "You knew what the results would be before they spent $300,000 on it. I was greatly offended that the governor selected 55 individuals to do what the Legislature was elected to do."

Then there were the delegates themselves. Wolf said the lion's share was earning annual incomes of six-figures or better, not exactly a cross-section of Alaska, in his opinion.

Wolf has his doubts about the Legislature picking up the conference ball and running with it. While some see the POMV or taxes as good alternatives, he thinks government can be cut further before having to resort to such measures.

"I don't believe the sky is falling. We are close to the edge of the cliff. Is there enough support (in the Legislature) to continue cutting government and passing a fiscal spending cap? I believe there is," he said. "When it comes to developing new revenue streams, that's where you'll find a mix (of opinion). I can respect that."

Everyone has his pet issues, he said. His just doesn't happen to be turning over permanent fund dollars to the Legislature.

"Entrusting this body with $1.3 billion in permanent fund money is a poor idea," he said. "They'd have to beat me with a stone and drive a stake through me" to get him to support the POMV, he added. Nor would he support use of the fund earnings even without POMV, he said.

As for protecting the dividend program in the Constitution, Wolf said he had signed on to the idea, though he has some concerns about exposing the dividends to more federal taxation.

Wolf did say he might support a head tax for education like the $10 annual tax the state once applied. But only if he could be assured the money would go to education. He opposes an income tax because it would add more bureaucracy. I statewide sales tax would impact municipalities that already depend on a local sales tax for revenues, he said.

District 24 Rep. Mike Chenault, R-Nikiski

Nothing came out of the Conference of Alaskans that wasn't already in the mill in Juneau, Chenault said.

"There were no startling new programs to get us out of the problems we're in," he said. "I'm not saying it was a waste of time. It drew the attention of a lot of Alaskans. They became better informed on all of the problems facing Alaska and its future."

Chenault said that in the Alaska House, at least, there probably was movement toward putting the POMV issue before the voters in the fall. But that might hinge on another proposal.

"In order for that to happen, there would probably have to be a constitutional budget limit put in place," he said. "That's the only way they will be able to garner support on the House side."

Chenault said the POMV approach appeared to be a good methodology for handling the permanent fund. The friction among lawmakers begins when discussing how and even if to spend the earnings.

"That's where you get into the philosophical conversation over the split 50-50, 60-40, 70-30, all the numbers have come up," he said. "I think I could support putting it on the ballot if there were a spending limit in place and a structure to the percentages."

Chenault is a co-sponsor of House Joint Resolution 3 that supports constitutional protection for the dividend, making the program permanent. It would require a vote of the public before any earnings earmarked for dividends could be spent for government programs. It also would keep current formulas for calculating the dividend.

Chenault said he would not support use of the permanent fund earnings at this time (not counting public approval of the POMV and spending limit).

"We still have the Constitutional Budget Reserve," he said. Beyond that, the state is moving toward more resource development, though a gas pipeline remains years away. "Meanwhile, we continue to look at spending reductions and watch spending as closely as we can."

Income and sales taxes, he said, should remain on the table, right along with the POMV and further cuts to spending.

District 35 Rep. Paul Seaton, R-Homer

Seaton called the Conference of Alaskans a valuable exercise, but he also said at least some of the solutions suggested were already the subject of legislation being considered in Juneau.

Lawmakers began looking at the POMV approach last year. They've already been discussing various ways to split the 5-percent of the permanent fund's value that could be made available each year. Still, he said, it was interesting that the conference came up with a recommending that go forward with a POMV.

"It was good to see another group of Alaskans coming up with the same conclusion," Seaton said.

But adopting the POMV will be up to the voters, he added. In the meantime, there likely would be no money from the Permanent Fund in the fiscal year 2005 budget, which begins July 1 and runs through June 30, 2005.

There has been some discussion, he said, about appropriating funding in anticipation of voter approval, and if necessary, altering the budget if voters say no to the POMV. Seaton said he thought that would be an irresponsible approach.

"We should work on the budget and identify revenues we are willing to use, especially on an interim basis for the '05 budget," he said.

Seaton wasn't sure if there were enough votes in the Legislature to put the POMV issue on the ballot. Even if there are, public approval might hinge on protecting the dividend program in the constitution, he said.

Concerns that the Internal Revenue Service would begin eyeing the permanent fund differently if the dividend program were so enshrined are unwarranted, Seaton said. In October 2003, Attorney General Gregg Renkes said a Washington, D.C., law firm that researched the issue opined that adopting a constitutional amendment protecting the dividend and requiring use of a portion of the fund earnings to defray state obligations should not subject the fund to an income tax.

As for the POMV approach itself, Seaton said it was "a sensible way" to use the state's largest resource.

"It (the permanent fund) is sitting there and it earns more money than the state earns through oil, yet we use none of the revenue," he said. "Over half our revenue is off limits." Further cutting, he said, would endanger many state programs.

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