Session half over, but legislators still not near solving budget gap

Posted: Sunday, March 05, 2000

The legislative session may be half over, but the state's fiscal gap remains whole.

And with one and a third plans between them, two peninsula legislators -- Rep. Gary Davis, R-Soldotna, and Rep. Gail Phillips, R-Homer -- are at the forefront of current activity to address the state's budget deficit before time runs out on lawmakers in Juneau.

The Mackie plan, as it has become known, remains the only plan officially on the table to fill the state's approximately $400 million shortfall. The brainchild of Senate Majority Leader Jerry Mackie, R-Craig, it raised eyebrows around the state at its introduction last month with its promise of a one-time, final $25,000 payout from the Alaska Permanent Fund to every state resident.

Davis, who introduced a companion bill in the state House, said the initial excitement generated by the plan has dwindled to "guarded enthusiasm," both within the Republican caucus and across party lines.

Since this is an election year, Davis said, lawmakers' concerns about the plan arise mostly from "everybody's interpretation of how their constituents will feel about it."

Davis, and other members of the House Finance Committee, got an idea of constituents' opinions during Saturday's public testimony. (See related story this page.)

Davis's House bill, HJR 47, received its first hearing Wednesday. Since the plan would require a constitutional amendment, the House Judiciary Committee took up the bill to address any legal ramifications.

Davis said he signed onto the Mackie plan because of the budget-balancing flexibility it would give the Legislature without an undue burden on citizens.

"(The plan) addresses the fiscal problem and it addresses it without taxes," Davis said. "It's simple, it's easy to understand, and it's not complicated."

The proposal still being worked on by Phillips and "a large group" of both Republicans and Democrats offers an alternative to the Mackie plan that involves use of permanent fund earnings without an end to the dividend program.

Phillips was unwilling to talk about the rest of the plan on Friday and emphasized the proposal was a "three-legged stool," with the provisions for protecting the dividend and using part of the fund's earnings to pay for government as just "one of the legs."

The plan was scheduled to be unveiled by its supporters in its entirety early last week, until a "glitch" in the way money was distributed after inflation proofing was found, she said.

She is expecting the plan can be revealed this week.

Under Phillips' proposal, earnings used from the permanent fund at its current market value could generate $270 million in new revenue while still providing Alaskans a dividend this year in the neighborhood of $1,800. That part of the overall plan is proposed under HB 411.

"This guarantees growth in the dividend, and we carried it out for over 10 years," said Phillips.

With the price of oil at $30 a barrel, many Alaskans are assuming the state no longer has a budget problem, she said.

"As much as the price of oil is climbing, production is slowing. ... We still have a huge fiscal gap that has to be addressed. That's one of the things we will show in our plan. ... It's pretty frightening. The only thing we have to add to our oil revenues is revenues from our investments."

Protecting the dividend program and using fund earnings to help pay for government is "only part of the recipe that's needed," said Rep. Hal Smalley, D-Kenai. "We still have to look at other revenue sources (to fill the gap)."

Additional cuts to the state budget can't make up the difference, Smalley said, because there is not enough budgetary fat left to trim. He cited a loss of $300,000 to programs supporting victims of domestic violence as an example of what the majority thinks is acceptable.

"These are horrific kinds of impacts on folks. (Balancing the budget) is going to require a combination of activities. This old adage of 'cut the budget, cut the budget' -- it's a slogan, not a solution. We've got to get off the slogans and find a solution. It may not be popular," he said, referring to the possibility of new taxes, "but we need to work hard and get resolution."

But with an election on the horizon, many legislators believe a resolution this session -- especially one that would use the permanent fund or impose new taxes -- is unlikely.

"They seem committed to that course -- doing nothing," said House Minority Leader Ethan Berkowitz, D-Anchorage, of Republicans in the Legislature. "Our position is that we're not going to throw rocks at anything, but we're looking for a comprehensive plan, something that doesn't rely wholly on the permanent fund for a solution."

To that end, Berkowitz characterized the Mackie plan as "Mackie-avellian," after the Renaissance political philosopher Machiavelli, who espoused the belief that the end result of an action justifies whatever drastic means are used to accomplish it.

"I can't believe you can get good public policy trying to harness a bad characteristic like greed. ...," he said of the plan. "There are too many politicians who are more concerned with their own careers than in doing what's good for the state. We need more pragmatists."

Berkowitz, like Smalley, said HB 411 has merit.

But he said unless voters hold their elected officials more accountable, the state's long-term fiscal situation will remain unresolved this session.

"There needs to be more pressure from the public for us to seriously address the budget gap," he said. "It's absurd to think we can solve the problem by just cutting the budget. People need to raise the standard (for lawmakers) down here (in the Legislature)."

In the absence of a solution this session, lawmakers likely will choose to rely on the nearly $3 billion Constitutional Budget Reserve -- the state's savings account -- to bridge the financial gap this year.

"(A resolution) is definitely a possibility in the next two years," said Davis, who is not running for re-election. "(But) it's still not really crisis time. We still have this year to draw from the CBR."

But Smalley said falling back on the CBR should not be an option.

"That's not a solution, that's a train wreck waiting to happen. We were sent down here to do a job. ... Some people are going to be happy with it and some people are not," he said.

"We really need to come up with something, and the time is now."

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