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March 14, 2003 Voice of the Times says governor deserves credit for getting started

Posted: Monday, March 17, 2003

Gov. Frank Murkowski deserves credit for attempting to deal with the state's fiscal problems even though his proposals are causing political pain.

The response from the public is understandable, especially since Murkowski's approach would involve eliminating a popular program like the longevity bonuses received by seniors who signed up for the payments before 1997.

Every program has its own constituency and those who benefit can be expected to howl when cuts threaten their favorite. Downsizing government would be one of the most logical approaches to dealing with lower revenues, but howling constituents make such huge cuts extremely difficult.

Politicians tend to have a low pain threshold, especially when the pain is being experienced by people in their districts. It goes with the elected official's job but complicates attempts to bring the budget under control.

Whether the bonus cuts and the governor's proposed revenue measures will pass muster in the Legislature remains to be seen. But the underlying message in Murkowski's budget is that something must be done to get Alaska's fiscal house in order. And sending such a message is a step in the right direction.

Hopefully, Murkowski has not ruled out the possibility of using a portion of Permanent Fund revenues to pay state expenses. That is, after all, the purpose for which the fund was established. And the change could go a long way toward filling the fiscal gap without ending dividend checks.

The governor and the Legislature should look hard at converting the Permanent Fund to an endowment, like most major funds of its kind. The fund directors could then calculate earnings as a percentage of its full value rather than on the balance in its earnings reserve account, as at present.

If the proposed formula were in place now and 5 percent of the fund's value were divided between dividends and the state budget, the checks would be something more than $1,000 with roughly $600 million going toward state expenses. Instead, because of the earnings reserve approach, the individual payouts are more likely to be $400 or less. Keeping the draw to 5 percent would be well within the fund's average annual value increase, allowing it to continue growing.

Such a change would be difficult for political leaders who have vowed never to touch the Permanent Fund. But if the state doesn't use some of that nest egg for its original purpose or make a drastic reduction in the size of government, it will be virtually forced to impose painful taxes, most likely an income tax or a major statewide sales tax.

Murkowski has made a start at solving the revenue shortfall problem. There is a long way to go, but that start should be recognized.



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