April 8, 2002 The Anchorage Daily News offers a fiscal plan for Alaska

Posted: Monday, April 15, 2002

(Eds note: This is one of an April 7-14 series in the Daily News propsing solutions to the state's fiscal situation)

Alaska's $1 billion-a-year fiscal gap is a serious problem, but it is manageable if we keep our heads and act decisively. The best way is to keep our balance, to take something from each of several sources while ratcheting up changes gradually. Here is a proposal for how:


Alaska's economy is built largely around public spending, federal and state. This has been true for more than a century and likely will continue. Alaska's wealth, mostly land and natural resources, is owned largely in common. Any change in the fiscal picture must recognize that virtually everyone who lives and works here, public sector or private, depends heavily on government spending. We have already cut state spending by one-third in real terms in the past decade -- the only state even to approach such cuts. This is not the time to further roll back services. Impact on the fiscal gap: not much.


The first big bite from the $1 billion fiscal gap should come from a graduated income tax built on the time-honored principle of progressivity. Alaska had just such a system until 1980, when it abolished general taxes in the first big flush of oil revenues. Forty-three states choose an income tax as a mainstay of their fiscal structure; Alaska should too. An income tax with inflation-adjusted brackets based on the pre-1980 system would raise $660 million. At just half that impact, we could close a third of the gap and keep Alaskans among the lowest-taxed individuals in the U.S. To minimize the difficulties of adjusting, we should increase the tax gradually over five years. Impact on the fiscal gap: $350 million.


For 25 years we've been accumulating savings in the Alaska Permanent Fund by trading the value of our oil in the ground for money in the bank. So far, all we've done with our earnings are pay ourselves dividends and add to the fund's value and growth. Those little blue umbrella pins you see on coat lapels around town are a harbinger of change. They say essentially that ''the rainy day has come'' and it's time to use our fund for common purposes. Payouts from the fund should be made on an endowment model providing 5 percent of its value in a given year -- a figure that research indicates will maximize the payout and preserve the fund. The payout should be split between individual dividends and state services, in a proportion to be determined each year by the Legislature. Impact on the fiscal gap: $500 million to $600 million.


Alaska's Permanent Fund dividend has been a remarkable experiment, but now we can afford less and less of it. Over time, income supports to citizens should be crafted more on the basis of work or need and less on mere presence. Because we have created the fund and made it grow, we can still afford to pay ourselves a dividend to protect our stake in its future. But the dividend now should be phased back -- slowly, so we all can adjust. The balance between individual dividends and support for public services could shift with changing needs, but over the long run we should reduce our dependence on an unearned state dividend check. Impact on the fiscal gap: depends on future legislatures.


An alcohol tax increase could raise $30 million a year or more and would help offset the estimated $450 million alcohol abuse costs the economy each year. A cruise ship head tax could raise another $30 million to $35 million, and a hike in the fuels tax a similar amount. Together these new levies would contribute only about one-tenth the amount needed to close the fiscal gap, but they would diversify and stabilize the tax base and call on industries and consumers of specific high-value items to contribute. Impact on the fiscal gap: about $100 million.


Alaska has a fiscal gap because the golden goose of oil isn't as golden as it used to be. The reality is Alaskans can no longer expect oil companies or anyone else to pay nearly all the bills for state government. That said, the fiscal gap is so big and so serious that no industry can be exempted from the solution, not even oil. Impact on the fiscal gap: $100 million.

Taken together, the elements of this proposal would close the state's current $1 billion fiscal gap and give Alaska the tools for a more sustainable future. They would minimize the negative impacts on the overall economy while providing a more solid foundation for growth.

Everybody, in the end, would give a little to avoid the coming crash and position the state for growth. But it can't be done with a reactionary spirit. The enemy of a better future for Alaska is the absolutism that says, in essence, don't bother me; make it somebody else's problem. The answer is this is everybody's problem, and we should come together as Alaskans to fix it.

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