Knowles, House leaders urge Senate to act on fiscal plan

Posted: Friday, May 10, 2002

JUNEAU (AP) -- With only days left in the Legislature's regular session, Gov. Tony Knowles and House leaders urged the Senate to act on a pair of revenue-raising bills to close the state's budget deficit.

Knowles, a Democrat in his last year in office, stopped short of suggesting a special session may be called to tackle the problem.

Instead, he urged the Republican-controlled Senate to seriously consider a proposed income tax and a plan to use earnings from the Alaska Permanent Fund to close an estimated $963 million deficit.

In a year when all but three in the 60-seat Legislature are up for re-election, House lawmakers approved the contentious proposals despite strong indications from the Senate that they are doomed.

''Now is the time to stop the slogans and begin the work,'' Knowles said. ''Alaska must have a sustainable plan.''

The Senate Judiciary Committee held a hearing on the House measure that would use $300 million in permanent fund earnings next year. But Senate Judiciary Chairman Robin Taylor, R-Wrangell, chided the plan as a ''raid'' on the fund.

House Speaker Brian Porter, R-Anchorage, viewed the proposal as a way to protect the permanent fund because once the state's surplus funds are gone, lawmakers will turn to the dividend program.

''It's a risk that a majority of the members of the House is not willing to take. I hope that risk sinks in in the other body,'' Porter said.

Senate President Rick Halford, R-Chugiak, said there is no support in the Senate for either measure and intense lobbying isn't going to change the outcome. Halford has been a staunch opponent of using permanent fund income for state government.

''I don't think the public will change their minds on that in the short term and I don't think the Legislature will change its mind on that,'' Halford said Thursday.

The income tax proposal -- which would raise about $250 million and cost individual Alaskans about the same as would a GOP-backed sales tax plan -- was moved to the Senate Finance Committee on Thursday.

Senate Republicans instead want the House to place a constitutional amendment on the November ballot capping state spending. Senate leaders say that's the first step in a long-range fiscal plan.

Critics contend it would be too little, too late in closing the state's fiscal problems.

The state Department of Revenue estimates Alaska will have an $826 million shortfall the fiscal year that ends June 30 that will grow in the next fiscal year. The department estimates the state will have a $1 billion shortfall in 2004 if oil prices stay constant.

Alaska depends on North Slope oil for about 80 percent of its revenues. But oil production has declined by half since its peak production of 2 million barrels in 1988.

Meanwhile, the state's Constitutional Budget Reserve of $2.4 billion is anticipated to run dry in October 2004. The Legislature has used that fund to make up for past budget shortfalls.

The permanent fund bill changes the way dividends are calculated, using 5 percent of the fund's market value to calculate the pool of money used. It would split that pool of money 50-50 between government and dividends.

Dividends would drop overall by about 12 percent under the plan, falling by about $24 for each eligible Alaskan in 2003 and $306 in 2007.

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