Session ends with no fix

Lawmakers adjourn after passing massive capital budget

Posted: Wednesday, May 12, 2004

JUNEAU The Alaska Legislature pumped $82 million more into Alaska schools, added 20 new state troopers and will send millions back to their districts in construction projects.

But lawmakers adjourned Tuesday after coming up empty on a fiscal solution that Gov. Frank Murkowski wanted this year to finally make Alaska's spending match its income.

Press conferences were held with lawmakers following the adjournment, however, no information was available when the Peninsula Clarion went to press at 1:30 a.m. today.

The Republican governor has promised a special session, and if that does not work, painful vetoes without such a plan.

''If he's serious about it, he will call us into special session on it,'' said Rep. Eric Croft, D-Anchorage. ''I think he should.''

Murkowski fought for two constitutional amendments one to cap state spending and another dealing with the permanent fund that he said are key to filling a budget hole that averages about $400 million.

The permanent fund measure changes the method for calculating distributions from the $28 billion oil wealth savings account.

The constitutional change by itself says nothing about how the money would be spent. But a bill accompanying it calls for splitting the nearly $1.3 billion generated under the new formula between government and dividends for residents.

Earlier this session, House Republicans brokered a deal with enough minority Democrats to muster the 27 votes needed to approve the two amendments.

Murkowski endorsed the plan late in the session after largely staying silent on what permanent fund plan should fix the state's budget woes.

But in the more conservative and fractious Senate, both the permanent fund and spending cap proposal stalled. No final vote was called for Tuesday despite frantic wrangling from administration officials for a compromise deal.

Earlier in the session, Senate Democrats voted against the spending cap after GOP lawmakers rejected an amendment to exclude education funding from it. It failed 8-11 in a vote last Thursday.

The permanent fund proposal was rejected 5-15 during floor action Friday. Republican Sens. Con Bunde, Ralph Seekins, Bert Stedman, Ben Stevens and Gene Therriault voted for it.

For several days Therriault has been trying to orchestrate a compromise proposal that would get the 14 votes needed to clear the Senate.

Murkowski roamed the halls of the Legislature briefly before the Senate finished its business late Tuesday. He gave no indication when a special session might be held, but Murkowski remained firm that lawmakers will tackle the issue this year.

''We indicated all along we are going to find a solution to this and I'm still waiting,'' Murkowski said.

Republicans hold a 12-8 majority in the Senate and no proposal won enough GOP and Democratic support to get the 14 votes needed for passage.

Sen. Hollis French, D-Anchorage, wanted an amendment that provides a 2-1 split of fund earnings between dividends and government. That proposal, which Democrats argued would keep the amount of dividends largely unchanged, was rejected.

Senate President Gene Therriault, R-North Pole, also offered two permanent fund compromises that failed. One included a provision to guarantee the dividend program continues, another protected the principal of the fund. Both failed.

One proposal floating around the halls called for a 60-40 split between dividends and government, but that never surfaced for a vote.

Senate Majority Leader Ben Stevens, R-Anchorage, also proposed both a statewide sales tax and an income tax. Both failed.

Some Senate Republicans argued record-high oil prices and a $2 billion budget reserve make it unnecessary to use permanent fund money.

While opposition Democrats argued low-income Alaskans are hurt the most by a Murkowski plan to use permanent fund money to close the state's budget gap.

Ultimately, lawmakers agreed only to an adjournment package that provides $82.5 million more for kindergarten-12th education and $5.8 million for school repairs.

The House and Senate also voted in a $1.6 billion capital budget paid for mostly from federal funds that includes construction projects statewide.

Lawmakers spent the remaining $12 million leftover from its share of a federal tax cut bill two years ago on mostly district projects.

Andrew Halcro, a former Republican lawmaker who was outspoken about the need to bring new revenues into state coffers, noted the contrast between the penny-pinching rhetoric early in the session and the massive election-year capital budget.

''I think the thing that strikes me the most, even though you heard very conservative tones coming into the session, they are spending a lot more,'' Halcro said.

''Obviously the Senate recognizes the need (for more revenues), they can't muster the courage to find a way to pay for it,'' Halcro said.

Alaska has used its $2 billion Constitutional Budget Reserve to fill its deficits in 11 of the last 13 years. But the reserve, which was intended to guard against temporary dips in oil prices, is expected to run dry in 2008.

But Sen. Gary Wilken, R-Fairbanks, said the fiscal 2005 budget is not excessive and provides more money for education while not raising taxes.

Wilken, who is co-chair of the Senate Finance Committee, was one of the most vocal GOP opponents of Murkowski's plan to ask voters for permission to tap the fund.

Wilken favors using a mix of budget reserves and some permanent fund earnings without a statewide vote that Murkowski has demanded. The Legislature could currently tap the fund with a simple majority vote, but the potential for a political backlash has kept lawmakers away from the fund.

''I think we've done a great job. I would hope the measure of this Legislature isn't that we didn't raise taxes high enough, therefore we weren't successful,'' Wilken said.

House Republicans also agreed to examine an increase in the state's tax on small or declining oil fields. Democrats want to rewrite the so-called economic limit factor to boost revenues when prices are high.

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