State Sen. John Torgerson, R-Kasilof, had a piece of advice for the voting public this fall.
"Don't let the candidates tell you simple things like, 'We're going to balance the budget by cutting it,' or 'We're out to protect the (Alaska Permanent Fund) dividend,'" he said.
Replies like that are meaningless, he told the Soldotna Chamber of Commerce on Tuesday.
"You need to ask those questions about where they might cut or what they might do for additional revenue," he said.
The state earns most of its operating revenue from oil and gas royalties, lease payments, bonuses and taxes. However, North Slope oil production has declined by nearly half since 1988, bringing sharp cuts to state revenues.
The state has spent more than it has taken in each year since 1991, he said. The Legislature has balanced the budget only by drawing billions from the Constitutional Budget Reserve, an account created with $5 billion from settlements of tax and other disputes with oil companies. Now, the budget reserve is running out.
When the price of oil hovered near $8 per barrel, the state deficit was more than $1 billion, he said. The Legislature wrote its budget for the coming fiscal year based on predictions that the price of oil will average $22.76 per barrel. It expected a budget shortfall of $349 million. It would take a price of $31 per barrel to close the gap.
"It's hit $30 (per barrel) a couple of times, so maybe we'll be lucky and we won't be drawing very much out," Torgerson said.
With higher oil prices, the Constitutional Budget Reserve may not run out until September 2004, he said, but eventually, the Legislature will have to come up with a long-term fiscal plan.
"I can tell you, when the price of oil was $8, people were calling up and they'd say, 'I know how to balance the budget. Lay off two of these guys. I saw them in the pickup talking, drinking coffee. Get rid of them. Sell the truck,'" he said.
Fine, he said. That saves $100,000 toward a billion-dollar problem. The state payroll is $740 million per year.
"If you laid off every one of them, you'd still have $400 million to cut," he said.
Torgerson said people have talked about long-range fiscal planning since 1987, when the Senate passed a plan to allocate 40 percent of permanent fund earnings to the dividend program, 30 percent to inflation-proof the fund and 30 percent to subsidize state government. However, oil prices rebounded and the House never passed the bill.
Last year, legislators proposed a plan that would have allocated roughly 37 percent of permanent fund earnings to the dividend program, 30 percent to inflation-proof the fund and 33 percent to subsidize government. The fund now earns about $2.1 billion per year, he said, so that would have allocated about $693 million to subsidize government.
With a Sept. 14 ballot measure, though, voters soundly rejected using permanent fund earnings to subsidize state government. Torgerson said the Legislature's biggest mistake was not having a second plan to place before them.
He said he has been talking to former Gov. Jay Hammond, who favors maintaining the present practice of allocating about half of the fund's earnings to the dividend program. Allocate 30 percent to inflation proofing the fund, Torgerson said, and that leaves 20 percent, about $420 million, to subsidize government.
"This year, that would almost balance the budget if we're $349 million in the hole," he said. "On a $1.1-billion scenario that we had with $8-per-barrel oil, of course, we'd have to come up with $800 million more."
Hammond favors an income tax to fill the remaining gap, he said, but that has little support in the Legislature. Mike Williams, a revenue auditor with the Alaska Department of Revenue, said later that the federal Internal Revenue Service reported total Alaska adjusted gross income of $12.6 billion in 1998. So, a 10 percent income tax might raise $1.26 billion.
Torgerson said he favors a sales tax. However, a 1 percent sales tax would raise only $106 million per year if the state allows the same exemptions as the Kenai Peninsula Borough.
An added complication is the ballot initiative next fall to cap municipal property taxes at 10 mills, equivalent to $1,000 for each $100,000 in assessed value. Torgerson said property taxes approach 21 mills in some parts of Anchorage, and the Anchorage Chamber of Commerce estimates that it would take a 10 percent sales tax to replace 10 mills in lost property taxes.
"If the 10-mill cap passes and Anchorage goes to a sales tax, a state sales tax will be impossible," he said.
Solving the state's budget problems will not be easy, he said.
"The first thing is an educational process to let the people know that sooner or later, we're going to have to do something," he said.
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