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Difficult financial decisions remain in Alaska's future

Posted: Sunday, June 29, 2003

When it comes to budget deficits, Alaska has lots of company.

When states began crafting budget plans earlier this year, the National Conference of State Legislatures found that 41 states faced a cumulative budget gap of $78.4 billion. Thirty-seven states were reporting a gap in excess of 5 percent of their general fund; 19 percent exceeded 10 percent, the NCSL reported.

What is unique about Alaska's budget woes is this: the $22.5 billion Alaska Permanent Fund. With billions in the bank, it's fair to ask if Alaska really should be wringing its hands with a "poor, poor me" song and dance.

It's also fair to ask, as many are doing, if the best use of the permanent fund is as a "sacred cow," meaning good for dividends for Alaskans but nothing else, or as a "cash cow," which would still pay dividends but also contribute to the cost of running the state.

It's a debate that's likely to get hotter, because while decisions made this year pave the way for leaner state government, the future remains uncertain.

Without major new resource development, new revenue sources are still needed. The Legislature turned a thumbs-down on Gov. Frank Murkowski's plan to establish a statewide sales tax this year. That proposal likely will resurface next legislative session. Also complicating matters for Alaska and other states are unfunded federal mandates, such as the No Child Left Behind Act and homeland security measures. Federal lawmakers need to put a stop to unfunded directives, even as they try to get a handle on the ballooning federal deficit.

The new fiscal year for Alaska begins Tuesday. That's the day when budget decisions made by the governor and the Legislature take effect. In a few months, Alaskans will have a better handle on if the sky is falling as some have predicted or if the spending plan that is taking effect lays the foundation for solving the state's budget crunch.

Certainly the cuts and changes will be painful to Alaskans, but probably not as painful as some of the measures other states have instituted, including shorter school years and early release of prisoners.

It's unfortunate that after years of budget talk, Alaskans still have not closed the state's fiscal gap. In 1999, the Peninsula Clarion held a contest, soliciting suggestions for closing the gap. Among the suggestions:

Privatize as much as possible.

Have the Legislature meet every other year.

Establish a state sales tax.

Consolidate smaller school districts. Go from 52 to no more than 10 school districts statewide. This cuts 42 sets of top administrators.

Cut the budget across the board based on a fixed formula developed by the Legislature and the governor to ramp down state spending approximately 25 percent over the next five years.

Sell 1 million acres of state land for $1,000 per acre or $10,000 per acre for waterfront property.

Move the capital from Juneau to Palmer or to Anchorage.

Start an Alaska lottery.

Cap the permanent fund dividend at $1,000, $1,300, $1,500 or $1,600.

Create a toll fee for all tourists traveling by motor home to Alaska.

Pay legislators less.

Raise taxes on tobacco and alcohol.

Implement a state income tax.

The winning entry was this: "For the most equitable spread of the costs, a state income tax based on ability to pay is fairest and would reach even those outside of organ-ized boroughs. It is also the most economical to administer. ...

"The most painless of needed revenues would come from permanent fund earnings (which are separate from the corpus, or body, of the fund).

"Considering all the above, the most reasonable solution to a budget gap will include an income tax, based on ability to pay, and use of permanent fund earnings in an amount which will enable continued permanent fund dividends."

That remains sound advice. When legislators convene in Juneau in January, they'll have a better idea of the impacts of the cuts and changes that are about to take effect. Let's hope that knowledge will give them the political will to make whatever tough decisions are necessary to close the gap between state spending and revenues.



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