Alaska should use its vast wealth to nurture economy back to health

Posted: Tuesday, July 01, 2003

The battle for Alaska's future is being waged and the middle class is losing. It is time we examine our present fiscal realities and evaluate the relevance of our old fiscal policies. Can we design a plan that nurtures the wealth of all Alaskans?

Let us assume our proposal was in effect fiscal '03. We will solve the fiscal gap without harmful budget cuts, a state tax or increases in local taxes. We can have earnings based dividend checks, while our savings accounts, the permanent fund and the Constitutional Budget Reserve grow.

The truth is we are incredibly wealthy. Our leaders are withholding unimaginable riches, while they hang on to plans designed for past situations. We must do away with the mindset of saving ourselves poor.

Another folly is to embrace other states' systems such as internal taxation.

We also have to compromise the use of our wealth between our public and private sectors.

First, the budget should not be needlessly cut. Jobs are being lost and people's finances ruined. Are oil company cuts, less federal spending or private sector cuts good for the economy? State cuts are just as stifling. Many of the proposed cuts will just burden local governments.

Second, we impose a state tax on the tourist. Tourism can contribute more to our public sector. Fifty dollars each earns $150 million. This alone funds the longevity bonus payments as well as the other $100 million of cuts.

The next two actions require constitutional amendments that reflect new fiscal realities. It takes a unified Alaska to make them work.

Step three removes waiting five years before we can add additional oil revenue into our state's cash flow. Our governor wants to tax the people

$300 million, while we deposit $400 million of oil revenue into the permanent fund. So in actuality our governor would be taxing the people $300 million to deposit it in the permanent fund. This is unacceptable.

The permanent fund is so huge it no longer needs oil revenue. In fiscal '03 it has earned $2.941 billion. Oil deposits into the permanent fund are obsolete; their absence would not noticeably affect the dividend.

The permanent fund's growth is based on market trends. In good markets it earns billions, in losing markets it makes more sense to have our oil revenue available to the budget than depositing it into a bad market.

This leads us to step three of our plan.

This requires a constitutional amendment redirecting the 25 percent of oil revenue deposited into the permanent fund into the Constitutional Budget Reserve. In the CBR, these funds would be available, eliminating the need for a state tax. By redirecting the oil savings, the CBR would grow.

In Alaska's present realities to design a fiscal plan we must make use of the vast wealth in the permanent fund.

Step four is an amendment implementing the endowment system for the permanent fund. We should adopt the formula of appropriating 5 percent of a five-year averaged fund balance. This is split 50 percent to the budget and 50 percent to dividends. This would result in a steady increase in funds to the budget, an increasing dividend check as well as an increase in the fund's balance. This system in fiscal '03 allows approximately $650 million to the budget. FY '03's deficit was less than $650 million so we would have not needed state cuts or taxes or use of the CBR. Another $650 million would pay dividends. Resulting in checks of about $1,100. Under the existing system checks have been forecasted from nothing up to $1,200. This endowment system would result in $1.6 billion of earnings being deposited into the balance.

The permanent fund started 2003 with $22.2 billion. It would start 2004 with $23.8 billion. The CBR would have ended 2003 at $2.3 billion instead of $1.5 billion.

Our plan was built on past accomplishments, then based on today's realities. We had $3.3 billion of earnings to solve a $600-million deficit. We used $650 million for dividends and our savings grew by $2 billion. We can enjoy the promise of Alaska. There is no so-called free ride. We either use our riches to nurture a prospering people or we can tax and cut and stifle our economy.

James Borsetti


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