State officials bring budget woes to meeting

By this time in 2005 state economists estimate the state's "rainy day" account will be empty.

What to do about that eventuality was the topic of a town meeting at the Soldotna Senior Citizens Center Tuesday night sponsored by Rep. Ken Lancaster, R-Soldotna. With Lancaster were Larry Persily, deputy commissioner for the state Department of Revenue, and Jim Kelly, director of communications for the Alaska Permanent Fund Corp. It was one in a series of meetings being held around the state by the legislative Fiscal Policy Caucus.

If within four years the state depletes the Constitutional Budget Reserve -- the account that makes up the difference between what the state spends and what it brings in -- the state will be faced with a projected billion-dollar deficit.

About 50 people met to share ideas on getting the state of Alaska out of its fiscal hole. Some ideas appeared radical, others more measured, and some just pounded the drum of "cut more government." (See related story this page.)

A discussion about the state of Alaska's financial situation cannot take place without mentioning the Alaska Permanent Fund or the dividend its earnings provide for all Alaskans each year. True to form, the state's oil revenue account came up during the meeting, though Lancaster was quick to point out he was not after people's dividends.

"We are not looking at taking your dividends in any way, shape or form," he said.

The Alaska Permanent Fund was voted into existence in 1976 in an effort to stash money away and out of the hands of politicians. It was intended to be used to fund state government when the oil money runs out and to make permanent improvements to the state out of oil, a non-renewable resource.

The dividend program was not created until 1980, with checks first being issued in 1982.

Since then, however, any discussion of using the permanent fund to pay for state services by a politician has been considered political suicide.

So has any talk of changing the dividend program, which many citizens have come to see as an entitlement.

Since oil production on the North Slope has declined, so has revenue from it. With nearly $24 billion in the bank, interest on the permanent fund's investments -- stocks, bonds, property -- is now the largest revenue source for the state.

The billion dollar budget gap is equal to all the money the state spends on education from kindergarten through the University of Alaska system each year. It is equal to all the permanent fund dividend checks that will be paid out this month. It is equal to a 14 percent statewide sales tax.

A billion dollars is twice the amount that could be saved by capping the dividend check at $1,000. It is three times larger than the money that could be raised yearly by a 3.4 percent income tax. It is 30 times the size of what could be raised by adding a nickel tax to either gasoline at the pump or alcohol by the drink.

To add to the state's fiscal woes, Persily said, Alaska's economy does not have much of a tax base other than what comes from oil and gas.

"The state takes in more revenue from dead people than it does from mining," Persily said in explaining that the revenue from unclaimed property is greater than the revenue from mining royalties.

The state receives about $50 million in revenue from sources other than the oil and gas industry, he added, the same amount of money it takes in on the dollar-a-pack cigarette tax.

Persily said he'd like to see a plan devised that would maintain about $1.5 billion in the Constitutional Budget Reserve for at least seven or eight years, until new revenue sources come online. By that time, the proposed natural gas pipeline, National Petroleum Reserve-Alaska or the Arctic National Wildlife Refuge could be producing and contributing to the state's economy.

Lancaster had his own ideas for governmental efficiencies. They include a 90-day legislative session, which would save the state $27,000 a day for each day legislators do not meet; changing the way the House and Senate handle the budget; working with state departments on saving money by being more efficient; and consolidating offices.