Public hearing delivers opinions but no suggestions to fix state predicament

Posted: Sunday, November 23, 2003

At a public hearing in Soldotna on Thursday, Kenai Peninsula residents told members of the House Ways and Means Committee that the state government still is too large and should be shrunk, but few offered specifics about where the budget axe could fall without causing pain.

Some said they are willing to pay taxes and that it is time to tap the earnings of the Alaska Permanent Fund to balance future state budgets. Early estimates suggest revenue for the fiscal year 2005 budget will fall short by $600 million or more, requiring, yet again, a dip into the shrinking Constitutional Budget Reserve.

Also in Soldotna for the hearing was Robert Bartholomew, chief operating office of the Alaska Permanent Fund Corp., who was there to explain the percent-of-market-value approach to handling the fund's earnings a proposal that would make available to the Legislature up to 5 percent of the fund's market value each year. From that could come annual dividends and money to help pay for state programs.

According to proponents, the invested principal of the fund earns an average 8 percent per year, enough to allow 3 percent to be salted away in the principal as inflation proofing; more in good years. Supporters are pushing to amend the Alaska Consti-tution to formalize the POMV approach.

Some residents who spoke Thursday in Soldotna and by teleconference from Homer said the POMV approach is worth pursuing, but they cautioned that Alaskans will not vote for a constitution amendment unless assured spending will be controlled even capped. Still others said the POMV approach is an attempt to spend the Alaska Permanent Fund itself.

"We know the state is in bad shape," said Sterling resident Dick Bogard, who added he wants to hear some solutions. "You didn't give me any stretch at the end of the road about what the legislative body is planning to do to live within their means."

Bogard was critical of the POMV approach, saying it appears to mix the fund's principal with its earnings, which run counter to his understanding of "bookkeeping 101." He also said he doesn't understand exactly where lawmakers intended to spend the 5 percent the POMV would make available.

"It's not going to pay off dividends," he predicted. "It's going be an end run to get into the permanent fund."

Bogard noted that both he and his wife lost their Longevity Bonus checks when that program fell victim to a Murkowski veto. He said he can live with that, but he thought other programs around the state should share in any cutbacks.

Rep. Mike Hawker, R-Anchor-age, chair of the House Ways and Means Committee, said a spending limit bill, House Joint Resolution 9, currently sits in the House Judi-ciary.

Bartholomew said the POMV is just a different way of looking at the fund's value. The fund already is a mix of its direct oil-derived revenue, of earnings returned as inflation proofing, and so-called "excess earnings" lawmakers chose to add to the principal after taking out what went into dividends. Indeed, he said, those excess earnings total some $7 billion of the current principal.

As for budget cutting, Hawker said the state Legislature reduced general fund spending by $62 million last year. Murkowski "raised the anti" by vetoing $137 million more. Adjusted for inflation, the general fund today actually spends less per capita than it did in 1975, Hawker said.

Homer resident Mary Griswold is an advocate of the POMV approach. She called the current distribution formula out of date because the fund is no longer invested primarily in bonds. She said the POMV would provide consistent, predictable and sustainable revenue streams. But she added a caveat.

"It is unlikely that the voters will approve a POMV constitutional amendment without knowing and accepting how the annual payout will be allocated," she said. "If guaranteeing a comparable dividend formula appears critical to passing a constitutional amendment, 80 percent of the annual payout must be dedicated for dividends, either in the constitution or by statute."

A lesser split, such as 50-50, would be appropriate if voters are willing to accept a smaller dividend in favor of ensuring state programs are adequately funded.

Craig Forrest of Homer said the state never should have eliminated the state income tax and said he would be willing to pay one. He called a statewide sales tax unwise, however.

Soldotna High School teacher LaDawn Druce said the POMV was needed now, especially if it meant adequate funding for education. Admitting to her own bias, Druce said the Kenai Peninsula Borough School District is straining financially and needs help. School budget cuts eliminated 50 teachers this year. Fifty more jobs could go next year, she said, and teacher workloads are becoming overwhelming. She said the permanent fund is set aside as a rainy-day account.

"It's pouring on this district right now, as far as I'm concerned," she said.

Rep. Max Gruenberg, D-An-chorage, said the effects of the POMV program, if instituted, would take time to kick in.

"It won't solve the problem now," he said.

The real question, he said, is whether people just want to continue cutting or are willing to start raising revenue through taxes.

Blaine Gilman of Kenai also complained about education funding, saying the foundation formula used to divvy state funding on a per-student basis is unfair to the peninsula school district because it treats the peninsula district as nearly as urban as Anchor-age, yet the peninsula district includes several Bush schools.

He warned that the POMV would be a hard sell without a spending cap and a way to specify how the 5 percent would be split. He also said some taxes are inevitable and that people will have "to accept less in state services and pay more for them."

Another teacher, Penny Vadla of Soldotna, said Alaska is too dependent on oil and gas and that it is time to begin "looking outside the box," and try to attract other industries that can contribute to the revenue stream. She also said Alaska needs an income tax.

On education funding, she warned that, "If we don't have a well-educated society, we don't have a producing society."

Hawker said he understood the administration is going to try to hold education funding at the current level in fiscal year 2005, but after that, "education will have to be reduced."

William Phillips of Soldotna said the government needs orderly downsizing, but said it is absurd to think the budget can be cut enough to solve the budget dilemma.

Fred Sturman of Soldotna said he opposes the POMV approach, telling the lawmakers "if you get more money, you'll spend more money."

Hawker said solving the state's fiscal crisis might require using the state's entire fiscal toolbox further cuts, tapping permanent fund earnings, finding new revenue streams through resource development and instituting taxes.

He said the objectives of the committee include finding ways to minimize taxation on individuals, ensuring that taxes don't impinge on the ability of local governments to raise their own revenues and creating a solution that recognizes the volatility of oil prices.

He said the committee already has heard several suggested places for cuts, but those cuts would come with price tags.

Cutting the Power Cost Equali-zation program that reduces the cost of energy in the Bush actually would have saved nothing last year, he said.

Dropping the $10 million in state spending for the Denali Kid Care program would jeopardize $40 million in federal funding.

Eliminating Medicaid, which costs more than $200 million a year, would mean losing almost $1 billion in federal aid and could mean closing hospitals and losing private insurance packages.

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