Fiscal Caucus starts budget debate with revenue suggestions

Posted: Sunday, December 02, 2001

ANCHORAGE (AP) -- More than a third of Alaska's 60 legislators agreed Saturday to use new revenue proposals -- including a cap on permanent fund dividends, a sales tax and an income tax -- as a launching pad for coming debates over the state's financial hole.

None of the lawmakers who make up the Fiscal Policy Caucus backed the entire plan. But they decided something that lists specific potential measures is needed to give the public and the Legislature a starting point for debate over Alaska's gap between income and spending.

''I characterize it as a significant milestone toward a fiscal policy by the state of Alaska,'' said Rep. John Davies, D-Fairbanks.

Under the draft, permanent fund dividend checks would be limited to $1,250 for every Alaskan. Surplus investment earnings of the fund, after dividends are paid and the principal inflation-proofed, would be used for state services.

The plan calls for a 3 percent state income tax and a 2 percent sales tax.

In addition, alcohol and gasoline taxes would increase by 5 cents per drink and 5 cents per gallon respectively.

An employment tax of $100 a year would be used for schools.

Major industries that operate in Alaska would also be impacted.

The group agreed on a cruise ship tax of $25 per passenger. Also, oil and gas production taxes would be raised to bring in an additional $100 million annually.

The proposal also would limit growth of state services to 2 percent each year, no matter the inflation factor or increases in population

Members of the Fiscal Policy Caucus, such as Rep. Drew Scalzi, R-Homer, emphasized that the proposal is only a framework designed to elicit comment.

''When we go down to Juneau (for the legislative session) this is going to be modified,'' he said.

Several caucus members said they did not want any entire package of such revenue measures implemented in a single year, in order to lessen the pain. There was also significant disagreement over specific items in the proposal.

The bipartisan members of the Fiscal Policy Caucus met for two days. Department of Revenue Deputy Commissioner Larry Persily first told lawmakers what options could make up a $1.1 billion budget deficit. Legislators then modified the list.

Caucus members said that if the Legislature does not address the budget shortfall soon, the state's reserve account will be gone and the only significant revenue choice available will be from the Alaska Permanent Fund

''Unless we take really draconian steps in the next two or three years, by 2006 there will be no dividend,'' said Rep. Hugh Fate, R-Fairbanks.

Fate, though, said he wants to make sure that revenue measures are not all of the solution. State spending has to be controlled, he said, and all possible efficiencies pursued.

The Fiscal Policy Caucus does not include many members of the Senate. It also does not include key legislative leaders.

One of those is Senate President Rick Halford, R-Chugiak, who expressed skepticism Saturday about the list of measures.

''There are certainly plenty of things there for everyone to dislike,'' he said. ''Politically, it is difficult to change the contribution patterns of that many special interest groups all at once.''

Halford said some of the proposed revenue measures might have merit, but he cannot support a measure that would limit permanent fund dividends to $1,250. The dividends are an egalitarian way for Alaskans to benefit as owners of the states resources, he said.

The annual dividend check was worth $1,850.28 this year. Dividends are based on the fund's investment performance over the previous five years, and the stock market has been down. State officials project the checks will be down to around $1,500 after next year.

Some members of the fiscal policy caucus said the state has been handing out free money with the dividends while a budget crisis looms.

''For the past 20 years we have fostered this notion that you can get something for nothing,'' said Rep. Andrew Halcro, R-Anchorage.

The amount of the state's budget shortfall varies each year, depending on oil prices. This year it is expected to be around $900 million.

The budget gap exists because oil revenue, which accounts for most state income, has sharply dropped from the 1980s. Both price and production have fallen.

To balance the books the state uses its approximately $2.8 billion Constitutional Budget Reserve.

State officials project that reserve account will be gone late 2004.

Persily estimated that the draft revenue measures forwarded Saturday by the Fiscal Policy Caucus would delay exhausting the reserve account until late 2008.

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