Governor's solutions not popular

Posted: Sunday, December 21, 2003

If comments offered this week by Kenai Peninsula state lawmakers are any indication, Gov. Frank Murkowski may have his work cut out trying to convince the Legislature to go along with some of the taxes and other provisions proposed in his fiscal year 2005 operating budget.

The new plan, released Dec. 16, would spend $2.25 billion from the state's general fund, a decrease of about $49 million from the current year. With federal fund expenditures and spending listed under "other funds" figured in, however, the new budget actually would exceed the current budget by $72 million.

Those figures do not account for Alaska Permanent Fund spending.

The budget aims to limit the draw from the rapidly declining Constitutional Budget Reserve account to less than $400 million.

As written, however, it would require a draw of almost $475 million.

Murkowski hopes make up the difference by raising about $78 million with new taxes, including a head tax on cruise ship passengers called a transient accommodations fee that could raise an estimated $32 million, and a $1-per-pack increase in the cigarette tax, expected to raise another $36 million, but which would give Alaska the second-highest tax on smokes in the nation, behind New Jersey.

Other ideas currently under consideration but not yet part of the budget proposal would levy fees on cruise ship gambling that could raise an additional $3 million, boost the state's take from pull-tabs for $2 million more, and add a fee for shore-side guided tour activities that could bring in another $5 million, according to a press release from the governor's office.

Murkowski said the budget can handle the expected $145 million in built-in cost growth, including increases in employee pay and benefits, formula-driven increases in health and social services programs, as well as increases in bonded debt payments, according to the Office of Management and Budget.

Murkowski also looks to cut some 400 state jobs, starting with those that currently aren't filled. But he intends to add jobs in some areas, including in the Department of Public Safety (more troopers), the Department of Law (more prosecutors and civil attorneys), in the Department of Health and Social Services and in the Division of Oil and Gas.

Sen. Tom Wagoner, R-Kenai, said he wasn't very impressed by the governor's revenue proposals.

"All in all, I hate to see piecemeal efforts in raising funds," he said Thursday. "Instead of taking the bull by the horn and doing one thing, we're doing a lot of little things again. I don't know if that will go over in the Senate."

He said he was not ready to buy into a cruise ship bed tax or an increase in the tobacco tax, either.

Federal law may prevent the cruise ship tax, he said.

"Is the administration trying to find a way around federal law? I don't know if that's going to pass muster," Wagoner said. "We need to find some way for the cruise ship industry to help fund Alaska, but a bed tax may not be the way to go about it."

Rep. Paul Seaton, R-Homer, last year introduced House Bill 320, which would reverse an exemption from corporate taxes granted by the state. A few years ago, the state won a court case establishing its right to tax cruise lines for the profits they made in Alaska waters. The Legislature then exempted cruise line corporations from such a tax. Seaton hopes to change that.

High oil prices may help meet the budget demands. Prices have been above $30 a barrel for some time. Friday, Alaska oil was selling for $31.79 per barrel.

Sen. Gary Stevens, R-Kodiak, called the current high prices "fortunate for the state," noting that those prices already have reduced the expected draw on the Constitutional Budget Reserve due at the end of this fiscal year.

But he also said Murkowski's budget appeared to be based on continuing high oil prices, for which there are no guarantees.

Wagoner said he's heard estimates that Alaska oil might hit $40 per barrel.

"If that happens, the Legislature should be very careful. Knowing the Legislature as I do, they could get into a feeding frenzy," he said. "The proper thing to do is to leave the CBR alone and don't draw anything from it. As a matter of fact, we should put money back into it."

John Manly, Murkowski's press secretary, said the governor was more than willing to put money back into the CBR if conditions allow.

Cities and boroughs should forget about a return to the days of municipal assistance and matching grant programs, Wagoner said. Capital spending, in general, would offer only "slim pickings," he said, though he also predicted there would be some capital money afloat, because 2004 is an election year.

Rep. Kelly Wolf, R-Kenai, said he had "grave concerns" with the governor's budget, decrying the apparent spending increases when lawmakers are attempting to hold the government more accountable.

The proposals he's seen to downsize government by eliminating hundreds of jobs around the state don't go far enough, he said.

"There are other areas where we could make adjustments to reduce government," he said. "One area is to phase the sportfish and commercial fish divisions into one division."

Wolf said he didn't see how increasing the cigarette tax by a $1 per pack could fly. It has "created a firestorm" already, he said.

He also questioned the legality of the proposed cruise ship tax. All in all, he said, the taxes proposed by the governor, were "not going to get us where we need to be." He called Murkowski's budget a starting point.

"It's the governor's job to propose a budget, and it is ours to oppose it," he said.

Wagoner said he wasn't happy with the governor's proposal to fund education at current-year levels. That's not full funding for schools, in Wagoner's opinion.

"That may be fine for some districts," he said, "but not for ours."

The Kenai Peninsula Borough School District has been urging state lawmakers for years to adjust the state's Foundation Formula with which it calculates how much to give each school district. Borough school officials say the peninsula district has been shortchanged under the current formula.

"There are a lot of inequities," he said.

Seaton said he expects there to be general support for an education tax of perhaps $100 a year per worker in Alaska, resident and transient.

"We have to do something that has some general significance to it," he said. "I hope that would generate some common interest."

Seaton also said he was glad the proposed budget wasn't asking for the $250 million in cuts the governor had suggested in June that he might seek. Cuts and vetoes in the current budget were felt widely across Alaska, especially in the loss of aid to municipalities and the end of the Longevity Bonus Program. Wagoner warned that Alaska's aging population shouldn't count on seeing the bonus program return.

Wagoner predicted a push for a constitutional spending limit this year.

"It's got drawbacks, but it stops the Legislature from overspending when they get a windfall," he said. "It will be one of the first bills introduced in the Senate."

Stevens said it was important to view the governor's budget as transitional. It does not deal with the fact that the CBR is going to run out in 2007, nor address other possible, but controversial revenue sources.

"At sometime in the future, we need to think about the permanent fund, or sales taxes or income taxes," he said.

Rep. Mike Chenault was traveling Outside and unavailable for comment, but he told the Anchor-age Daily News last week he did not like the idea of targeting smokers with an increase in the tax on cigarettes.

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