Deal with the fiscal gap

Alaska editorial

Posted: Monday, January 14, 2002

This editorial appeared in Sunday's Fairbanks Daily News-Miner:

A possible fiscal crisis has been looming over the state of Alaska for many years now. But state leaders have been more than willing to let the issue slide rather than face the hard decisions necessary to find a long-term solution.

With the 2002 legislative session set to kick off Jan. 14 and the fiscal gap looming larger - and closer - than ever, legislators have no choice but to make this long-neglected issue a top priority for the session.

The problem is relatively simple - the state spends more than it takes in. The budget is heavily dependent on oil revenues, which have been on the decline due to dropping prices and production. In order to fill the gap between the spending necessary for government services and actual revenues, the state has been relying on the $2.6 billion Constitutional Budget Reserve.

Unfortunately, that has been nothing more than a temporary delay tactic. Simply stated, the reserve is a savings account, not an endless pot of money. When it is gone, as it soon will be, the question of how to fund state government returns. The Department of Revenue predicts that by 2005 the reserve will be completely drained, leaving a $1 billion budget hole to fill.

Because 2005 is a still few budget cycles away, it may be difficult to see the need to address the issue now. Consider this: When legislators come back to work this week, they will be putting together the 2003 budget. That means there are only two years left before the state has drained the reserve and we are forced to make even more difficult decisions about what necessary services should be cut.

In order to fill the fiscal gap, the state will have to find another revenue source, and several ideas are out there. Sales tax. Oil and gas tax. Employment tax. A cap on permanent fund dividend checks so that a portion of permanent fund revenues can be redirected into the state's general fund.

The best and most painless answer probably lies in some combination of these or even in other possibilities. It might not be popular, but the time to find a solution is now - truthfully, it should have been done years ago. If Alaskans want to wait until we hit that financial brick wall, there won't be long to wait. The time is now for Gov. Knowles and the Legislature to push this issue forward so that it can be fully addressed.

It might be tough for politicians to vote in favor of levying a new tax or two, particularly during an election year. But it will be much more difficult to vote in favor of cutting spending for schools or senior citizens or any other vital program, should that become necessary.

Right now, we are heading full-speed ahead toward a financial brick wall. Changing course is going to take some time. While it may not be possible - or popular - to completely solve the state's financial problems within this one session, it will soon be too late if there is not at least a start.



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