Caucus ponders taxes, earnings

Posted: Wednesday, February 27, 2002

The bipartisan Fiscal Policy Caucus is facing a crossroads on using its potential clout to move the Legislature toward a long-range fiscal plan.

The plan, as it was being refined this morning, could include an income tax and a draw from permanent fund earnings that would eat into inflation-proofing of the principal - two likely explosive elements that caucus members acknowledged won't boost their re-election campaigns.

The caucus, which includes a majority of the whole House but not of that chamber's Republican majority, is pressing for a House floor vote on a comprehensive revenue-raising package by March 20. And while meeting some resistance from House leaders, caucus members also say they're aware that the even more conservative Senate Republican majority is waiting for them to "implode."

"They want to divide us," said Rep. Peggy Wilson, a Wrangell Republican. "They just want to see us unravel."

"We have to keep reminding each other that we'll only succeed if we keep together," said Rep. John Davies, a Fairbanks Democrat who is co-chairman of the Fiscal Policy Caucus.

At Tuesday's closed-door House Republican caucus, leaders announced that they want to pass the next annual state budget before taking up a long-range fiscal plan, according to Reps. Andrew Halcro of Anchorage and Ken Lancaster of Soldotna.

Halcro and Lancaster said they and other Republican members of the Fiscal Policy Caucus are refusing to go along and if necessary will stress that the bipartisan group constitutes more than half of the 40-member House, an implicit threat to "roll" committee chairmen and other members of the leadership.

The concern is that with the budget gone, the Fiscal Policy Caucus would lose its leverage. Passing the budget requires a three-fourths vote to tap a key reserve fund, which brings the 12-member Democrat minority into play, as well. Thereafter, the fiscal caucus would be on the sidelines because it includes only one member of the Senate majority, Alan Austerman of Kodiak.

Senate President Rick Halford of Chugiak and Finance Co-Chairman Dave Donley of Anchorage have said repeatedly that the Senate won't initiate broad-based taxes this year. Instead, Republican senators are touting proposed constitutional amendments to put a cap on state spending, freeze state hiring and force the executive branch to come up with priorities for budget cuts.

While prospects in the Senate seem dim, fiscal caucus members said they need to move forward quickly if there's any chance of a long-range plan this year.

Today, a seven-member subcommittee met to draft a concrete plan to recommend to the full fiscal caucus.

The four Republicans and three Democrats, all from the House, settled on a 4 percent income tax, based upon federal taxable income. That is expected to raise about $360 million.

Even more controversially, the subcommittee members decided on a new approach to calculating permanent fund dividends that would cut the dividend and also reduce somewhat the long-term purchasing power of the overall fund.

They would base the annual payout on the average market value of the fund and its earnings, splitting the proceeds 50-50 between dividends and government.

In the first year, the overall payout would be 7 percent, above the 5 percent limit that the permanent fund corporation says would ensure inflation-proofing. That would yield $1.75 billion, or $875 million each for dividends and government, said Deputy Revenue Commissioner Larry Persily.

The payout percentage would drop to 6 percent in the second year and to 5 percent in the third and subsequent years.

Rep. Eric Croft, an Anchorage Democrat who recommended the phase-in, said that legislators will have to be honest with the public about the two years in which the permanent fund would not be completely inflation-proofed. But dividends also will be higher in those years than they would be at 5 percent, he noted.

The subcommittee also endorsed the dime-a-drink increase in the alcohol excise tax sponsored by member Lisa Murkowski, a Republican representative from Anchorage. That would bring in about $30 million a year.

The $1.265 billion revenue package, which is more than enough to close the fiscal gap next year, isn't yet complete, however. The subcommittee was to resume deliberations this evening on a cruise ship head tax, an increase in the motor fuel tax and increased contributions from the oil and gas industry.

The challenge for the Fiscal Policy Caucus is to keep members together even as details of a final proposal cause some of them concern. For example, Democratic Rep. Harry Crawford of Anchorage has expressed alarm at "permanent fund creep," in which the oil-wealth savings account keeps growing as a percentage of the solution being advanced by the fiscal caucus.

Halford, the Senate president, said Tuesday that any use of the permanent fund earnings for government should be off the table because one "political generation" already has spent 75 percent of the wealth from Prudhoe Bay. An attempt to take more through manipulating the permanent fund would suggest legislators are "jealous of our children," he said.

Bill McAllister can be reached at

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