Hidden costs of closing fiscal gap

Empire editorial

Posted: Sunday, March 03, 2002

The monumental challenge of balancing Alaska's checkbook without dipping into the state's savings account is moving forward or being stalled depending upon who you talk to. Accusatory fingers are being pointed at the Senate majority leadership for choosing to take a step back from solving the revenue side of the puzzle while Gov. Knowles' $7.3 billion budget is scrutinized for trimming.

House Finance Committee Co-chair Eldon Mulder defends the delay by pointing out that Alaskans should be assured that our financial house is in order before they are asked to accept more taxes or less money from the Permanent Fund.

Fiscal Policy Caucus champion Bill Hudson and others are frustrated by the delay, noting that the clock is ticking and that if real action is to be taken this session, a workable, bi-partisan plan needs to coalesce soon. The caucus wants a house vote on a plan by March 20. Hudson deserves a great deal of credit for being the first lawmaker in the state to cast aside concern for his own political future to tackle the unpopular and, so far, thankless job of making hard choices for long-term fiscal responsibility.

Hudson acknowledged last week that if a solid plan doesn't emerge in the next 30 days, the ax would begin to fall on needed programs and services. Already we've learned that the Marine Highway System may see drastically reduced service as early as this summer if full funding isn't supported by the Legislature.

Forward progress is being seen, however, on several fronts. In the court of public opinion, acceptance of the scope and gravity of the financial crisis is gradually beginning to sink in. The Fiscal Policy Caucus has identified a wide variety of revenue generating ideas, some good, some not so good. Conservatives are pushing a plan to force the state to balance its budget each year. The process is understandably contentious because there is so much at risk and it is nave to believe that politics can somehow take a holiday. Not in Alaska.

The idea of generating revenue by instituting a state-wide sales tax would create a lot of problems for municipalities as local sales taxes constitute a very important source of local revenues and local sales tax rates vary widely throughout the state.

The once sacred Permanent Fund is undoubtedly going to have to be tapped to fund government services. Hudson proposes changes to the annual payout formula and wants to consider splitting the proceeds from the fund 50-50, with half going to dividends and half to government.

This solution makes good sense, however, some thought should be given to the implications of removing $600 million each fall from consumers' discretionary spending. The effect will ripple through local economies and be especially hard felt among low-income families.

Leaders from other states look upon Alaska's wealth of natural resources along with the $25 billion trust fund and scoff at the notion that we are facing a fiscal crisis. No other state has enjoyed the luxury of distributing this sort of wealth among its population.

Alaska has matured beyond the boom and bust cycles of its vibrant early development years and must come to grips with the same reality every other state has long ago faced in constructing a stable foundation from which to fund the operation of its government.

Alaska has the highest per-capita government spending of any state because its small population is spread out over so much geography, and because the state must provide many services that are typically funded by local jurisdictions elsewhere.

Although time is of the essence, it may well be wise to take a few days to examine spending controls before we make irreversible commitments on revenue generating methods. Many states have established effective controls to ensure a balanced budget. Spending caps tend to hold in check the natural tendency for the state's bureaucracy to grow.

Alaska may well be successful in reining in the size of state government and eliminating deficit spending, however, there is usually a hidden cost for achieving this level of responsibility. Most states that have enforced spending caps have seen the reduction in state-sponsored programs and services translate into increased costs to local municipalities, which in turn means higher local taxes and greater costs to do business.

Abundant opportunity will continue to be visible in Alaska's horizon. However, the days of freedom from taxation and fat PFD checks have passed. The days of unbridled economic development also have passed. Alaska will now have to get serious about pushing responsible economic development to avoid putting too large a burden on this generation and further generations of taxpayers. Alaska will no longer be a haven for those seeking free money and a shelter from taxes.

If we had listened to Bill Hudson's warnings sooner, we wouldn't find ourselves in the precarious position of making momentous decisions in the eleventh hour.

The people of Alaska should know and appreciate the serious work that all members of both houses are doing. They deserve respect and support for their commitment and dedication.

Don Smith

dsmith@juneauempire.com

586-1428



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