Fiscal Policy Caucus weighs challenges

Capitol Notebook

Posted: Sunday, April 01, 2001

The Fiscal Policy Caucus is gaining members and momentum.

The bipartisan and increasingly bicameral group held its first work session Friday, after organizing on Tuesday as the only legislative body that seems interested in moving forward on a long-range fiscal plan.

"Holy cow!" exclaimed Rep. Reggie Joule, a Kotzebue Democrat, when he entered the hearing room Friday and saw the audience, which appeared to peak at around 60 to 70 people. Included were at least 27 legislators - 15 Republicans and 12 Democrats; 21 representatives and six senators.

The Democratic minority sent two-thirds of its members, both from the House and the Senate. Republicans contributed 13 of 28 from the House majority, but only two of 14 from the Senate majority. Slightly more than half of the House was there, but slightly less than a third of the Senate.

The administration was heavily represented, with officials from the Alaska Permanent Fund Corp., the Department of Revenue and the office of Democratic Gov. Tony Knowles.

But while participants were gratified by the rapidly intensifying interest in resolving the state's fiscal gap, discussion of the challenge ahead didn't leave anyone sounding cocky.

"We know that a lot of the answers are going to be difficult to swallow," said Rep. Bill Hudson, a Juneau Republican who is one of three co-chairmen of the caucus.

Revenue Commissioner Wilson Condon said there's little prospect for the oil industry bailing the state out again.

The state already has collected the major accounts receivable that go into the Constitutional Budget Reserve, the fund that lawmakers have been siphoning off each year to balance the budget. The reserve, about $2.9 billion as of Friday, will be tapped for about $470 million in the next fiscal year and faces depletion by 2005-06.

Meanwhile, the surge in oil prices that's balancing this year's state budget without a CBR drawdown won't last, Condon said. He projects an average oil price of $27.61 a barrel for this year. That would have to increase to $30 to balance next year's budget and to $48.50 to balance the budget in 2010, he said. Instead, the department projects a price of $17.30 by then.

And don't look for a natural gas pipeline to put off the day of reckoning, Condon said. "We don't think it's likely that the gas pipeline will be completed in time to keep us out of the red." The most optimistic scenario is that when the pipeline is up and running, gas taxes and royalties would bring the state $350 million a year, compared to a projected budget gap of $1 billion, he said.

It gets worse.

Once the CBR is gone, "It's not just a hole in the budget; it's a hole in the economy," Condon said. Whether through budget cutbacks, elimination of the permanent fund dividend or tax increases, the money to fill the gap will be money taken out of the economy, he said. "Our economy will suddenly shrink suddenly and substantially."

That's a macroeconomic argument for using excess investment earnings of the permanent fund for government operations, which would bring Wall Street money into the state, Condon said. Along the same lines, he said an income tax is better for the economy than a statewide sales tax because state income taxes are deductible on federal forms.

With the Oscars out, it's time for a political theater roundup:

"Crouching Elephant, Hidden Caucus" - Republican majority's closed-door meetings on budget caps trigger surreal acrobatics on House floor.

"Ethan Berkowitz" - Busty legal secretary takes on utility company and - wait, wrong script. Here it is: Quick-witted House minority leader mixes humor and trenchant rhetoric in the face of often-overwhelming political disadvantage.

"O Capital, Where Art Thou?" - This remake bored audiences even in Anchorage.

"Gas Highway" - The governor, sans soccer ball, relentlessly pursues a fait accompli on pipeline route.

"Taxraiser" - Rep. Hudson enters arena with income tax proposal. Surprise ending: He's still standing.

Quote marks:

"When my wife tells me I 'may not' do something, I understand it's imperative." -- Rep. Fred Dyson, Eagle River Republican, commenting on the force of the statutory phrase "may not"

Bill McAllister can be reached at

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