Legislator pushes fiscal plan over fallback fund

Dumping budget reserve would force long-term planning, House Speaker says

Posted: Sunday, April 03, 2005

House Speaker John Harris wants to eliminate the $2.1 billion constitutional budget reserve and transfer the money to the Alaska Permanent Fund.

By voting in favor of the idea in the next general election, Alaska voters could force the Legislature to finally adopt a long-term fiscal plan, the Valdez Republican said on Friday.

For too long, the Legislature has borrowed from the constitutional budget reserve - a cash account created in 1991 to fund state programs during budget shortfalls - to balance the state's oil-dependent budget, he said.

Creating a long-term fiscal plan for the state is politically sensitive, and has been for at least a decade, because it likely would require new state taxes.

"We continually fall back on this crutch," Harris said.

Digging into the reserve - funded by proceeds from oil tax and royalty legal settlements - reached its highest point in 1999, when the Legislature borrowed $1.42 billion to balance its budget.

The cumulative draw on the constitutional reserve is now close to $5 billion, and under the state constitution, it must be paid back eventually, said Tom Boutin, a spokesman for the Department of Revenue.

This year, the reserve will not be tapped because of high oil revenue, which provides 50 percent to 80 percent of the state's income.

State officials have predicted the budget reserve will run out of money between 2009 and 2012. That prediction will be adjusted on Monday, when the state releases its spring revenue forecast.

Harris isn't the only legislator worried about the long-term consequences of borrowing from the budget reserve.

At least five legislators this year have launched ideas to tweak the constitutional budget reserve or the permanent fund to provide a stable revenue stream for the state.

Other legislators have proposed new state taxes - such as a head tax on residents of unincorporated areas to pay into education programs.

Harris' idea, which he described for the first time to the House Ways and Means Committee on Friday, requires a constitutional amendment that would go before Alaska voters during the next general election.

It's not the first time the Legislature has reviewed the idea, he said.

If the $2.1 billion is transferred to the permanent fund, the state obviously will still need to keep a cash reserve account, Harris said.

That can be done within the permanent fund. It only takes a simple majority of the legislative bodies to release those funds, he said.

In contrast, it takes a three-quarter vote to release funds from the budget reserve, which has allowed the minority party to drive a hard bargain and extract more money for projects, he said.

Committee member Ralph Samuels, R-Anchorage, said he approves of Harris' general idea but he would prefer transferring funds in the reserve to a new education or capital education fund instead of the permanent fund.

Rep. Eric Croft, D-Anchorage, plans to launch a proposal next week to transfer the funds from the reserve into a capital fund account.

Harris said he didn't have any significant objections to that idea. He said his main priority is to "take the crutch away" and force the Legislature to work on a fiscal plan.

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