Oil prices chip at budget gap

State's fiscal reserves still expected to be depleted by 2004

Posted: Monday, April 15, 2002

Higher-than-expected oil prices have trimmed the state's recurring budget deficit but not enough to avert a fiscal meltdown in 2004, according to the spring revenue forecast.

And lawmakers who want a long-range fiscal plan say the pressure is still on.

The Department of Revenue projects North Slope oil will average $20.50 a barrel in fiscal year 2003, which begins July 1, and $19.50 a barrel in fiscal year 2004. That's compared to a historical average of $17.50. The 2003 projection is up $1.70 from the department's fall forecast.

Oil is the revenue source for nearly 80 percent of state general fund spending.

Assuming stable budgets, the department now expects the fiscal gap to come in slightly under $1 billion in 2003 and slightly over in 2004. The Legislature, without new revenue, could plug those gaps by drawing from the dwindling Constitutional Budget Reserve.

"At those projections, the budget reserve will run out of money in October 2004," Revenue Commissioner Wilson Condon said in a written statement. "The higher (oil) prices are certainly good news, but they reduce the total three-year draw from the budget reserve by only $143 million for fiscal years 2002-04."

Some of those in the House who favor a long-range fiscal plan said this morning, before hearing the new numbers, that there shouldn't be any lessening of resolve to come up with new revenue.

"I still think it's high time we address the long-term fiscal problem of the state," said House Rules Chairman Pete Kott, an Eagle River Republican.

"The problem is there; we have to deal with it," said Fairbanks Republican Rep. Jim Whitaker, sponsor of a bill for a 3 percent sales tax.

But Rep. Beth Kerttula, a Juneau Democrat, said that if the Middle East crisis worsens and oil prices spike, there could be more resistance to raising new revenue. "I'm learning that inertia is a great force."

The negotiating team of Kerttula and fellow House Democrats Gretchen Guess of Anchorage and Mary Kapsner of Bethel has asked the Republican majority to expedite consideration of revenue issues, with floor action by Wednesday, if possible.

"We know 15 members of your caucus must agree to move any plan to the floor, and we have heard you may have the 15 votes you need," they wrote Friday to Whitaker, House Speaker Brian Porter of Anchorage and Finance Co-Chairman Eldon Mulder of Anchorage. "We want to advance a fiscal plan."

The Democrats said they have at least eight votes for a package including a 3 percent income tax, a nickel-a-drink increase in the alcohol excise tax and a cruise ship head tax of $50. Those measures would raise $350 million.

There reportedly are six Democrat votes for an income tax and sales tax of 1.5 percent each, a $25 cruise ship head tax, a dime-a-drink alcohol tax and a nickel increase in the motor fuel taxes. That would raise about the same amount.

Waiting in the wings are two bills, favored by many House Republicans, that would tap permanent fund earnings.

One of them, which would base payouts from the fund on average market value, would raise about $900 million in its peak year and about $700 million most years. The bill was held up in the House Rules Committee this morning, partly because Democrats want to know what taxes will be proposed first.

Democrats say there must be some "progressivity" in taxes affecting higher-income Alaskans more before they can vote for "regressive" measures that would lower permanent fund dividends.

"I'm not so certain that there are 15 votes" for any taxes, Kott said. And there would have to be a combined 21 votes before anything goes to the floor, he said. "We're not going to go out there and spin our wheels."

The House debated income and sales taxes for more than four hours March 27, with no resolution. An income tax was defeated 22-17, but the sales tax also lacked votes for passage and was sent back to the Rules Committee.

Kott said within the Republican caucus there might be some support for Whitaker's sales tax, a nickel-a-drink alcohol increase and a $100 employment tax.

Whitaker said he's "open to any plan that works."

Bill McAllister can be reached at billm@juneauempire.com.

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