My Turn: Approve fiscal plan now or watch state suffer

Posted: Thursday, April 22, 2004

Does the Legislature really need to act on a fiscal plan this year? The Alaska Conference of Mayors and Alaska Municipal League firmly believe the answer is, yes for effective public safety and well maintained transportation systems, yes for strong communities with reasonable local taxes, yes for good schools and university, and yes for a stable investment climate to keep jobs and attract new ones.

Despite higher oil price projections, the state estimates huge and growing state budget deficits in the range of $400 million to $600 million each year. In addition, balancing the state budget will require big new cuts to cover known cost increases to schools (especially state retirement program cost increases), federal Medicaid mandates, etc.

The state deficit also directly impacts your municipal services and local taxes by requiring communities and local taxpayers to "do more" while eliminating long-established municipal revenue sharing programs.

So what should we Alaskans do? There is a simple and workable solution that stops the heavy drain on Alaska's few remaining budget reserves with no negative impacts to Alaskans or the economy. This workable solution was recently proposed by Gov. Murkowski and Senate President Therriault, and is supported by a growing number of legislators and other state and community leaders.

The proposed solution is called percent of market value, or "POMV" for short. It:

• Doesn't take money out of the pockets of Alaskans, or take money out of the economy.

• Protects the permanent fund from overspending, and maintains a steady growth of the fund.

• Continues permanent fund dividends, in fact, at an amount considerably higher than they would be without the POMV (well over $1,000 instead of the projected $788 for 2005) for at least the first two years, then allows the dividend to grow gradually as the fund grows instead of dividends swinging wildly with market conditions.

Is it too good to be true? No. The permanent fund is a mature endowment fully capable of providing stable long-term revenue while continuing to grow steadily. As it was designed, the mature permanent fund is an incredible earning machine for Alaskans that far exceeds the possible revenue from any statewide taxes. For example, to equal the average 8 percent projected earnings of the fund (approximately $2.1 billion per year) would require a 21-percent state sales tax.

The percent-of-market-value plan is simply good financial management. This is why POMV is used by almost all universities and endowments that must provide stable annual support, while continuing to protect and increase the fund principle. In Alaska, both municipalities of Sitka and Anchorage have successful endowments managed on the POMV principal.

In short, the POMV proposal is simply:

• Permanent fund averages 8 percent earnings each year.

• 3 percent stays in the fund to inflation-proof it.

• Up to 5 percent may be spent annually on dividends and education.

Alaskans must consider the future of our main state revenues. First, the price of oil could drop at any time, as it has in the past, or federal spending could be reduced.

Alaskans must consider the economy and jobs in Alaska. Shaky state finances deter investments in industry, business, or even home buying.

If Alaskans don't vote this year, we can't vote until 2006, when it may be too late. A constitutional amendment, as proposed, can only be voted on every other year in a general election.

Oil production has declined by half, something Alaskans always knew would happen. We must not be like California that spent all of its reserves before admitting it had a fiscal crisis. Luckily, history shows that Alaskans are just better at working together in emergencies.

The time to act is now. Alaskans must stand together to ensure our children's future, our schools, our roads and parks, and our quality of life are preserved.

• Jim Cooper is the president of the Alaska Municipal League.



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