Empire editorial: Alaska's budget woes pale by comparison

Posted: Sunday, May 04, 2003

This legislative season finds all but a handful of states facing budget shortfalls on an historic scale.

The crisis is so bad in Missouri that Gov. Holden has ordered every third light bulb in state buildings to be unscrewed to save money.

Missouri's Legislature is in gridlock, pitting a tax-advocating Democratic governor against a House and Senate controlled by conservatives who believe that taxpayers are burdened enough.

A story in the New York Times on April 21 entitled "States, Facing Budget Shortfalls, Cut the Major and the Mundane" detailed the extreme measures being taken to make ends meet.

Among the revelations: Teachers in Oklahoma are doubling as janitors. In Oregon teachers have agreed to work two weeks without pay. Kentucky is releasing prisoners early, and Connecticut is laying off prosecutors.

In Nebraska, 25,000 poor mothers have lost health care and tuition at state colleges has risen 20 percent in two years. Colorado has suspended property tax breaks for 120,000 elderly residents.

The Times story notes that as states battle the worst financial crisis they've seen since World War II, they are running out of options to meet an aggregated $100 billion in shortfalls. Financial reserves have been drained, retirement funds are at risk, tax exemptions are being canceled, windfalls spent and every sector that can be taxed, licensed, surcharged and assessed fees is fair game.

Gaming revenue schemes have proliferated over the past decade and additional gaming measures are in front of legislatures in half the states.

With the costs of state and federally mandated programs rising each year, most states have had to rely on deep cuts just to stay even.

The Band-Aids aren't enough to reverse the erosion of civic infrastructure such as roads, bridges, and state buildings or stem the decline of educational and social programs that enjoyed robust expansion in flush times.

With a budget gap approaching $34 billion, California perhaps has reached the point of no return. Democrats control the California Assembly and their proposed solution to close the gap is predicated on a sweeping array of targeted taxes and surcharges.

Under the plan, taxes and fees would be placed on light bulbs, diapers, dry cleaning, hunting and fishing licenses, marriage counselors, public colleges, mercury lamps, airplanes, bottled water, guns, bullets, cigarettes, cell phones, medical licenses, earthquake insurance, oil, satellite TV, nursing homes, landscaping, court documents, lumber, delinted cottonseed and library books.

In total, 117 proposals and bills would generate an additional $28.8 billion, most of which would be shifted onto the backs of California consumers and businesses already buckling under the weight of steep taxes and costs of doing business.

Certainly, if California had a Permanent Fund or Constitutional Budget Reserve, the principle and interest of these funds would have been exhausted long ago.

California has arrived at these dire straits because of the proliferation of new social programs during the flush years of the Internet bubble. The bust of the new economy combined with an energy crisis has forced California into a downward spiral it can't stop.

Alaska's fiscal crisis pales by comparison. Although long-term solutions have been elusive, reality is beginning to sink in on the hill. A proposal to levy a state-wide sales tax is gaining traction in the Legislature, and when combined with other user fees would generate an estimated $250 million annually.

The House Special Committee on Ways and Means is considering a change in rules governing the Alaska Permanent Fund, which could make hundreds of millions of dollars available annually while preserving the payment of an annual dividend on some level.

Ways and Means co-chair Jim Whitaker believes these two approaches along with a cap on state spending would put the state in a better position to meet its obligations without draining its savings accounts.

Another component is needed. Oil revenues account for the lion's share of the state's general fund budget. From the start of this session, the budget gap has grown by more than $65 million due to short-term fluctuations in oil prices. The state's budget process historically has been pushed and tugged by the fluid and unpredictable nature of oil prices, placing a great burden on the Legislature to make sudden, sometimes dramatic adjustments to the budget.

Lawmakers should at some point consider creating an escrow account for oil revenues that would dampen the short-term impact of oil price swings by establishing a five-year rolling average benchmark price the state would use for budgeting purposes instead of budgeting based on future projections. The account could be protected and earn interest in the same way as the Permanent Fund.

It would take a fortuitous combination of events for lawmakers to make a commitment to another "savings" account. However, if and when oil prices outstrip the budgeted forecast, some or all of the surplus could be socked away and over time the account could be fleshed out, thus putting an end to the rollercoaster ride.

It is important to note Gov. Murkowski didn't create the budget gap, he inherited it. He has demonstrated great courage in proposing budget cuts, targeted fees and tax measures that require hard choices. His proposals have provided the Legislature with a foothold to move closer to more substantive solutions.

The tax and user fee measures still need a lot of work and there isn't much time left in the session. The Permanent Fund proposal holds promise but will likely not move much further this time around.

At least Alaska has the luxury of budgetary choices, and opportunities for economic growth and there is still time to avoid the some of the financial pitfalls that have befallen nearly every other state.

Don Smith



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