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Murkowski, Legislature enjoy smooth session

Posted: Thursday, May 22, 2003

Republicans in the Legislature adjourned Wednesday - on time and for the first time in many years without the threat of a special session - giving Gov. Frank Murkowski much of what he asked.

But they balked at imposing a sales tax - the first statewide tax in three decades - to generate more revenues for state coffers.

As a result, Murkowski says he will make deeper cuts in the budget after the Legislature leaves town.

"The Legislature represents the people, and the will of the people, and the people say they want more cuts," Murkowski said. "And that's a pretty clear message."

The Legislature approved more than $20 million in added tax revenues to aid Alaska's immediate cash flow problems and several bills to spur future oil and gas revenues.

Democrats in the minority were quick to reflect on all the taxes that emerged as the GOP took control of both the governor's office and both houses of the Legislature. Murkowski's campaign theme stressed increased natural resources and not taxes, and many GOP lawmakers echoed that during their own elections.

"This has been a particular bad year for going back on campaigning," said Rep. Eric Croft, an Anchorage Democrat.

Alaskans will pay more to register their automobiles and a tax on new tires and studded tires that grind up Alaska roads. Other state government fees were also increased.

Overall, Murkowski said he was satisfied with what lawmakers accomplished this session, approving many of the bills he asked for to spur the state's flagging oil and gas development.

Lawmakers approved a severance tax credit of up to 40 percent of the cost of exploration wells. Administration officials estimate the credits could cost the state about $50 million.

They approved Murkowski's "one stop" permitting concept, making the state Department of Natural Resources the lead agency on permits.

They also approved a change in the state's public interest litigant laws - which Republicans maintain aid environmental groups in slowing economic development projects.

Public interest groups and citizens pressing for change could be forced to pay the state's legal costs if they lose cases, under the bill.

"We really have put the truth behind the old slogan, open for business,' " said Senate President Gene Therriault, a North Pole Republican.

Republican lawmakers also voted in $62 million in new revenues and agreed to liquidate the $86 million Alaska Science and Technology endowment.

One bill approved by lawmakers imposes a $2.50 tax on each tire purchased and a $5 tax on studded tires. The Legislature also gave final approval to a bill to impose a 10 percent tax on rental cars and a 3 percent tax on renting recreational vehicles.

Another bill, already signed into law, diverts about $45 million in royalty revenues from the Alaska Permanent Fund and into the state's general fund.

Budget director Cheryl Frasca said the administration estimates lawmakers were about $133 million over the cap imposed by Murkowski.

The administration had told lawmakers that drawing more than $400 million from the state's reserve fund will threaten its bond rating.

With the Legislature unwilling to approve a statewide sales tax, Murkowski said he would make the cuts needed to meet his spending goals.

"I will live by that basic premise, and we are working to try and determine what revenue sources we still have and what cuts will have to be made," Murkowski said.

But in the closing days of the session, administration officials were unable to win support among Republicans to approve a 3 percent statewide sales tax to stave off vetoes.

Democrats opposed it all along, arguing it falls too heavily on lower-income residents, and many Republicans representing areas with local sales taxes also were unwilling to vote for it. Another core group of ultraconservative Republicans were simply opposed to any broad-based tax.

Ultimately, the sales tax proposal floundered and died in a series of closed-door caucuses among Republicans and never surfaced for a floor vote.

Majority Republicans approved a fiscal 2004 budget that spends about $3.6 billion from state coffers and including a public works budget.

Both were approved over the objection of minority Democrats, which the GOP has previously had to count on for a three-fourths vote to balance the budget.

Without a deal from Democrats to borrow from the state's $1.9 billion Constitutional Budget Reserve, Republicans crafted a strategy to avoid the vote.

They shifted most of the money in the permanent fund earnings reserve account into principal so it is not factored into a complex formula calculating whether the Legislature needs a three-fourths vote.

Democrats - who complain Murkowski's tax proposals are regressive and his natural resource bills are industry "giveaways" - charged that this move could endanger dividends.

Dividends are paid from the earnings reserve and leaving only $100 million in it means it must be replenished by market gains.

Democrats were willing to trade their budget-balancing votes this year for a provision to guarantee dividends in the state constitution. No way, Republicans say.

"Instead of protecting the dividends, they are putting it at risk and there is absolutely no way we will be party to that irresponsible behavior," said Minority Leader Ethan Berkowitz.

Rep. John Harris, a Valdez Republican, said the danger of dividends being affected is minimal and he was critical of Democrats for not negotiating an end-of-session deal. Democrats fired back, saying the administration attempted to divide the minority party.

"I think that they intended for negotiations to fail all along because they are more intent on playing games and winning games than doing what is right for the state," Berkowitz said.

While the sales tax is dead for this year, House Republicans predicted the issue will be taken up again as the need for a broad based tax becomes more apparent.

"I think we are making a mistake by not doing that, and I think not having a fiscal plan is a mistake," said Harris, who co-chairs the House Finance Committee.



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