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Alaskans need a fiscal plan

Posted: Friday, November 30, 2007

G ov. Sarah Palin is asking Alaskans what to do with surplus revenue expected under her new tax plan for the oil industry. She will get two answers: Save it for a "rainy day." Spend it on "my pet project."

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If the state had come up with a fiscal plan, as politicians have been advocating since statehood - but doing nothing about - there would be an answer to the governor's question. There might not even be the question.

The directors of the Alaska Permanent Fund have offered a partial fiscal plan for years: Keep putting money in the principal of the fund, along with its earnings. Then each year take out 5 percent of the gross value of the fund for supporting state, and possibly local governments.

It will take an amendment to the state constitution to convert the permanent fund to that type of operation employed by most foundations.

Every year since the fund was created, earnings have exceeded 10 percent. Taking out 5 percent each year allows 5 percent or more to remain in the fund to offset inflation.

That 5 percent withdrawal - about $2 billion as the fund now stands - could pay dividends to Alaskans greater than this year's dividend if 50 percent of that 5 percent ($1 billion) was used for dividends. And it would go up each year.

The other 50 percent of that 5 percent (the other $1 billion) can go to cover government costs to avoid reinstating the individual income tax. There also is enough to retire bonds to build the infrastructure as the governor suggests, and that some Alaskans will tell her they want.

Rather than pay cash for projects, sell bonds to pay for them. The state would obtain a good bond rating with its assets, meaning that it would pay only 5 or 6 percent on bonds, while earning 10 percent or more on its revenue, judging by the permanent fund's record. When the bonds are paid off in 20 years, Alaska has its infrastructure and its original money.

To pay cash for projects, as some advocate, saves the interest on bonds, making projects cheaper, but it also dissipates the revenue so there are no more earnings to pay for upkeep of the new infrastructure.

Projects financed by bonds must be started within three years, meaning that in addition to a state fiscal plan, Alaskans need a state development plan designating which projects in the first three years, which next and so forth.

Another advantage of bonds is that they have to be approved by the voters, meaning projects must be spread statewide to gain approval.

Access is the most important infrastructure need for economic development.

For better access, Southeast and Western Alaska need improved ferry service. That means new ships designed for traffic patterns changed since the system was started 40 years ago.

Southeast needs better highway access such as north out of Juneau, and eventually a road up the Bradfield Canal to the Canadian and continental highway systems.

Another important need is affordable energy for all communities in the state. It's appropriate that some of the state's oil revenue be used to reduce the impact of high oil prices on Alaskans. That means bonding to finance alternate energy sources and power grids.

Some Southeast villagers pay 50-55 cents per kilowatt for power compared with 7-9 cents in towns with hydroelectric.

Improved access and lower energy costs for rural Alaska are imperative, or communities dry up as people move to where living is affordable. That changes the political representation in the Legislature after reapportionment in 2010.

Juneau is expanding its Snettisham hydro with the addition of power from Lake Dorothy. There is a phase two that increases the Lake Dorothy potential. There is renewed interest in the hydro-electric power from Thomas Bay near Petersburg.

Former Gov. Frank Murkowski obtained federal approval for a Southeast power grid when he was in the U.S. Senate. It is time for the state to encourage or to build that grid to make affordable energy available throughout the Panhandle.

To do that and to encourage or build energy projects in the rest of Alaska, it is obvious that the state needs an energy coordinator with some authority.

The governor has the right idea in seeking suggestions. Maybe she will be the politician to finally come up with a fiscal plan and a development plan for Alaska.

• Contact Lew Williams Jr. at lmwjr@worldnet.att.net.



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