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2-27-02 Royalty Sale Background;
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opens, 7-01, and
closes, 5-02;
Betty Galbraith's
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CANADA:
1-10-03, "Arctic Gas Pipeline
Construction Impacts On Northern Transp."-Transport Canada-PROLOG Canada
Inc.-The Van Horne Institute;Hill
Times Reports, 8-30-02;
9-30-02, Cons. Info. Requirements;
CBC Archives, Berger Commission;
GNWT Economic Impact Study,
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GNWT-Purvin & Gertz Study, 5-8-02;
Alberta-Alaska MOU 6-02;
Draft Pan- Northern Protocol for
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Yukon Government Economic Effects:
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Mackenzie Valley Pipeline MOU
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FirstEnergy Analysis: 10-19-01;
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National Post on Mackenzie
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Haida
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Indian Claims Commission;
Skeena Cellulose decision --
aboriginal consultations required, 12-02;
Misc. Pipeline Studies '02
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APG Newsletter: 5-02,
7-02
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9-02;
ArctiGas NEB PIP Filing Background;
NRGPC Newsletter: Fall-02;
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BP's Natural Gas Page;
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MEDIA
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LEST WE FORGET!
| |
Northern Gas Pipelines:
Anchorage Daily News
Special Series Of Editorials on Solving Alaska's Fiscal Crisis.
Opinion
(Published: May 19, 2002)
The price of failure
All Alaskans will pay more to put fiscal house in order
The Legislature went into overtime this past week but only to finish what
it should have done in regulation.
The House of Representatives, to its credit, not only finished its budget
work but approved a long-range fiscal plan that, while flawed, was workable.
The Senate majority refused to do any serious work on a long-range fiscal
plan -- despite repeated calls from economists, business leaders and the
administration -- and spent more money to stay in session and finish the
budget.
These are conservatives? By what Alice-in-Wonderland measure?
The Senate's overtime tab would be well worth the cost if members were
crafting an intelligent, long-range fiscal plan. They could be refining the
House measure and slowing the hemorrhage of state savings -- what you would
expect from tough, savvy conservatives. Instead, they're indulging in
cost-overruns to do the minimum, the only thing the Alaska Constitution
requires them to do, pass a balanced budget.
For months there has been a rough consensus outside the Capitol that the
long-range budget question was by far the biggest issue. If the Legislature
did nothing else but fix it -- or even just make a credible start -- the
session would have been a success. If the Legislature did nothing, the
session would be a failure. Tough grading system. But fair.
The House passed. The Senate failed. Alaskans will pay.
Here's why.
We've squandered another year. The Constitutional Budget Reserve is
pegged to run out in 2004. Then what?
Hard times, one way or another. We're already running close to a
billion-dollar deficit -- and oil prices are high. When we hit the wall,
pick your poison: Former Gov. Jay Hammond fears we'll kiss the Permanent
Fund dividend goodbye. That would pull more than $1 billion out of Alaska's
economy. Or perhaps we would see a stiff statewide sales tax or an income
tax with rates much higher than those passed this year by the House. Or
both.
Or far-right politicians like Rep. Vic Kohring might get their way and
have the state budget slashed by hundreds of millions. Some Alaskans savor
the thought -- until they begin to see that the torch would burn up
businesses, jobs and opportunities. Maybe their business, their job, their
children's opportunities.
Economists like Scott Goldsmith and business leaders like bank president
Marc Langland have urged the Legislature to act now to make sure this
economy doesn't crash, to make sure that thousands of people aren't hurt, to
make sure we have the means to build Alaska.
Like it or not, government -- state, federal, local -- is a major part of
Alaska's economy. The Permanent Fund dividend is a government program,
passed by the Legislature, administered by the Department of Revenue.
If we want to keep this economy growing, we need state services. We need
to be smart in where, when and how we trim them. If we want to keep this
economy growing -- and encourage more private enterprise so that we're less
dependent on government -- we have to be smart about where when and how we
invest state money.
And above all, we have to be willing to pay for these services, make
these investments. We have to pay more of our own way just to maintain our
economy, let alone develop it. That will hurt. The Senate could have eased
the pain with a dose of leadership. Instead, the Senate bought time. On our
money. |
Opinion
(Published: April 14, 2002)
A better future
Fixing the fiscal gap is key
Last in a series
Alaska's journey into the 21st century has begun on shaky legs. Though
the economy is generally strong, major industries -- fisheries, tourism,
even oil -- are struggling. Our politics are wracked by bitter partisanship
and drift. State government is a mainstay of our future, yet financially
unsound. Only federal spending and the long-run growth of the Alaska
Permanent Fund stand out.
And a long-term fiscal gap of $1 billion per year threatens to shorten
the long arc of opportunity provided by North Slope oil development. Though
revenues from Prudhoe Bay and other nearby fields give us a huge head start
in meeting Alaska's needs, they aren't enough to carry the whole load
forever.
The most important thing we can do to improve our prospects is fix the
fiscal gap. We have the tools. Together, as Alaskans, we must make it our
business to do so.
Events in the Middle East have pushed the price of oil back above $20 per
barrel -- $22.38 and falling at Friday's close. This is both a stroke of
luck and a temptation to fool ourselves. It does not change the long-term
fundamentals, which show a continuing decline in oil production and
revenues. The North Slope produces half as much oil today as it did in 1990
and projections show that decline continuing. The state budget deficit still
hits $1 billion a year for as far ahead as we can see.
We are way ahead of most natural resource economies because we have more
tools and more wiggle room. The Alaska Permanent Fund is a $25 billion
treasure, the envy of every other state. We are not overtaxed now; in fact,
we are hardly taxed at all. Our single biggest expense is giving money away.
Most industries are largely untaxed and, even in decline, oil probably could
contribute more.
So far we are simply refusing to use the tools we have. But they are
available if we can summon the leadership and vision to wield them. Our
budget problem is fundamentally more political than economic. The reason it
hasn't been solved sooner -- when it would have been less painful -- is that
no political consensus exists on how.
On these pages for the past week we have explored a package of solutions
we believe would remedy Alaska's budget troubles with the least long-term
damage to both individuals and the overall economy. The package includes a
progressive income tax (worth $350 million), use of Permanent Fund earnings
($500 million to $600 million), smaller user fees and taxes ($100 million)
and, after all that, reworking oil and gas taxes ($100 million). After a
decade or more of budget cuts, the focus now must shift to the revenue side
of the ledger. This package does so in a broadly balanced way.
The overarching principle is simple: Balanced contributions from several
sources will do the least harm and position us best for future growth. The
package is essentially conservative -- it aims to change our economy as
little as necessary while spreading the burdens of that change as broadly as
possible. It also aims to work these changes in as progressive a manner as
possible -- to ask the strongest among us to pull the biggest oars.
Time is against us. The longer we wait, the harder we'll fall. The hope
of another windfall -- ANWR, missile defense, an even bigger price spike
from spreading war in the Mideast -- does not lessen the urgency to act now.
The case for these changes is largely negative -- avoiding a recession
that is likely if we don't put our fiscal house in order before reserves run
out in late 2004.
But there's also a more positive case revolving around changing our
political habits. Instead of the long, tired argument over how much spending
is too much, we need a broader vision of how to build for the future. The
starting point for that discussion is a sound fiscal order.
Without a balance between spending and revenues we can't make intelligent
decisions. We can't make new investments in good ideas or confidently divest
of bad ones. We become stagnant and reactionary -- afraid to change,
unwilling to dream, immune to opportunities, ever more aware of the state's
shortcomings. Without sound fiscal foundations, state government is stuck in
anxiety and decline. With them at least there's the chance to make
responsible choices and chart future progress.
The fiscal gap is ultimately a test of whether Alaska can hold onto
enduring gains built on Prudhoe oil revenues. Those revenues can't carry us
forever, much as we wish they might. The failure to create a lasting
alternative, and the failure to build a sound fiscal structure, eventually
would wash away the gains of the oil era. And because the solution requires
everyone to give a little in order to avoid losing a lot, the fiscal gap is
a test, too, for whether we can rise above self-interest to achieve the
common good.
An honest solution would do more to restore confidence in Alaska's future
than any other step lawmakers could take. It would improve the climate for
investment and growth. It would leave a better foundation for state
services, and give all of us some assurance that the decline of the past
decade will not be permanent.
And it would overcome the notion -- apparently accepted by too many
politicians -- that Alaskans will not accept the changes needed to prosper
in the 21st century. We believe just the opposite is true. Alaskans have
come to understand that we're at a crossroads: We need to fix the fiscal gap
soon or we'll betray not only our own prospects, but those of our children
as well.
Sunday: Principles of a fiscal plan
Monday: The parts of a fiscal plan
Tuesday: Thinking about spending
Wednesday: An income tax first
Thursday: What's the Permanent Fund for?
Friday: Rethinking the dividend
Saturday: User fees and other revenues
Today: Positioning Alaska for the future |
Targeted taxes
(Published: April 13, 2002)
Alcohol, gasoline, cruise levies are part of solution
Seventh in a series
The state's financial situation is so serious that the repair job
requires many different tools. Unless an income tax is pushed to onerous
rates, it will fill only about 30 to 40 percent of the state's $1
billion-a-year hole.
An important contribution -- roughly $100 million -- can come from three
targeted tax measures: increasing the alcohol tax, increasing the motor fuel
tax and setting a new tax on cruise ship passengers. These taxes would
diversify and stabilize Alaska's revenue base and help balance demands on
Alaska citizens and industries.
ALCOHOL TAX: Raise it a dime a drink
Increasing the state's alcohol tax is a two-fer -- it's a way to raise
revenue and it's good public health policy.
Dealing with the fallout from alcohol abuse -- assaults, drunk driving,
domestic violence, fetal alcohol syndrome -- costs the state hundreds of
millions of dollars. The alcohol tax recoups only a small share of those
costs. The state collects about $12 million; the cost to state and local
governments for alcohol-related crime is at least $146 million. The bill is
even higher if government health care costs are included.
The state's excise fee on alcohol hasn't been increased since 1983.
(Alaska charges a flat fee per gallon of alcohol, rather than a percentage
of sales price.) Raising the price would help reduce consumption, especially
among under-age youths, who tend to be more price-sensitive.
Considering all the social costs associated with alcohol, a state
criminal justice advisory panel recommended increasing the state's alcohol
user fee by 25 cents a drink. The 10-cent-a-drink proposal being considered
in the state House is, if anything, too low. It would boost state revenue by
$30 million, still well short of the state's costs.
The alcohol tax is really a user fee. When alcohol is widely consumed,
abuse is inevitable. Dealing with that abuse is costly, and it's unfair to
shift so much of the costs onto non-drinkers. Those who drink should pay a
larger share of the bill.
GASOLINE TAX: Raise it to the national average.
At 8 cents a gallon, Alaska has the lowest motor fuel taxes in the
country. In other states, the average tax on a gallon of gasoline is 24
cents. By charging 24 cents a gallon, Alaska would collect another $48
million.
The gas tax is another user fee. Alaska roads are notoriously expensive
to build and maintain. Federal money pays 90 percent of major construction
and overhauls, but plowing and patching are done with state funds. This
year, the House passed a budget drastically cutting road maintenance. A
higher gas tax could provide money to improve road maintenance instead of
cutting it.
The number one source of air pollutants in Anchorage and Fairbanks is car
exhaust. Increasing the gas tax would help cover some air pollution
enforcement costs. It also would make public transit and car-pooling more
cost-competitive with single-passenger car traffic; that, in turn, would
help reduce auto pollution.
On the downside, a big gas tax increase would fall hardest on those
already struggling to get by. It would take a constitutional amendment to
guarantee that any gas tax increase is used to improve road maintenance. The
gas tax is also the least popular -- by far -- of Alaska's revenue options,
according to opinion polls.
Nonetheless, the state's road maintenance is poor and it's going to get
worse. Someone else -- the federal government and oil tax dollars -- have
paid most of the bills for Alaska drivers on the road. These days, the state
will have to scrounge for money just to maintain services, let alone improve
them. Alaska drivers have gotten a bargain on taxes at the gasoline pump for
a long time. Having such low taxes on gasoline and diesel is a luxury the
state no longer can afford.
CRUISE SHIP TAX: Charge $50 per passenger
Tourism is one of the state's largest industries, but it produces little
income to the state treasury. The main way the state collects revenue from
tourism is the corporate income tax, but the Legislature has exempted the
largest cruise ship companies from that tax.
Charging each cruise ship passenger brings in new money from out of
state, rather than taking it from Alaskans' pockets. For that reason, it is
one of the most popular revenue proposals. A $50 fee per passenger would
raise about $33 million a year.
Taxes on cruise passengers are common in other jurisdictions. The state
should take advantage of this readily available opportunity to raise revenue
from one of the state's largest industries.
THE BOTTOM LINE:
All three of these revenue measures are reasonable user fees. The use of
alcohol inflicts heavy costs on society and the state treasury; a higher
alcohol tax helps repay those expenses. With the gas tax increase, motorists
would pay more of the bill for maintaining and improving the roads they
drive on. Cruise ship passengers use the beauty of Alaska but pay nothing
toward the state's costs for stewardship of our natural splendors. The $100
million available from these three sources will make a small but useful
contribution to a long-term fiscal plan. |
Phase back the dividend
(Published: April 12, 2002)
But there's no need to kill it
Alaska draws about $1 billion a year from savings to support state
services at current levels. At the same time, we spend about $1 billion a
year for a program not found in any other state -- cash payments to every
resident, regardless of need, made through the Permanent Fund dividend
program.
Couldn't we fill the $1 billion spending gap by dropping the dividend and
forget all this talk about taxes?
Mathematically, of course we can.
Making that $1 billion shift, however, would be both economically harmful
and inequitable.
Harmful because the $1 billion in dividends amounts to about 6 percent of
household buying power in the state's economy. Taking that much money out of
circulation all at once would cost thousands of jobs.
Inequitable because taking $1 billion entirely from dividends would hit
hardest on the disadvantaged. The less money a family makes, the more the
yearly dividend does to improve its circumstances. Balancing the budget
solely with dividend reductions would put the burden on ordinary citizens
while letting the wealthy off easy.
The great debate in progress is whether to raise taxes or cut dividends
first. The best choice is to do a little of each -- and retain the benefits
of progressivity.
THE UPSIDE
Preserving the dividend at its current level is no longer an option
except through draconian and self-defeating levels of taxation. Because the
problem has been put off too long, the choice now is between phasing down
the dividend to retain some of its benefits or eliminating it to stave off
broad taxes. The only reason this choice hasn't been made already is that
contributions from the Constitutional Budget Reserve have hidden it -- but
that source is running out.
Giving away $1 billion a year in dividends may be poor fiscal policy in a
state strapped for revenues, but preserving a smaller level of dividend is
good social policy. State oil revenues belong to and should benefit every
Alaskan; the dividends help make that possible.
The dividend provides a significant source of income to the less
fortunate. That's especially important in rural Alaska, where economic
opportunities are scarce, but it's true for a huge majority of Alaskans.
Most families receive more in dividends than they would pay under an
income tax. A family of four, for example, would have to enjoy an adjusted
gross income of $250,000 before it would pay more under the flat 2.25
percent income tax proposed by Juneau Rep. Bill Hudson than it would lose if
the dividend were eliminated. This means 98 percent of Alaska households
would be made worse off if the dividend were killed than if they paid the
Hudson tax.
Under a more progressive tax proposed by Gov. Tony Knowles, the similar
break-even point between dividends and taxes would be $140,000. At least 90
percent of Alaska households would pay more giving up the dividend than
paying the Knowles tax.
The farther down the income scale a person is, the more painful is the
effect of losing the dividend. Killing the dividend, by itself, would be
deeply regressive.
Still, a responsible long-term fiscal plan will reduce the dividend.
Alaska is beyond the time when it can afford to send $1,960 checks to every
resident without reference to need or work. Alaska oil production has
dropped by half, and the state has dug itself into a $1 billion-a-year
revenue hole. We can still have a dividend and all the benefits it brings,
but it can't be as big as before.
THE DOWNSIDE
Using fund earnings for state services would shrink the dividend over
time. An improved arrangement would convert the Permanent Fund to an
endowment with a 5 percent yearly payout. Earnings beyond that payout would
automatically inflation-proof the fund; the payout would be divided each
year by the Legislature between state services and individual dividends.
To cushion the impact of such a big change, the new approach should be
phased in.
Permanent Fund dividends have been woven tightly into the fabric of
Alaska's family budgets and economy over the past two decades. Losing these
good things would hurt. Families at the upper end enjoy an extra vacation or
build their portfolio a little bigger when dividend checks arrive. Families
at the lower end pay bills or buy groceries. Families who depend on
subsistence buy ammunition or gasoline. Some people get a new truck, a
snowmobile, a couple of tickets to Hawaii or a party with all their friends.
Wise kids or parents sock away dividend money for a good start in life --
college, job training, a down payment on a home.
Many of us in the middle save some, pay off a few debts, take care of
some necessities, treat ourselves to a nice dinner out, and thank our good
fortune. The dividends are a windfall we appreciate but don't truly need.
It's time to phase them back to a more sustainable level.
THE BOTTOM LINE
Combining modest dividend reductions with a progressive income tax puts
the state's fiscal burden where it belongs -- on those who can afford it.
For low- and moderate-income households, dividend payments will still exceed
the state income tax they might pay. Together, shrinking the dividend and
bringing back an income tax are an equitable way to fill a substantial
portion of the state's fiscal gap. |
(Published: April 11, 2002)
Breaking the spell
Time to use Permanent Fund
It's time to see the Alaska Permanent Fund for what it is: A blessing of
riches to use, not worship, for the public good of Alaskans today and
generations to come. It's time to use some of its earnings to pay for public
services and make the principle as permanent as we can.
Alaska voters created the Permanent Fund in 1976; beginning in 1982,
Alaskans have received a Permanent Fund dividend check. Over 20 years, we've
built the fund into a machine churning out bigger and bigger dividends that
topped out at almost $2,000 in 2000.
The Permanent Fund has earned $25 billion since the first deposit in
February 1977, according to Deputy Revenue Commissioner Larry Persily. We've
saved $14 billion and paid out $11 billion in dividends.
Is that all the Permanent Fund is for?
No.
In 1999, Department of Revenue Commissioner Wilson Condon made a short
speech announcing that year's dividend. He reminded Alaskans of Article 1,
Section 1 of the Alaska Constitution. There we affirm our natural rights to
life, liberty, the pursuit of happiness and the enjoyment of the rewards of
our own industry. But Mr. Condon pointed out that the Declaration of
Inherent Rights includes responsibilities:
"All persons have corresponding obligations to the people and to the
state."
Good stewardship of the $25 billion Permanent Fund is a vital part of
meeting those obligations to one another and to our children. To that end,
Alaskans need to see the fund as more than a dividend machine.
First, we should guarantee the fund's permanence by approving a
constitutional amendment that would make the fund an endowment, paying out
no more than 5 percent of a five-year market value average each year.
Second, we should devote some of those earnings to public services.
THE UPSIDE:
Clark Gruening, one of the Permanent Fund's trustees, has said the
endowment plan is the best way to guarantee the fund's permanence.
Historically, lawmakers have been scrupulous in not only inflation-proofing
the fund, but in loading it with extra deposits to speed its growth.
Inflation-proofing is protected only in statute, however, and that would be
easy for a future Legislature to change.
Embodied in the Constitution, the 5 percent payout limit would be as
close as we can get to written in stone. Given an average annual return of
about 8.25 percent and an inflation rate likely to average about 3 percent,
the amendment would protect the fund from inflation for keeps. It would
continue to benefit Alaskans long after this generation was gone.
If we spend some of the earnings of the Permanent Fund to provide state
services, to maintain and enhance our roads, schools, public safety and
university, we'd be investing in a society that doesn't blunt free
enterprise and the private sector but provides the foundation for it. As Mr.
Condon said, we must recognize "the need to spend money as a community to
protect our freedom as individuals."
THE DOWNSIDE
There's no getting around it: We'd all see a dip in dividends and the
joys they bring -- not only individual spending or saving, but also less
cash circulating in the economy. Those costs are real, and use of fund
earnings is a regressive tax that takes a bite from Alaskans too young to
crawl and too old to walk. But that regressiveness can be tempered with a
graduated income tax.
THE UNCERTAINTIES
The endowment principle is sound -- provided averages calculated over 75
years of investment history continue to hold true. We can't know that for
sure.
We can't know for sure what other income sources Alaska may have in
future years. Will we continue to need a share of Permanent Fund earnings in
the hundreds of millions of dollars, or more?
We can't completely chart the future, nor should we try to handcuff
Alaskans who will make future decisions. We can act based on what we know,
anticipate variables as best we can and share the burden of risk fairly.
THE BOTTOM LINE
Make the Permanent Fund an endowment, and we make it permanent. Spend
some of the earnings on state government to fill the fiscal gap, and we draw
from all Alaskans to build and maintain a better Alaska. Coupled with a
progressive income tax, use of Permanent Fund earnings asks everyone to
give, but asks more from those who have more.
Yes, this use of earnings breaks the spell of the fund as untouchable.
It's time. That spell is a crippling illusion that weakens us in the long
run. The Permanent Fund is not an end in itself, but a powerful means to the
end of a more prosperous, stable Alaska. Together, an endowment and wise
spending give us the means to provide for ourselves, our children and their
children. We'll still have dividends, a benefit no other state in the Union
enjoys. And we'll keep Alaska's economy sound. That's no illusion. That's
good sense and good stewardship.
Sunday: Principles of a fiscal plan
Monday: The parts of a fiscal plan
Tuesday: Thinking about spending
Wednesday: An income tax first
Today: What's the Permanent Fund for?
Friday: Rethinking the dividend
Saturday: Sin taxes and other revenues
Sunday: Positioning Alaska for the future
|
(Published:
April 9, 2002)
Spending
We all benefit, no matter which sector we work in
Third in a series
Alaskans waste far too much time and antagonism on the question of
whether we, as a state, spend too much or too little. In the debate over
closing Alaska's $1 billion fiscal gap, we'd do well to lay off the
ideology, think hard about what we need and go with what works.
We are privileged with oil revenues that give us a huge head start on
funding state needs, but we also face the challenge of a vast expanse of
territory and diversity of communities. It costs a lot to live here, and
it's worth every penny. State services too reflect that reality.
There is no such thing as an ideal level of spending, but there are
consequences to our decisions. Schools are run well or badly. Potholes are
filled or not. Parks are equipped or neglected. Troopers are hired or fired.
Food inspections protect us or not. Research drives progress or stagnation
retards it. Culture finds outlets or it withers. Fisheries management
improves or regresses. The poor and the sick are lifted or left to private
devices and charity. No society succeeds without sound public investments in
these and many other endeavors. No society holds the line in the long run
except by going into decline.
Is that our purpose?
Our society in Alaska has sweated the obvious fat out of its system with
a decade of budget cuts and shrinking expectations. General fund spending
declined 33 percent, in real terms, in the past decade. Per capita general
fund spending is now more than $1,100 lower than it was in 1979, at the
outset of the oil era.
Further state spending cuts would make us weaker, not stronger. Our
mission now is to find new revenues to stabilize our finances and new ideas
to make the private economy a stronger partner for development.
THE UPSIDE
For a century, Alaska's economy has been built largely around public
spending, both federal and state. As many as half the jobs in Alaska arise
from government spending and its multiplier effect. Alaska's wealth, by
virtue of public ownership of land and natural resources, is controlled
largely by public institutions. This means nearly everyone who participates
in the economy here -- public sector or private -- wins when public spending
grows and suffers when it shrinks. Like it or not, we are all involved. For
sound economic reasons, then, spending cuts are the most damaging answer to
the fiscal gap. All this adds to the importance and impact of state services
beyond the conventional benefits of roads, schools, police, public health
and the like. Our economy is built this way and can't be significantly
changed without major shock.
It's tempting but misleading to overstate the ways rural Alaska benefits
from state spending. Many funding formulas recognize the higher costs there
and hence send more dollars to the Bush. Many services are provided by the
state in communities with little or no local tax base and few private-sector
jobs. But these high public costs in rural Alaska are a big piece of the
economic pie in urban Alaska too, where services, contracting, supply,
education, transportation and health care industries are based.
Urban Alaska enjoys the comforts of a modern First World way of life,
though not yet the benefits of a fully diversified economy or major
population base. Rural Alaska is less fortunate. Over the past 30 years,
most of rural Alaska has moved from Third World status to something more
like the "Second World." Basic transportation, communication, education,
health and social services are provided largely by the state. But the stakes
are high: Indiscriminate budget cuts threaten a needless decline back to
Third World status. What people often don't stop to notice is that urban
Alaska would suffer too.
THE DOWNSIDE
State spending paid for with oil revenues has few obvious losers, but
long-term dependency is a deepening worry as those revenues decline. The
risks are twofold: Deep cuts driven by revenue losses could send the economy
into recession, as we saw in 1986 and 1987, or big tax hikes to fill the
gaps could take too deep a bite out of industries and individuals. Either
way, everyone suffers more if the changes are precipitous and unsustainable
fiscal practices are the ultimate culprit. Virtually everyone suffers in a
general decline -- through job losses, wage cuts, property value losses,
business failures, diminished prospects. The fiscal gap amounts to a train
wreck occurring in slow motion. But if we're smart we still can avoid it.
THE BOTTOM LINE
Alaskans may not always appreciate state services, but they use them and
need them. The ideologues calling for revolution in state government reflect
not the suffering of the masses but the anomalies and contradictions -- and,
yes, the inefficiencies -- of our necessary embrace of government. What's
needed is reform, not a rollback. State government is one of the engines of
our economy and society; we should keep it oiled and tuned. To diminish our
dependence, we should keep working for a strong private sector around and
above the public sector.
For good reasons, we spend a lot. For other good reasons, it's not always
enough. A much better question is: What should we do to prepare for the
future and live within our means? In the long conversation of Alaska's
democracy, this is the question that should linger.
Sunday: Principles of a fiscal plan
Monday: The parts of a fiscal plan
Today: Thinking about spending
Wednesday: An income tax first
Thursday: What's the Permanent Fund for?
Friday: Rethinking the dividend
Saturday: Sin taxes and other revenues
Sunday: Positioning Alaska for the future |
(Published: April 8, 2002)
Fiscal sense
Here's how Alaska can win
(Second in a series)
Alaska's $1 billion-a-year fiscal gap is a serious problem, but it is
manageable if we keep our heads and act decisively. The best way is to keep
our balance, to take something from each of several sources while ratcheting
up changes gradually. Here is a proposal for how:
REFORM BUT DON'T ROLL BACK SPENDING
Alaska's economy is built largely around public spending, federal and
state. This has been true for more than a century and likely will continue.
Alaska's wealth, mostly land and natural resources, is owned largely in
common. Any change in the fiscal picture must recognize that virtually
everyone who lives and works here, public sector or private, depends heavily
on government spending. We have already cut state spending by one-third in
real terms in the past decade -- the only state even to approach such cuts.
This is not the time to further roll back services. Impact on the fiscal
gap: not much.
START WITH AN INCOME TAX
The first big bite from the $1 billion fiscal gap should come from a
graduated income tax built on the time-honored principle of progressivity.
Alaska had just such a system until 1980, when it abolished general taxes in
the first big flush of oil revenues. Forty-three states choose an income tax
as a mainstay of their fiscal structure; Alaska should too. An income tax
with inflation-adjusted brackets based on the pre-1980 system would raise
$660 million. At just half that impact, we could close a third of the gap
and keep Alaskans among the lowest-taxed individuals in the U.S. To minimize
the difficulties of adjusting, we should increase the tax gradually over
five years. Impact on the fiscal gap: $350 million.
USE ALASKA PERMANENT FUND EARNINGS
For 25 years we've been accumulating savings in the Alaska Permanent Fund
by trading the value of our oil in the ground for money in the bank. So far,
all we've done with our earnings are pay ourselves dividends and add to the
fund's value and growth. Those little blue umbrella pins you see on coat
lapels around town are a harbinger of change. They say essentially that "the
rainy day has come" and it's time to use our fund for common purposes.
Payouts from the fund should be made on an endowment model providing 5
percent of its value in a given year -- a figure that research indicates
will maximize the payout and preserve the fund. The payout should be split
between individual dividends and state services, in a proportion to be
determined each year by the Legislature. Impact on the fiscal gap: $500
million to $600 million.
DECREASE THE DIVIDEND
Alaska's Permanent Fund dividend has been a remarkable experiment, but
now we can afford less and less of it. Over time, income supports to
citizens should be crafted more on the basis of work or need and less on
mere presence. Because we have created the fund and made it grow, we can
still afford to pay ourselves a dividend to protect our stake in its future.
But the dividend now should be phased back -- slowly, so we all can adjust.
The balance between individual dividends and support for public services
could shift with changing needs, but over the long run we should reduce our
dependence on an unearned state dividend check. Impact on the fiscal gap:
depends on future legislatures.
ADD SMALLER TAXES AND REVENUES
An alcohol tax increase could raise $30 million a year or more and would
help offset the estimated $450 million alcohol abuse costs the economy each
year. A cruise ship head tax could raise another $30 million to $35 million,
and a hike in the fuels tax a similar amount. Together these new levies
would contribute only about one-tenth the amount needed to close the fiscal
gap, but they would diversify and stabilize the tax base and call on
industries and consumers of specific high-value items to contribute. Impact
on the fiscal gap: about $100 million.
REVISIT OIL TAXES
Alaska has a fiscal gap because the golden goose of oil isn't as golden
as it used to be. The reality is Alaskans can no longer expect oil companies
or anyone else to pay nearly all the bills for state government. That said,
the fiscal gap is so big and so serious that no industry can be exempted
from the solution, not even oil. Impact on the fiscal gap: $100 million.
Taken together, the elements of this proposal would close the state's
current $1 billion fiscal gap and give Alaska the tools for a more
sustainable future. They would minimize the negative impacts on the overall
economy while providing a more solid foundation for growth.
Everybody, in the end, would give a little to avoid the coming crash and
position the state for growth. But it can't be done with a reactionary
spirit. The enemy of a better future for Alaska is the absolutism that says,
in essence, don't bother me; make it somebody else's problem. The answer is
this is everybody's problem, and we should come together as Alaskans to fix
it. |
Principles of a fiscal plan
(Published: April 7, 2002)
Seven keys to progress
First in a series
Alaska's $1 billion fiscal gap threatens to swamp our current prosperity
in red ink and economic disarray. Nothing the Alaska Legislature could do --
or not do -- matters more than building sound fiscal foundations. As
legislators struggle to craft a workable plan to put state finances onto a
sustainable basis, seven key ideas should guide their work:
1. START NOW
The first principle is the most important. The longer we wait, the harder
this job will be. The longer we wait, the fewer resources we'll have to deal
with the problem. The longer we wait, the bigger the damage to the economy.
The worst choice now is to do nothing because the long, slow fiscal
deterioration of the past decade threatens to trigger a recession, or worse,
if the slide deepens.
2. USE ALL THE OPTIONS
The second principle is to accept the wisdom of every study group and
expert analysis that's been done for more than a decade. Alaska has plenty
of money and plenty of choices; we just don't any longer have the luxury of
a permanent free lunch. We can fix the problem and improve our prospects
without much difficulty if we use a balanced approach: taking something from
Permanent Fund earnings, ratcheting back the dividend, installing some form
of general taxes and encouraging growth by closing the fiscal gap.
3. MAKE IT FAIR
Principle three means to spread the burdens among all Alaskans. This
means recognizing the idea of progressiveness: That people who benefit the
most from society should give the most back or, at the other end of life's
fortunes, that people who live closest to the edge should be burdened least.
It is a matter of elemental fairness deeply rooted in American society, and
no less true in Alaska even if often forgotten in our 20-year freedom from
general taxes.
4. RAMP IT UP GRADUALLY
Principle four would give families and businesses time to adjust. Giving
people time to adjust their patterns of spending and investment will make
everything easier at the individual level and less damaging at the
economy-wide level. If principle four is not followed, its reverse will
swiftly become apparent: The sharper the turn required, the greater the
short- and long-term damage to families and communities.
5. CLOSE THE "ALASKA DISCONNECT"
Principle five means removing a big negative result of growth. Under
current laws, every new business, new job or new Alaska citizen actually
damages our finances because we have no means of reclaiming the public
costs. We are, as Anchorage businessman (and now lieutenant governor
candidate) Ernie Hall points out, fiscal liabilities rather than assets. No
community can prosper, long term, in that predicament. Thousands of new jobs
in a growing economy would mean thousands of new schoolkids, more demand for
road maintenance and police, increased use of parks and boat ramps, all the
ordinary public accommodations of a prosperous state. In every other state,
growth brings fiscal relief. In Alaska it brings more strain. To position
ourselves to succeed, we need to close the disconnect.
6. ACCEPT NO GIMMICKS
Sooner or later the free lunch of the current era will change; sooner is
better because it is less painful and more likely to lay the foundation for
growth. But the political impulse will be to find some excuse to dissemble
or delay, some popular gimmick that avoids the problem. Recent examples
include proposals for a spending limit, a tax limit or just arbitrary
spending cuts. These aren't going to solve the fiscal gap, no matter how
much we wish they could. In the long run the economic fundamentals will
dominate our choices. The fewer gimmicks we indulge before coming to grips
with reality, the better off we'll be.
7. WE'RE ALL IN THIS TOGETHER
A lot of people are running around Juneau saying, in essence, leave me
alone and hit somebody else first. That's both understandable and
short-sighted. The truth is, very few Alaskans are immune to the risks posed
by the fiscal gap. The answer to the don't-hit-me-first appeal is simple:
Hit all of us first. We all face the threat; we all have enjoyed the long
oil-fueled vacation from responsibility; we all should step up now for a
solution.
Alaska cannot and will not prosper without a sound fiscal order. Even in
decline, state oil revenues along with federal agencies and grants are a
mainstay of Alaska's economy. Put the state's fiscal house in order now and
our general prosperity can continue. Avoid the problem much longer and the
consequences will be increasingly painful and difficult. And that takes us
right back to principle one: Start now.
Alaska has the means to repair its fiscal foundations and restore a sense
of opportunity and growth. Over the next week we will examine components of
a proposal to close the state's $1 billion-a-year fiscal gap and improve our
future prospects.
Today: Principles of a fiscal plan
Monday: An overview of a fiscal plan.
Tuesday: Thinking about spending.
Wednesday: An income tax first.
Thursday: Sin taxes and other revenues.
Friday: What's the Permanent Fund for?
Saturday: Rethinking the dividend.
Sunday: Positioning Alaska for the future. |
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