Residents offer budget gap solutions

MAT-SU -- Taxes may not be evil and the Alaska Permanent Fund may not be as sacred to Alaska residents as some politicians make it out to be.

At least that was the version of Valley residents' fiscal thinking heard Thursday by members of the House Special Committee on Ways and Means. The committee, created last year, is tasked with balancing the state's budget, identifying essential services and making sure they're provided for, and outlining additional revenues, if needed. The task itself isn't easy, Rep. Mike Hawker, R-Anchorage, said, and the broad-spectrum makeup of the committee makes it even more difficult.

"It's an extremely diverse committee," said Hawker, who chairs the committee. "We have members that represent the entire spectrum of fiscal philosophies found in the state Legislature. It gives us a great forum, and some very passionate debaters on all sides of the issues."

The committee met with local officials representing the city of Palmer, the Mat-Su Borough and the city of Wasilla Thursday before holding a public hearing at the Wasilla Legislative Information Office that evening. About 20 people sat in on the public hearing -- one of the largest turnouts the committee has seen at meetings it has held around the state.

At the committee's meeting with borough officials, they asked to hear about funding priorities -- and dilemmas. School funding was one dilemma, borough assembly members present said. The borough assembly has funded to the cap -- or allocated the maximum amount to school funding allowed by state law -- for the past three years, but schools are still unable to tackle problems of class size and are facing tight resource budgets.

Committee members said that's a similar complaint being heard in other parts of the state. Rep. Norm Rokeberg, R-Anchorage, said it may be time to re-evaluate the amount of local contribution allowed by the state. Assembly member Talis Colberg said he wasn't sure that was the best answer.

"Changing the formula to allow us to raise [the borough's contribution], I don't think helps," Colberg said. "It just allows you (the state) to contribute less."

When Rokeberg asked whether the borough not being able to contribute more was the problem, Colberg suggested that part of the problem may be linked to disparities in pay -- and in the cost of living -- between those in Railbelt communities and those in the Bush.

"It makes it easier for people in the Railbelt to say, 'They're being paid better out there -- why aren't we?'" Colberg said. What isn't realized, he later explained, is that more pay for teachers does not necessarily mean the budget for salaries automatically goes up. What often happens is a higher salary is negotiated, but fewer teachers are retained to do the same work, leading to higher class sizes and other problems.

Assembly member Mary Kvalheim said she, too, didn't see how changing the formula would be any real help for local communities.

"I don't think messing with the cap would do any good for us at all," Kvalheim said. "I don't know what to recommend because you don't have the money … but I don't see how we can continue to take the hits and still provide the services."

People who attended the committee's public hearing had similar sentiments, and offered several suggestions of going after more revenue. Several people said it was time to institute an income tax, and several discussed whether or when the permanent fund should be tapped into. Most agreed a sales tax was not the most fair method of funding state government, and a few had their own ideas about how to close the fiscal gap.

Dan Elliot, the first to testify, said the state had cut too much already. He suggested instituting an income tax and, if that wasn't sufficient to balance the state's budget, consider a sales tax, which he said was less equitable. If neither worked, then consider tapping into the permanent fund.

"I would say go income tax as much as possible first, and if that doesn't do it, I would look for other ways," Elliot said. "I would try to be reasonable and responsible … but what I see is just skipping the reasonable … and immediately go to the permanent fund."

Committee members have, along the way, been discussing the Percent of Market Value or POMV suggestion now being discussed by the Senate Judiciary Committee -- and some are considering it to be one way the state could leverage more money into the general fund. Elliot said he doubted the Legislature's credibility.

"You're just trying to buy people off so you can get your hands on the permanent fund, is my way of looking at it," Elliot said. "If I had to, I'd say yes -- I'm just afraid I'll say 'yes I'm willing to use part of the permanent fund' and you'll jump to that as the solution."

Rokeberg said an income tax may only generate $350 million, but using the POMV or endowment method with the permanent fund would generate a more sizable revenue stream.

"That seems to me what we're going to have to do," Rokeberg said.

Clarence Furbush said he believed the state could still find ways to reduce the budget -- and that the state would benefit by providing other new types of industry, such as creating a good materials science division in the University of Alaska, where research could be done to find new ways to use existing state resources, such as oil. Selling state and other public lands should also be part of the equation, he said. And if need be, institute an income tax.

"I still believe an income tax is the best way and the most equitable way to support our government," Furbush said, pointing out that such a tax would apply to people who work on the North Slope but don't live in Alaska, don't spend much money in the state, and don't otherwise contribute to running the state government. The permanent fund, he said, should not be changed.

Ernest Line suggested instituting an income tax like what Alaskans paid up until 1980. The tax, at the time it was repealed, Line said, was 16 percent of the amount paid in federal taxes. Line suggested a sliding mechanism be built into the tax to account for growing state revenues.

"As the income raises, that percentage of the federal tax could be lowered," Line said, "and when it gets a little tight, it could be raised."

George McKee, who suggested the committee take his permanent fund dividend check before they institute an income tax, said by taking a hard look at state employee contracts and at consolidating operations, a lot of money could be saved. The Department of Transportation, he said, has three primary offices, all of which have "full administrative overhead." By consolidating the administrative offices, running payroll from a central office and cutting out so-called "slush funds" of 15 percent built into bid awards, he said, a lot of money could be saved. He also suggested selling off unused state equipment, reevaluating the need for community branches of the University of Alaska and making changes to the collective bargaining agreements that 24,000 state employees work under.

James Garhart had two suggestions for the committee -- both similar to the POMV method of using a portion of the permanent fund earnings after first contributing to its capital and inflation-proofing the fund. Another method for balancing the budget was presented by Wasilla accountant Dan Kennedy, who suggested letting state residents choose annually between getting a dividend check or paying income tax. The two suggestions were analyzed and debated by the committee, and several members said they needed more time to consider Kennedy's suggestion. Rep. Max Gruenberg Jr., D-Anchorage, invited Kennedy to take part in an upcoming committee hearing in Anchorage, where the committee could discuss the suggestion further after having a chance to consider it.

"Looking at it off hand, it solves the problem a number of us have had," Gruenberg said. "It makes it so people [working in Alaska] from out of state pay the tax."

Others with ideas about how to balance the state's budget, find new revenues or voice opinions about what state services should or should not be cut can send public opinion messages to the committee through the Alaska Legislature home page at w3.legis.state.ak.us, or by contacting the local Legislative Information Office at 376-3104.