During December Kott, R-Eagle River, and Therriault, R-North Pole, briefed members of Commonwealth North, an Anchorage business group, on upcoming issues in the 2003 session.

Both predicted a serious effort to reform the state's system of issuing permits for new resource development projects, particularly oil and gas.

"We've done nothing but put Band-Aids on this system in recent years," Kott said. "Now we really need to step in and make major changes. We're losing exploration drilling days on the North Slope because of the current system."

Therriault

Meeting the higher medicaid requirement will be a major challenge. Changes in federal formulas mean the state is having to pick up more of the costs of the program, which insures disabled and poor people who cannot afford health insurance. A supplemental appropriation of up to $120 million in the current state budget may be needed to cover this as well as an additional increase next year, Kott said.

Small employers are complaining about the higher state minimum wage, which went into effect Jan. 1, he said. Legislators are likely to take another look at the law, particularly at a provision which automatically increases the minimum wage with inflation.

They may also decide to allow a "tip credit" in the law, Kott said. This provision would allow restaurant owners to consider a worker's tips from customers as part of the wage. Under the current law tips are on top of the hourly wage.

Therriault said a new study of school cost differentials around the state is due from consultants on Jan. 15. That will set the stage for a review of the state's current formulas for allocating state education funds among school districts, he said.

This may reignite the rural-urban conflict, Therriault said. Rural schools hope to regain some share of education funds lost to urban school districts when the Legislature changed the formula several years ago.

Both Therriault and Kott predicted smoother sailing in lawmakers' relations with the executive branch this year. Therriault said the last two years have been difficult for Republican-led legislators in their dealings with former Gov. Tony Knowles, a Democrat.

"The strains on the legislative-executive relationship made you suspicious of the information they gave you, on fiscal notes, for example," Therriault said. Fiscal notes are prepared by state agencies to estimate the cost of proposed changes in state law.

"I had directors of state divisions sneaking into my office to talk with me," Therriault told Commonwealth North members. "They were afraid someone on the third floor (the governor's office) would find out they were there."

"All this had a dampening effect on the free flow of ideas between the administration and the Legislature. It will be more helpful to have an administration that is philosophically in tune with the Legislature," Therriault said.

"It doesn't mean there won't be disagreements. We may disagree vehemently. But with the previous administration things got to such a high level of suspicion" that legislators were impaired in doing their work, he said.

Kott expressed a sense of skepticism as to whether Gov. Frank Murkowski will be able to deliver on his commitment to stimulate economic growth and generate new revenues sufficient to close the projected state fiscal gap.

"I'll be curious how the administration will do this without broad-based taxes," Kott told Commonwealth North. "The governor feels he can grow the economy and generate the dollars to close the gap. I'll be interested to see how he will do it."

The fiscal gap is the difference between annual state expenditures and recurring state revenues. Because oil production, and thus state oil revenues, have been declining for the last 14 years, the state has been running deficits of several hundred million dollars a year, drawing down state cash reserves to balance the budget.

Kott said higher oil prices have reduced the expected draw on the state Constitutional Budget Reserve to about $650 million for the current year, down from an $850 million draw projected last spring. However, about $900 million will have to be taken out of reserves to cover next year's state budget, he said.