The Alaska Journal of Commerce

Web posted Monday, January 14, 2002

Budget to be big battle of legislative session

Analysis by Tim Bradner
Journal Reporter

Senate President Rick Halford, R-Chugiak, left, and Gov. Tony Knowles are expected to square off over state spending levels during the upcoming legislative session. AJOC file photos

Alaska legislators are returning to Juneau for the start of the 2002 legislative session, which begins Jan. 14.

It looks to be a bruising session, dominated by a fight over money between the Republican-led Legislature and Gov. Tony Knowles, a Democrat.

Knowles is pushing for spending $189 million more in the state operating budget than in the current year for various state programs. Of this amount, $100 million is needed to replace lost federal funds and to maintain existing levels of state services in the face of inflation, the governor said.

Lawmakers are looking at a projected budget deficit this year of $900 million and $1.2 billion for the next state fiscal year, the budget for which legislators must prepare this spring.

It is Knowles' last year as governor, the required end of his two terms and eight years in office. Mindful of his legacy as governor, Knowles will fight hard for his proposals.

Republican leaders in the state House and Senate, less concerned about the governor's legacy, will take a dim view of the $189 million price tag for what Knowles wants this year.

Murkowski

"It's somewhat ingenious for the governor to keep talking about a fiscal gap while also proposing new spending initiatives to add to that gap," said Senate President Rick Halford, R-Chugiak.

But the governor defended his proposals.

"On a per capita basis, state funding is still $1,100 less than it was in 1979, just after oil started moving through the trans-Alaska pipeline," he said.

"Alaska needs a long-range plan, and I'll be discussing the revenue side of the picture in detail in my State of the Budget address when the legislative session opens," Knowles said.

Click on image for a larger picture.
SOURCE: Legislative Affairs Agency

In connection with the budget debates, a bipartisan group of legislators who call themselves the Fiscal Policy Caucus will make another try at a long-range state fiscal plan, an effort to avoid a financial emergency if billion-dollar deficits continue and the Constitutional Budget Reserve fund runs dry in 2004, as is now foreseen.

Leaders of this group include legislative veterans like Rep. Bill Hudson, R-Juneau, and Sen. Alan Austerman, R-Kodiak, as well as relative newcomers like Reps. Lisa Murkowski, R-Anchorage, Drew Scalzi, R-Homer, and Andrew Halcro, R-Anchorage.

Leaders of the caucus, including Hudson and Murkowski, plan to meet with House and Senate leaders at the start of the session to discuss prospects for a fiscal plan being adopted this year.

A fiscal plan inevitably will include new taxes and money from Permanent Fund earnings, as well as spending cuts, since these are the only real options for covering the deficit.

Whitaker

Because 2002 is an election year, the prospects aren't bright for lawmakers to vote in new taxes or measures that might reduce Permanent Fund dividends.

Although the session will be dominated by the budget and possibly a discussion of a long-range fiscal plan, other issues will surface. They include:

Minimum wage. Bills to increase the state minimum wage are now in the House Labor and Commerce Committee, sponsored by the governor as well as Rep. Pete Kott, R-Eagle River. Restaurant owners and small business operators opposed the increases last year, while unions and the governor urged its passage.

After hearings early last year, the issue was largely dormant through most of the 2001 session. However, labor unions are now gathering signatures on petitions for a ballot initiative on the minimum wage. This will likely cause legislators to pay more attention to the issue in 2002.

Fisheries. The 1 percent state tax on salmon that helps fund domestic fish marketing activities of the Alaska Seafood Marketing Institute expires this year and must be renewed if ASMI is to continue its promotions in the Lower 48. The group's marketing of Alaska fish overseas is funded by U.S. Department of Agriculture export assistance grants.

Knowles to seek nearly $1 billion for building

Gov. Tony Knowles is proposing $925 million in state-funded construction projects in his last year in office, including $811 million funded with various bonds and $114 million financed from the state general fund.

About $681 million in federal funds will also be included in the state capital budget, more than half of this amount in funding for transportation projects in the state.

Among the governor's major state capital spending proposals for 2002 are:

$200 million in state general obligation bonds for school construction and major maintenance. Of this amount, $100 million would be appropriated in fiscal 2003, if voters approve the bonds in the November election.

Deferred maintenance and replacement of needed state facilities, funded with $135.6 million in Certificates of Participation.

$425 million in accelerated spending on transportation infrastructure, such as highways and state ferry improvements, through so-called GARVEE bonds. These are special bonds sold in anticipation of ongoing federal transportation funding and essentially allow critical projects to be built sooner.

$39 million in state revenue bonds, backed by motor fuel tax revenue, for upgrades to state-owned harbors in coastal communities, in preparation for transferring the harbors to municipal governments.

$11.5 million for a new seafood and food inspection laboratory in Anchorage, funded by Certificates of Participation. The food safety lab was considered by lawmakers last year but failed to pass when the Legislature adjourned the 2001 session.

Given the threat that farmed salmon poses to sales of Alaska fish, the extension of this tax would seem to be a certainty. However, there are groups of fishermen who oppose it. Some Bristol Bay fishermen are unhappy, for example, because the money goes to promote salmon in domestic markets while sales of sockeye salmon from the bay are made mostly in Japan.

Natural gas. Sen. John Torgerson, R-Kasilof, will make proposals concerning the natural gas pipeline being planned by North Slope producers from Prudhoe Bay to Lower 48 states.

Among issues Torgerson will deal with early in the session is a request by the producers for a special negotiated contract on fiscal terms. Certainty in state tax rates and royalty administration is important to the economic viability of the pipeline, in the eyes of the producers.

A "reserves" tax on natural gas. This is being pushed by Rep. Jim Whitaker, R-Fairbanks, as a way to goad North Slope producers into moving forward on a gas pipeline. A reserves tax is a property tax on the value of the undeveloped gas reserves. If such a tax were enacted, the controversial element will be how the gas is valued for tax purposes.

Right now, Whitaker is the only vocal supporter of the idea, but other legislators may join in if the producers are perceived to be dragging their feet on moving forward with a pipeline.

Oil and gas taxes. It is possible that legislators may want to review oil and gas taxes, particularly the Economic Limit Factor, a formula in the state severance tax that reduces the tax on economically marginal oil and gas fields.

A review by lawmakers may be just that, an effort to understand how the ELF works. On many new oil fields being developed, the severance tax is very low because of the ELF, and legislators want to better understand how the incentive works.

There may be some tinkering with the ELF or other petroleum taxes, particularly if a broad-based fiscal plan starts to take shape.

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