"Solving Alaska's fiscal dilemma requires elected representatives to make difficult choices between unfavorable alternatives. We legislators must act decisively on these issues, but only with the clearest possible understanding of the desires of individual Alaskans and the consequences of our decisions on their communities."
- Rep. Hawker
My dictionary defines "dilemma" as a choice between equally unfavorable alternatives. That pretty well describes the fiscal choices facing Alaskans today. With the end of our cash reserves clearly in sight and an appetite for public services that exceeds the most optimistic projection of revenues, we have some difficult decisions to make.
The House Special Committee on Ways and Means was formed to provide a legislative forum to publicly address these urgent issues. I am privileged to serve as Co-chairman of this historic endeavor. Co-chairman Jim Whitaker and I first brought forward a five-point fiscal plan identifying our vision of a comprehensive solution. We propose to:
Control the cost and growth of government
Promote real economic development
Manage the Permanent Fund to protect its real value over time while providing a substantial individual dividend and a contribution to the cost of public services
Structure the State's general revenue system to minimize taxation of individuals and to accommodate local governments' revenue systems
Maintain a balanced budget with a mechanism mitigating the consequences of oil price volatility on the general revenue system
The legislature's dilemma is making the policy choices necessary to define the details of a sensible and balanced solution. Nearly every choice before us involves alternatives we would rather not face. We first want to cut the budget and promote economic development. However, as service reductions increase, determining where and how much to cut becomes progressively more difficult. Not withstanding the difficulty, we will make further cuts, and we have clearly demonstrated our commitment to promoting economic development.
Interestingly, the greatest policy dilemma we face is the least complex. No objective analysis of our fiscal situation projects a balanced budget without significant additional revenue. To the extent Alaskans are unwilling to use Permanent Fund earnings for public purposes, we have to consider individual taxes. Even with aggressive cuts, this dilemma remains.
Alaska has the luxury of a $24 billion Permanent Fund generating significant earnings that could reduce or eliminate the need for individual tax burdens. Projected Permanent Fund revenue is sufficient to completely avoid the need for individual taxes, but only if we have the collective public will to use a sufficient portion of those earnings. The Ways and Means co-chairmen's five-point plan contemplates identifying some division of Permanent Fund earnings between individual dividends and public services.
Our desire to minimize individual taxes includes considering new revenues. These proposals are controversial. Gaming and head taxes on employment and tourists have been suggested. Additional gaming activity appears to offer great revenue potential, but also significant controversy. Head taxes on employment are income taxes in disguise. Taxing tourists to the degree required to balance our budget likely eliminates Alaska as a desirable destination.
The fiscal plan we offered proposes spending reductions, preserving a substantial Permanent Fund Dividend, additional general revenue and an individual tax as the last resort to balance the budget. However, the details ultimately need to reflect the collective will of Alaskans. These details are the dilemma that will be addressed during the Committee's visits with communities throughout the state. Along with soliciting public counsel on how much and where to cut, we seek an understanding of Alaskans' perspective on using permanent fund earnings and revenue alternatives to avoid individual taxes. Government works best when decisions are made locally and fiscal policy decisions need to be made with as much local input as possible.
Solving Alaska's fiscal dilemma requires elected representatives to make difficult choices between unfavorable alternatives. We legislators must act decisively on these issues, but only with the clearest possible understanding of the desires of individual Alaskans and the consequences of our decisions on their communities. Balancing the budget is a daunting task, but I remain confident that, with public participation, a long-range solution will emerge during the next session.
Representative Mike Hawker
Co-chairman House Special Committee on Ways and Means