Session: State Capitol, Room 421 Juneau, AK 99801-1182 Phone: (907) 465-2693 Toll Free: (800) 463-2693 Fax: (907) 465-3835 Interim: 35477 Suite 101-B Spur Highway Soldotna, AK 99669 Phone: (907) 260-5236 Fax: (907) 260-5238

Lancaster Lays Out Fiscal Plan for Alaska
Doing Nothing Not an Option; $1 Billion Deficit Requires Action

(JUNEAU) - The state of Alaska faces a very serious fiscal challenge, and the people of Alaska need to understand the facts about the problem, and the steps the Legislature must take to fix it, if we are to avoid some highly unpleasant consequences.

The plan fact is that the state of Alaska has a $l billion and growing annual deficit in a $2.3 billion state general fund budget. If we do nothing; the Legislature will have little option but to continue spending from the Constitutional Budget Reserve to fill the gap between state spending and recurring revenue, draining the account in two more years.

If we still do nothing, the Legislature would need to exercise its ability to spend money from the $3.7 billion Permanent Fund Earnings Reserve account, which can be tapped with a simple majority of the Legislature. Once that account was emptied, the annual Fund earnings would be consumed entirely by inflation-proofing, and the Permanent Fund dividend would be nothing more than a fond memory.

If action is taken this year, Alaska can take advantage of its remaining reserves and interest earnings to more gradually implement new revenues and any budget reductions or controls deemed appropriate by the Legislature. If we fail to take action, the problem gets worse, the options for solutions are fewer, and the future for Alaskans will be less bright.

I want to make very clear to my constituents, to the media, and to the general public the most effective options we have available as a long-range fiscal plan to address the state's continuing revenue shortfall.

The Plan: A balanced plan that includes:

• Spending reductions;
• Moderate broad-based taxes;
• Use of Permanent Fund earnings while preserving a substantial and growing Permanent Fund dividend (PFD);
• Allowing enough flexibility for future increased support of schools, basic public infrastructure, and other high priorities.

The Elements of the Plan:

• Nurture the Constitutional Budget Reserve (CBR) and other existing reserves to avoid more drastic measures later: The measures below allow the use of remaining reserves to protect the PFD and the Permanent Fund Earnings Reserve, and to allow more moderate taxes by utilizing the interest earned from the CBR and some of the CBR itself.
• Reduce state spending/impose spending limits: Alaska is the only state in the United States to have cut its budget in the past six years. Alaska successfully implemented a plan to reduce the budget by $250 million over five years, and the House budget for the next year includes further reductions. Spending limitations are being crafted that do not prevent Alaska from meeting future needs, but assure the public that spending will be controlled in the future.
• Generate New Revenue: A balanced plan to fill part of the $1 billion gap, including:

• Permanent Fund ($600 million): Automatically inflation-proof the Permanent Fund by restricting any draw to 5 percent of the market value per year. Split the annual 5 percent earnings (about $1.2 billion) 50/50 between dividends and support of government operations, education and stable property tax relief to local taxpayers. The PFD is estimated to remain over $1,000 and will grow with the Fund.
• Sales or income tax ($300 million): Raise general revenue by a broad-based tax. To compare the size of this revenue, property taxes in Alaska now raise more than $700 million per year.
• Other taxes: Alcohol (Up to $30 million)

By passing the elements of this plan into law, the Legislature, with the support of Alaskans, can take the steps necessary to meet our fiscal challenges and avoid the drastic steps that are the dismal alternatives. I encourage all Alaskans to make themselves familiar with this plan, and to encourage their friends, neighbors and associates to make their support for its elements clear to all of their elected representatives.

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