Juneau -- The House is in the midst of a painful process. We are trying to identify additional reductions which can be made in next year's state budget. Our constituents are telling us that reducing state spending is essential before additional revenues should be considered. Believe me, it's a painful process because, in fact, very little of the budget is spent frivolously. There is a constituency for every program. Much has been made in the press about income tax and sales tax; about permanent fund earnings; about fiscal crises and political crises. I think I can say there will certainly not be a final proposal for revenue enhancement until we've fully examined ways to reduce the costs of state government as much as possible.

But when all the reductions are made and every ounce of fat, perceived or real, is eliminated, a large fiscal gap will remain. We will still be spending much more money than we have coming in. And the only way to make it up is to find additional sources of revenue.

The governor has proposed an income tax and a four billion dollar sell-off of what are termed "unrealized earnings" from our permanent fund investments. Frankly, we applaud him for putting a proposal on the table. His proposals are being examined carefully, but the income tax, especially, appears to be quite unpopular. The messages and calls we've gotten from constituents indicate most people continue to oppose instituting the governor's - or any other - income tax in Alaska. But, when facing the reality of a revenue deficiency, a concept embodying some use of permanent fund earnings seems grudgingly acceptable . . . certainly more acceptable than across-the-board taxes would be. Many, including me, believe that is what the permanent fund was originally designed to do: pay for the costs of state government when our oil revenue was no longer sufficient.

I want to leave you with two facts to consider:

1. We have a general fund budget of about $2.3 billion and incoming revenues to support it of about $1.1 billion. That's a $1.2 billion shortfall. The arithmetic is unavoidable; we're spending more than twice what we're bringing-in!
2. Reductions, alone, are not enough. In fact, we could lay off every single state employee paid through the general fund and we still wouldn't break even.

As I said earlier, this budget balancing process is painful. But we've taken the first steps toward solvency. And I'm confident that, when we're finished, the overwhelming majority of Alaskans will find the solution to be one they can live with.