Legislature(1995 - 1996)

02/08/1996 03:30 PM Senate STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                        February 8, 1996                                       
                           3:30 p.m.                                           
  SENATE MEMBERS PRESENT                                                       
 Senator Bert Sharp, Chair                                                     
 Senator Randy Phillips, Vice Chair                                            
 Senator Jim Duncan                                                            
 Senator Loren Leman                                                           
 Senator Dave Donley                                                           
  HOUSE MEMBERS PRESENT                                                        
 Representative Jeannette James, Chair                                         
 Representative Scott Ogan, Vice Chair                                         
 Representative Ed Willis                                                      
  HOUSE MEMBERS ABSENT                                                         
 Representative Joe Green                                                      
 Representative Ivan Ivan                                                      
 Representative Brian Porter                                                   
 Representative Caren Robinson                                                 
  COMMITTEE CALENDAR                                                           
 The final report to the Alaska State Legislature of the State of              
 Alaska Long-Range Financial Planning Commission (October, 1995) and           
 related legislation:                                                          
 SENATE CONCURRENT RESOLUTION NO. 23                                           
 Relating to long range financial planning.                                    
 SENATE JOINT RESOLUTION NO. 33                                                
 Proposing amendments to the Constitution of the State of Alaska               
 relating to the budget reserve fund.                                          
 SENATE JOINT RESOLUTION NO. 34                                                
 Proposing an amendment to the Constitution of the State of Alaska             
 relating to the permanent fund.                                               
 SENATE BILL NO. 233                                                           
 "An Act relating to municipal property tax exemptions for certain             
 residences and to property tax equivalency payments for certain               
 residents; and providing for an effective date."                              
 SENATE BILL NO. 234                                                           
 "An Act relating to taxes on cigarettes and tobacco products; and             
 providing for an effective date."                                             
 SENATE BILL NO. 235                                                           
 "An Act relating to excise taxes on alcoholic beverages; and                  
 providing for an effective date."                                             
 SENATE BILL NO. 236                                                           
 "An Act relating to the tax on transfers or consumption of motor              
 fuel, and repealing the exemption from that tax for motor fuel                
 which is at least 10 percent alcohol by volume; and providing for             
 an effective date."                                                           
 SENATE BILL NO. 237                                                           
 "An Act relating to motor vehicle registration fees; and providing            
 for an effective date."                                                       
 SENATE BILL NO. 210                                                           
 "An Act relating to taxes on cigarettes and tobacco products; and             
 providing for an effective date."                                             
  PREVIOUS SENATE ACTION                                                       
 No previous senate committee action.                                          
  WITNESS REGISTER                                                             
 Brian Rogers, Chairperson                                                     
 State of Alaska Long-Range Financial Planning Commission                      
 P.O. Box 80690, Fairbanks, AK 99708¶(907) 258-8165                            
    POSITION STATEMENT:   Presented overview of the Long-Range                 
                        Financial Planning Commission.                         
 Judy Brady, Vice Chairperson                                                  
 State of Alaska Long-Range Financial Planning Commission                      
 121 West Fireweed Lane, Anchorage, AK 99503¶(907) 258-8165                    
    POSITION STATEMENT:   Presented overview of the Long-Range                 
                        Financial Planning Commission.                         
  ACTION NARRATIVE                                                             
 TAPE 96-12, SIDE A                                                            
 Number 001                                                                    
 CHAIRMAN SHARP called the joint meeting of the House and Senate               
 State Affairs Committees to order at 3:30 p.m.  Members present at            
 the call to order were Senators Sharp, Phillips, Leman and Duncan,            
 and Representatives James and Willis.  Members absent at the call             
 to order were Senator Donley, and Representatives Green, Ivan,                
 Porter, Ogan, and Robinson.  Chairman Sharp announced that there              
 was another meeting in progress, and the other Representatives and            
 Senators would join the presentation later.                                   
 CHAIRMAN SHARP introduced Brian Rogers, Chair, State of Alaska                
 Long-Range Financial Planning Commission, to the joint committee              
 members.  He announced that Mr. Rogers would present an overview to           
 the legislature of the Long-Range Financial Planning Commission's             
 Number 030                                                                    
 BRIAN ROGERS, Chair, State of Alaska Long-Range Financial Planning            
 Commission, said he would begin by discussing the overall plan of             
 the Commission; Judy Brady, Vice Chair, would present a follow-up,            
 sharing observations regarding the process and the plan.  He said             
 he would then discuss specific legislation and address any                    
 MR. ROGERS said the Long-Range Financial Planning Commission was              
 established by the legislature and the Governor in March of 1995.             
 It was comprised of five members appointed by the Governor, five              
 members appointed by the Speaker of the House of Representatives              
 and, five members appointed by the President of the Senate.  He               
 said one-half of the Commission members were Democrats, one-half              
 Republicans, and one Independent.                                             
 MR. ROGERS explained the job of the Commission was to examine the             
 size of the fiscal gap; look for budget reductions and revenue                
 increases; examine the state's budget process; consider the impacts           
 of any changes on local governments; and to hear from the public              
 about the choices Alaskans faced.                                             
 MR. ROGERS presented a slide show demonstration to document his               
 review of the fiscal gap.                                                     
 MR. ROGERS asked, "How big is the fiscal gap?"  He stated the gap             
 was $429 million for the current fiscal year (FY96).  When the                
 report was completed, however, the fiscal gap was $524 million.               
 The presentation included the current revenue projections, however.           
 He further said the $429 million was almost as much as all the                
 general fund salaries and benefits paid to all state agency                   
 employees.  It was almost as much as the whole Permanent Fund                 
 dividend program, and equaled nearly two-thirds of the entire K-12            
 public school funding program.                                                
 MR. ROGERS said the Commission started by building a "base case."             
 The base case included no changes to revenues currently collected,            
 such as the fee schedule and the tax regime, and no changes to the            
 current programs.  Inflation was also taken out.  The base case               
 showed revenue dropped over the ten year period while expenditures            
 increased.  He alleged this was not a projection, but rather an               
 illustration of the population growth impact based on the public              
 school foundation formula.  He further said the goal was to start             
 from the base case and bring the revenues and expenditures into               
 Number 100                                                                    
 MR. ROGERS wondered if the state was crying wolf.  He cited in                
 1989, ISER predicted a gap starting in FY89, and a crash by FY92.             
 Mr. Rogers stated several reasons why the state had not experienced           
 the crash yet:  For example, the price of oil increased in FY90 and           
 FY91 due to the Gulf War which provided higher revenues than                  
 forecasted.  Furthermore, the budget was cut more than ISER                   
 predicted, and the oil settlements were more significant than                 
 MR. ROGERS referred the joint committee members to a graph                    
 comparing the budget history of ISER and the actual prediction                
 using 1996 dollars.  The graph illustrated higher spending for two            
 years, the same spending for two years, and significant budget cuts           
 for the last two years.                                                       
 MR. ROGERS referred the joint committee members to a graph                    
 comparing the price of oil comparing ISER, the actual, and the DOR            
 mid-case.  The graph, he said, did not account for inflation.  The            
 graph illustrated the actual price of oil increased in 1990 and               
 1991, and the DOR predictions were below what ISER predicted in               
 MR. ROGERS referred the joint committee members to a graph                    
 comparing oil production of ISER, the actual, and the DOR mid-case.           
 The ISER and actual were relatively the same while the actual                 
 dropped a little below.  The mid-case showed a higher anticipated             
 production level.  Mr Rogers alleged the crash would not be as bad            
 because of higher oil production.  However, based on the previous             
 graph illustrating the lower price of oil, the two cancelled each             
 other out.                                                                    
 MR. ROGERS referred the committee members to a graph of cumulative            
 settlement amounts comparing ISER, the actual, and the DOR                    
 projection.  He stated the graph was based on the settlements from            
 the last Administration.  The projection from DOR was higher than             
 what the actual and ISER predicted creating a cushion.  This he               
 cited was why the state did not crash land.  The DOR projected $5             
 billion in settlements while ISER predicted $2 billion.                       
 The record reflected the presence of Senator Donley.                          
 MR. ROGERS explained the plan recommended by the Commission.  He              
 said the plan created a new philosophy for state revenues trying to           
 replace the declining oil revenues with the Permanent Fund income;            
 enhanced the ability to save for future generations; imposed                  
 spending discipline on the state; defined a role for the Permanent            
 Fund; cleared up some of the confusion over cash reserves;                    
 suggested embarking upon structural changes in state government;              
 and involved the public in the decision making process through two            
 constitutional amendments.                                                    
 MR. ROGERS further explained the plan cut spending; increased                 
 revenues; established the Permanent Fund as an endowment; and                 
 capped the Permanent Fund dividend pool.                                      
 MR. ROGERS said budget cuts were recommended the first three years            
 of $100 million in nominal dollars.  The Commission recommended $40           
 million in 1996, $30 million in 1997 and $30 million in 1998 which            
 would reduce the general fund spending from $2,476 billion to                 
 $2,376 billion.  He said this was equivalent to a $300 million                
 reduction in today's dollars, or a 5 percent per year reduction in            
 existing services.  He further said it took $100 million in nominal           
 cuts and required absorbing $200 million in inflation.  The real              
 reductions, he asserted, would come through legislation.                      
 Number 195                                                                    
 MR. ROGERS explained the Commission's spending side                           
 recommendations.  The Commission suggested a retirement incentive             
 program coupled with a Tier III retirement plan, to reduce                    
 retirement benefits for new employees; new geographic pay                     
 differentials; and a salary and benefits study.  The Commission               
 further recommended consolidating administrative support functions;           
 reducing growth in formula programs such as the education, health             
 and social services correction budget; reviewing and combining                
 plans and where possible considering self-insurance; and repealing            
 the court challenged longevity bonus phase-out plan, if rejected.             
 The Commission further suggested repealing senior citizens' tax               
 exemption as mandatory and replacing it with a local option;                  
 shifting inspection functions to local governments; eliminating               
 state funding of troopers for road patrols in communities with                
 population of 2,500 or more; and transferring maintenance of Class            
 III roads.  He stated, if the local populous did not want to pay              
 for the service, the state should not automatically have to pick-up           
 the bill.  Finally, the Commission recommended reviewing                      
 opportunities for privatization and contracting out; and                      
 considering out-sourcing and in-sourcing to allow state employee              
 groups to bid against the private sector.  He said the state had a            
 talented work force that was prohibited from existing rules and it            
 needed the opportunity to do it better.                                       
 Number 280                                                                    
 MR. ROGERS referred the joint committee members to an expenditure             
 comparison graph for the next ten years comparing the base case and           
 the endowment plan.  The graph illustrated the base case grew due             
 to population growth, and the endowment plan decreased the first              
 four years then remained level for the next six years.                        
 MR. ROGERS referred the joint committee members to a per capita               
 state spending graph comparing the general fund operations and the            
 total general fund and dividends.  The graph illustrated the                  
 general fund operations and the total general fund and dividends              
 gradually decreased over a four year period.                                  
 MR. ROGERS explained the Commission looked at new taxes and user              
 fees totalling over $150 million for the next two years.  The                 
 Commission suggested a dramatic increase in tobacco and alcohol               
 taxes of $1 per pack for cigarettes and 10 cents per drink for                
 alcohol.  He stated the tobacco tax was popular in the state of               
 Alaska.  He cited a tobacco tax would raise about $40 million per             
 year and an alcohol tax would raise about $20 million per year.               
 The Commission further cited increasing the marine motor fuel tax             
 from 5 to 8 cents per gallon; doubling motor vehicle license fees;            
 eliminating the exemption for motor vehicle fees; increasing the              
 highway motor fuel tax from 8 cents to 22 cents per gallon;                   
 increasing user fees; establishing tourism industry taxes; and                
 increasing fishery and other resource taxes.                                  
 Number 318                                                                    
 MR. ROGERS addressed a "mid-course correction" in 1998 and 1999.              
 The correction established a follow-up commission to assess the               
 progress in 1998 and 1999.  Furthermore, a new commission would               
 recommend the next step whether it was more budget cuts, more                 
 revenue increases, more use of Permanent Fund income, or greater              
 Permanent Fund dividend reductions, for example.  The current                 
 Commission recommended to reinstated the individual income tax.  In           
 today's dollars this equated to $200 million.  He further cited               
 each 1 percent of taxes raised about $75 million per year, of                 
 which, nonresidents would pay about 11 percent.  This could be                
 manipulated so that nonresidents paid more than residents by                  
 including property tax credit, for example.                                   
 Number 409                                                                    
 MR. ROGERS stated the Permanent Fund was the cornerstone of                   
 Alaska's fiscal future.  The Commission suggested establishing the            
 Permanent Fund as an endowment by setting payout rates of 4 percent           
 of the average market value for the preceding five years.  He                 
 explained, 4 percent was common for funds across the country to               
 preserve the purchasing power by making large inflation-proofing              
 deposits in years with good returns and smaller inflation-proofing            
 deposits in year with bad returns.  The purpose was to make a                 
 greater portion of the state's budget a predictable revenue source.           
 MR. ROGERS stated the endowment plan insured growth of the                    
 Permanent Fund by raising the dedicated percentage of royalties and           
 bonuses from 25 percent to 50 percent of all fields.  The state             
 constitution required at least 25 percent, and the legislature                
 required at least 50 percent.  He cited the effect was $250 million           
 of volatile revenues taken from the annual stream and placed into             
 the Permanent Fund.  He further cited the Commission recommended              
 depositing the entire Permanent Fund Earnings Reserve, and all                
 amounts in excess of $1.5 billion from the Constitutional Budget              
 Reserve on an annual basis into the fund.  The intention was to               
 have the money available in the event there was a decline of oil              
 MR. ROGERS reiterated the Commission wanted to replace oil revenue            
 with income from the Permanent Fund at a 4 percent rate.  He                  
 referred the joint committee members to a graph illustrating the              
 oil revenue and permanent fund income for the next 15 years.  When            
 the use of the permanent fund income was added, the graph in                  
 today's dollars illustrated the state came close to stabilizing,              
 but there were many unknowns in the later years such as ANWR                  
 creating a shift.                                                             
 MR. ROGERS explained the Commission recommended stepping down the             
 dividend payment for the Permanent Fund by $50 million for the next           
 three years to approximately $990 in 1995, $900 in 1996, $800 in              
 1997 and $700 in 1998.  The current FY96 payment was $565 million.            
 MR. ROGERS referred the joint committee members to a graph                    
 comparing total expenditures of the current programs and the                  
 Permanent Fund dividend.  The graph illustrated a decrease in                 
 expenditures over the next four years then stabilizing.                       
 MR. ROGERS referred the joint committee members to a revenue                  
 sources graph comparing the existing general fund revenues and the            
 existing Permanent Fund earnings.  He said, the 4 percent endowment           
 earnings contributed the most significantly.  The highway motor               
 fuel tax contributed a smaller amount.  The marine motor fuel tax             
 added a negligible amount compared to the total amount.  The                  
 tobacco tax added somewhat.  The motor vehicle and user fees,                 
 fishery, resource, tourism and alcohol taxes were a small                     
 proportion of the total.  He said other than using the Permanent              
 Fund earnings, the income tax proposal was the most significant.              
 MR. ROGERS referred the joint committee members to a graph of the             
 endowment plan illustrating the close of the fiscal gap comparing             
 revenues and expenditures.  A deficit would exist for the next                
 three fiscal years balancing in FY00 followed by a surplus for a              
 few years which would go to the Constitutional Budget Reserve Fund            
 MR. ROGERS referred the joint committee members to a graph of the             
 Permanent Fund principal comparing the base case and the endowment            
 plan.  The Permanent Fund illustrated more significant growth under           
 the endowment plan.  The chart, however, did not reflect the recent           
 book value which changed the numbers the first two years.                     
 MR. ROGERS stated, in conclusion, the plan made the Permanent Fund            
 the cornerstone of Alaska's fiscal future; closed the fiscal gap by           
 the year 2000; ensured growth of the Permanent Fund to offset                 
 declining oil and gas revenues; stabilized and diversified the                
 state's revenues; controlled state general fund spending; and                 
 maintained a reserve to dampen the effect of oil price swings.                
 MR. ROGERS cited 22 percent of the gap was closed through program             
 cuts, 14 percent by taking money from the Constitutional Budget               
 Reserve Fund, 32 percent by using the Permanent Fund earnings, 13             
 percent by reducing Permanent Fund dividends, 3 percent by using              
 user fees, and 15 percent by increasing taxes.  Mr. Rogers said,              
 the numbers, however, changed after the year 2000.  He cited the              
 program cuts stayed the same at 21 percent; new taxes increased               
 from 15 percent to 22 percent; the Constitutional Budget Reserve              
 Fund dropped from 14 percent to 3 percent; and the Permanent Fund             
 Earnings increased by 5 percent.                                              
 MR. ROGERS rhetorically asked what would happen if nothing was done           
 and the spending and revenues continued at the current rate.  He              
 alleged the money would run out in the Constitutional Budget                  
 Reserve Fund by Halloween in the year 2000.  The state would be               
 about $700 million to $800 million in deficit and faced with                  
 cutting programs, increasing taxes, cutting the dividend, or using            
 Permanent Fund Earnings, for example.                                         
 Number 433                                                                    
 MR. ROGERS stated the Commission's job was not to develop the most            
 popular plan.  He said the current plan was not the preferred plan            
 for any of the 15 Commission members.  However, for 11 out of the             
 15, it was the plan most members could live with.  In conclusion,             
 he urged the legislators to use the plan as a starting point.  He             
 stated there were several pieces to build from and cited the target           
 balance year, the comparison of plans, and the current fiscal year            
 target.  Mr. Rogers said if the legislature worked on the above               
 three pieces, the goals of the Commission would be met.                       
 MR. ROGERS introduced Judy Brady, Vice Chair, State of Alaska Long-           
 Range Financial Planning Commission.                                          
 Number 465                                                                    
 CHAIRMAN SHARP announced the teleconference sites today were:                 
 Glennallen, Kenai, Anchorage and Fairbanks.                                   
 Number 467                                                                    
 JUDY BRADY, Vice Chair, State of Alaska Long-Range Financial                  
 Planning Commission, shared with the committee members three                  
 observations made as the Commission struggled with a plan.  She               
 cited the first frustration regarded the budget figures.  It took             
 about one-half of the time together to agree on a base case.  Ms.             
 Brady cited the discussion included questions such as what would be           
 used for inflation; what would be used for population; what was a             
 real cut; what was smoke and mirrors; what really influenced the              
 fiscal gap and what did not; and how should the Commission treat              
 the Permanent Fund and the reserves.  She stated, for closure, the            
 Commission needed to agree on the base case and the budget figures.           
 MS. BRADY stated the second frustration was how to weigh the                  
 consequences.  She cited everyone wanted to solve the problems with           
 the least amount of harm.  She wondered if $100 million taken off             
 the table meant the same in terms of consequences if the Permanent            
 Fund was taxed or if $100 million was cut over a three year period.           
 She questioned what it meant to the people of Alaska; the rural               
 versus urban communities; and the wage earner versus the non-wage             
 earner.  Ms. Brady said there were a variety of opinions among the            
 Commission members regarding the consequences.  She also stated the           
 Commission members realized through the process they did not know             
 as much about Alaska as believed in the beginning.  She asserted              
 many communities did not know how dependent they were on state                
 spending.  She reiterated that to resolve the issues a plan was               
 needed to agree on the principles of the consequences, and the                
 information gaps needed to be filled-in to reach decisions.                   
 MS. BRADY stated the third frustration for the Commission was the             
 complexity.  She asserted the Commission was trying to prevent a              
 recession before it happened.  The Commission did not agree on any            
 isolated piece of the solution such as an income tax.  The                    
 Commission's discussions ended in deadlock because no one wanted to           
 be first to take the brunt of the solution for fear it would be the           
 only thing that would happen.                                                 
 MS. BRADY reiterated the frustrations of the Commission were over             
 the budget figures, what was necessary to close the gap, how big              
 the gap would be over the next five years, the consequences, and              
 the complexity.                                                               
 Number 528                                                                    
 MR. ROGERS referred the joint committee members to SCR 23.  He said           
 the Commission did not have to follow the single-subject rule                 
 which, he alleged, was a luxury.  He stated SCR 23 expressed the              
 legislative sentiment regarding the financial plan that would give            
 the flexibility to make modifications to meet the constituency                
 needs and validate the legislative process.  The resolution                   
 suggested using the plan of the Commission as a starting point,               
 narrowing the fiscal gap to $387 million, reserving the right to              
 change the mix of spending reductions and revenue increases,                  
 closing the fiscal gap by the year 2000, adopting to annually                 
 balance state revenue with expenditures, adopting the                         
 recommendation to report annually to the people, urging Alaskans to           
 learn about the fiscal situation, and urging the Twentieth Alaska             
 State Legislature to create and appoint a Long-Range Financial                
 Planning Commission successor.  Mr. Rogers stated SCR 23 set a                
 broad framework for discussion and urged the legislators to adopt             
 or modify the plan to meet the legislative goals.                             
 Number 564                                                                    
 CHAIRMAN SHARP thanked Mr. Rogers and Ms. Brady for their work.  He           
 said the Commission was successful by including more Alaskans and             
 involving them in the process.  He said there were difficulties but           
 the Commission offered options and recommendations.  He asked Mr.             
 Rogers which bills he would like to discuss today.                            
 Number 574                                                                    
 MR. ROGERS replied there were other substantive legislation such as           
 the Tier III retirement program, the retirement incentive program,            
 and the salary and benefit survey.  He said the legislature did not           
 give the Commission enough time to complete their job - May 1 to              
 October 1 - therefore the Commission did not flush-out the complete           
 legislative package.                                                          
 Number 580                                                                    
 REPRESENTATIVE JAMES said the Commission behaved marvelously for              
 the huge challenge that was before them, given the short length of            
 time.  She stated the plan had a lot of merit.  However, the                  
 consequences of the plan distressed her because of the various                
 sector responses.  From her perspective, she asserted, the plan was           
 very serious.  Representative James thanked Mr. Rogers for his                
 efforts and appreciated his concerns for the legislators having               
 served in the legislature himself.  She stated when all was said              
 and done he would be able to see his fingerprints.                            
 TAPE 96-12, SIDE B                                                            
 Number 999                                                                    
 MR. ROGERS said the Commission recognized passing legislation took            
 a lot of time and work.  It was harder to work with 60 people than            
 15 people.  He cited the goals of the Commission would be met if              
 the legislature would be able to meet some budget targets by the              
 end of the session.  It would be good for Alaska as well as the               
 bond market and business climate.  He further stated economic                 
 development was not included as a recommendation because it was               
 discovered it generally did not pay its own way.  He said economic            
 development required more services creating a larger gap.  He                 
 stated that it was a very perverse situation and most other states            
 had a form of taxation so that economic development yielded enough            
 to cover the state expenditures.  The current situation, he                   
 alleged, created a disincentive.                                              
 Number 981                                                                    
 REPRESENTATIVE JAMES responded she agreed with Mr. Rogers that                
 economic development by itself could not help the state treasury.             
 However, economic development went hand-in-hand with an income tax            
 to develop the infrastructure needed.  She stated it must not be              
 left out of the formula otherwise there would be a worse problem              
 with a declining population and more and more people needing                  
 government services because they could not find work.                         
 MR. ROGERS said the Commission agreed with Representative James.              
 REPRESENTATIVE JAMES replied she was glad Mr. Rogers broached the             
 subject.  however, she was disappointed to not see economic                   
 development included in the plan, but she understood it was                   
 difficult to address.                                                         
 MR. ROGERS responded there was the possibility of pairing economic            
 development discussions with a broad based tax, but there was not             
 enough time.  He said certain economic development paid its own               
 way, and recommended looking at balancing that.                               
 Number 966                                                                    
 SENATOR RANDY PHILLIPS announced in about one week he would be                
 forwarding to Mr. Rogers the views of his district regarding the              
 plan, and suggested he take a good hard look at it because it would           
 be interesting.                                                               
 Number 963                                                                    
 MR. ROGERS reiterated the goal of the Commission was to not find              
 the most politically popular set of recommendations, but rather to            
 recommend a balanced plan that would get the most votes.  He said             
 he would be very interested to see how the constituents would                 
 replace the pieces they did not like.                                         
 SENATOR RANDY PHILLIPS said he would mail it to all the members               
 next week.                                                                    
 Number 960                                                                    
 SENATOR LEMAN said he appreciated the work of the Commission and              
 the information presented.  He cited the reduction recommendations            
 were fairly modest, and the plan lacked specific reductions in                
 other areas of the formula programs which were a big part of                  
 government cost.  He stated this legislature was unable to address            
 significant budget reductions in the education; and Health,                   
 Education and Social Services (HESS) budget, for example.  He                 
 commented there were ways to do it, and wondered if the Commission            
 spend time addressing formula programs.                                       
 Number 946                                                                    
 MR. ROGERS responded the Commission looked at the formula programs            
 and spent a good deal of time on the public school foundation                 
 formula.  At the same time, however, there was another task force             
 working on the formula so it was set aside.  Similarly, in the                
 welfare reform area, the Governor and the legislature were close to           
 passing legislation this year and recognized the difficulties.  He            
 said there would be harm done to some areas of the budget if it was           
 looked at from the status quo, but if it was looked at in fairness,           
 harm took on a different meaning.  He cited there was a wide                  
 variety of opinions expressed to the Commission regarding the                 
 Permanent Fund Dividend Program.  Some Alaskans thought it was                
 absurd the state gave money to every resident when it was short of            
 cash, and some Alaskans believed it was a sacred right.  Similarly,           
 some Commission members saw cutting the dividend as taking money              
 away from Alaskans, while others saw it as money yet to be given,             
 therefore, not taken away.  He said the universal entitlement                 
 programs were the hardest to address in any state government, and             
 the dividend program was a universal entitlement.                             
 Number 916                                                                    
 SENATOR DUNCAN appreciated the work the Commission had done to                
 produce a good foundation to resolve the fiscal problems in Alaska.           
 He stated it took a multi-faceted approach.  He cited it was                  
 commonly heard from the public to solve the fiscal crisis by                  
 cutting spending only when, clearly as the Commission recognized,             
 a reduction in spending alone would not close the fiscal gap.  He             
 further stated he appreciated the approach of responsible                     
 reductions, the need to stabilize revenues, and the need to look at           
 the Permanent Fund as the final element of any plan to close the              
 fiscal gap.  On the other hand, he was concerned about some of the            
 recommendations.  He asserted he was not criticizing the Long-Range           
 Financial Planning Commission and if any body should be criticized            
 it should be the legislature because it did not give the Commission           
 enough time and money.  He said he was afraid the suggestions made            
 might lead the public to believe this was an easy task when it was            
 not.  He cited the education formula program.  He was not sure how            
 to decrease the education budget when the population was                      
 increasing.  The growth was natural, he stated.  The inefficiencies           
 needed to be reduced, but not the growth for proper education.  He            
 also cited the correctional system.  There was an increasing                  
 population and tougher crime laws that required more spending.  He            
 cautioned the public that talking about reducing government                   
 spending and actually doing it were two different things.  He said            
 he was not convinced a great reduction was possible in the overall            
 growth and education funding or the correction program.  He further           
 cited the Tier III retirement program might not be in the best                
 interest of Alaska as it tried to attract and retain quality school           
 teachers and state employees.  He further said the revenue base               
 needed to be stabilized and suggested looking at the income tax               
 over a consumer tax because it captured lost income.  He cited                
 approximately $900 million in salaries went outside Alaska.  He               
 said there were other alternatives to the Permanent Fund and                  
 thanked the Commission for considering them.  In conclusion, he               
 stated, the Commission did a good job, but he disagreed with some             
 of the specifics.  He asked Mr. Rogers why the nonresident income             
 tax was deferred to the year 2002, and to respond in general to his           
 allegation the cuts were not as easy as the plan implied.                     
 Number 861                                                                    
 MR. ROGERS responded the Commission discussed the target amount to            
 cut, and the affects of inflation.  The majority of the Commission            
 members believed reaching $100 million over three years was a real            
 challenge because of the $200 million worth of inflation.  There              
 were also unfunded needs that needed to be addressed during the               
 period, such as the maintenance of roads, harbors, airports, and              
 highways.  He said the state's infrastructure was declining in                
 value because it was not being maintained.  He also cited the                 
 federal government's budget problems and wondered if more financial           
 responsibilities would be shifted to the states.  The Commission              
 did not leave room to accommodate those issues, it just said to set           
 the target level.  He reiterated it would be a very difficult task.           
 The legislature cut the budget in the past two years, and the                 
 Commission was asking for even greater cuts.  He said it was                  
 assumed the legislature made the easier cuts before the harder                
 MR. ROGERS said the Commission projected the growth in the school             
 and corrections areas.  The Commission did not expect the programs            
 to stop growing, but that the rate of increase would slow down                
 which required changing elements of the formula.  The majority of             
 the Commission members felt that the income tax would not be                  
 supported until the budget cut targets were reached.  Some felt the           
 tobacco tax, for example, had more wide-spread support and the                
 Commission members had to give up something to put together a plan.           
 Number 814                                                                    
 CHAIRMAN SHARP said a moving five year plan was realistic because             
 it allowed gradual implementations and measurements.  The                     
 measurements would determine the effects of the implementations               
 that could change the plan the following year.                                
 Number 802                                                                    
 MR. ROGERS wished the legislators good luck and hoped an agreement            
 could be reached between the House, Senate and Governor.  The vast            
 majority of Alaskans believed closing the fiscal gap was a top                
 priority for this legislature.                                                
 Number 798                                                                    
 CHAIRMAN SHARP again thanked Mr. Rogers and Ms. Brady for their               
 efforts these past six months.  The plan provided a lot of tools              
 and everyone would put a lot of effort forward to see what could be           
 put together.  Thank you again.                                               
 CHAIRMAN SHARP recessed the Senate State Affairs Committee meeting            
 and adjourned the Joint House and Senate State Affairs Committee              
 meeting at 4:45 p.m.                                                          

Document Name Date/Time Subjects