The "All-Alaskan Plan" is the work product of a group of members of the House Representatives and will hopefully serve as a template for a long-term, sustainable fiscal solution for our state.

Why Do We Need a Plan and Why Do We Need It Now?

Alaska needs a long-term, sustainable fiscal plan and we need it now. The State of Alaska has not had one budget that has stood on it's own since 1992. Over $3.4 billion has been borrowed from our savings accounts to balance these budgets despite over $275 million in spending cuts over the past several years. Even with these difficult cuts, the legislature will have to withdraw another $1.2 billion this year just to balance the budget. Some have suggested a personal income tax to bridge the gap. An income tax is estimated to generate a maximum of $350 million annually, still leaving us almost $850 million short! Others have expressed support for a statewide sales tax. Estimates are that the revenues produced by a 5% sales tax would produce only $300 million, still leaving us with a deficit of $900 million. These measures fall woefully short of the revenue needed to fund essential services. In addition, the public as a whole has indicated that they do not support the institution of such measures.

Every year that we just continue to spend our savings down to fill our billion dollar-plus deficit, forces us to take more drastic action later. The deficit does not go away this year. Next year's deficit is also projected to be close to a billion dollars. Without taking definitive action now, we put off the hard decisions that will, without a doubt, become only harder to make. Each year our options to bail ourselves out become more limited. As we continue to drain our savings, we forever lose the opportunity to generate income from these assets.

The All-Alaskan Creates an Endowment

The All-Alaskan Plan is an endowment plan. It creates the Alaska Income Account, which replaces the current Earnings Reserve Account. Net income from the Permanent Fund continues to accrue to this account. Each year 5.25% to 5.75% of the market value of the Permanent Fund and our other savings accounts would be removed from the Alaska Income Account and deposited to the general fund to pay for essential services and dividends. The plan does not take a dime from the corpus of the Permanent Fund.

Additionally, the plan calls for the deposit of certain revenues directly to this new account could include a school tax of $100 a year for every employed person, contributions from the Alaska Railroad, the Alaska Housing Finance Corporation, the Alaska Industrial and Export Authority, and the Science and Technology Foundation. The proceeds from the Governor's proposed nine cents a gallon motor fuel tax are also included. Any other new revenues that may be considered could be added to this account as well.

By coordinating all these funds into one account we can maximize our investment return. Like any good endowment, the corpus of the permanent fund remains untouched, is inflation proofed and continues to grow. The difference between the endowment payout from the Alaska Income Account and the Permanent Fund's long-term earnings of over 8% will remain in the corpus for inflation proofing.

The assumptions we have based this plan on could be called conservative and even a bit pessimistic. In it, the price of oil over 10 years does not exceed $13.50 a barrel. The plan does not include any new revenue that may occur from additional resource development such as a new gas pipeline or added oil production. We have been making real cuts to our State budget for the past nine years. The plan continues responsible budget reductions, but in later years it realistically considers increased costs for education, formula programs and other state programs as our population grows.

To implement this plan there is no income tax required and no statewide sales tax is proposed. The endowment works because of increased earning power, reductions in state spending, and reduced dividends not to exceed $1000. Please understand, however, that higher oil prices, higher investment earnings, new production, lower population growth or just less government spending could serve to raise the dividends in later years. As there are only so many components in any fiscal plan, a higher dividend would require the addition of an income tax or statewide sales tax. At this time we believe most people would find that combination unacceptable.

Even under our current system, the continued payout of dividends is not certain. We have been blessed with a bull equities market for many years. The possible reversal of this market trend, combined with the required statutory inflation proofing of the fund and increased population growth could also severely impact our future dividends.

The All-Alaskan Plan Assures a Stable Financial Future

The All-Alaskan Plan closes the fiscal gap and provides sustained funding for essential and responsible state programs and services. By removing much of the uncertainty about the State's role in our overall economy, this plan will also serve to stabilize employment, protect property values and foster economic growth.

We are a young and growing state. We must take action sooner, not later, to assure that we can support our priorities of education, transportation, energy, public safety, deferred maintenance, water and sewer, resource development and social services. The All-Alaskan Plan can do all that - and still pay a dividend for many years to come.

It's Safe and Logical

The endowment approach is the safe and logical template on which to design our fiscal future. We believe that this plan or some variation of it must be enacted before this session ends. We urge the Alaska people, the Legislature and the Governor to fully consider the merits of the All-Alaskan Plan. We encourage your ideas, suggestions, and recommendations as we make progress in resolving the fiscal gap. If anyone has a better idea or improvements to this plan, we remain open to listen. To do nothing is not an option.

Representative Alan Austerman
Representative Gary Davis
Representative Bill Hudson
Representative Carl Morgan
Representative Lisa Murkowski
Representative Gail Phillips
Representative Jim Whitaker
Representative Bill Williams

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