Juneau -- A new plan to resolve Alaska's ongoing fiscal gap has been developed and is receiving increased interest from all over the state. 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?

We remain convinced that Alaska needs a long-term, sustainable fiscal plan and that 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, we 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. Keep this in mind: 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.

It's an Endowment

First, 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 including 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 is also included. Any other new revenues that may be considered could be added to this account as well.

By coordinating all these funds in to 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.

We think it is important to remind everyone, that even under our current system, the continued payout of dividends is not certain. Let us repeat - the payout of dividends is not certain under the current system. 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.

Is it Fair?

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. Remember 1986 when oil prices fell and state spending had to be immediately and drastically cut? Banks failed, 22,000 Alaskans lost their jobs, property values crashed more than seven billion dollars and bankruptcies reached almost 100 a month. It's essential to initiate a plan to help prevent the economic tragedy experienced by our Alaskan families just over a decade ago. Would it be fair, knowing what we do about our fiscal gap, for us to sit back and do nothing?

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 healthy dividend for many years to come.

It's Safe and Logical

We believe 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 Gail Phillips
Representative Jim Whitaker
Representative Bill Williams

1. ELEMENTS OF THE ALL-ALASKAN PLAN



1. Prioritizes spending and services
2. Develops a sustainable revenue base
3. Establishes the Alaska Income Account which will grow over the years
4. Includes the following new revenues and places all in the Alaska Income Account:



1. Tobacco settlement/annual $30.0 Million
2. School Tax - $100/year due July 1st each year $28.6 Million
3. Fuel Tax (Governor's Bill)/annual $27.0 Million
4. Cigarette Tax/annual $32.0 Million
5. Rental Car Tax/annual $5.0 Million
6. Business Licenses Doubled/annual $4.0 Million


5. Consideration of annual deposits from the following:



1. Alaska Railroad
2. AHFC
3. AIDEA
4. ASTF


6. Inflation proofs at the long term rate of 3%
7. Establishes price of oil for planning purposes at no higher than $13.50 bbl.
8. Continues budget cuts through year 2004
9. Assumes population growth to 775,000 by 2015


2. LONG RANGE PRIORITY FOR SPENDING & SERVICES

K-12 Education


1. Put into place curriculum, testing and money to make sure every Alaskan school child graduates from high school in the top 1/3 of the National Rating System.
2. Prioritize vocational education of all opportunities applicable in Alaska today; develop direct apprenticeship programs for students going from high school into a vocational job.
3. Reformulate college-bound students into a grades 10-14 program so they receive first two years of college in our university system and can intermingle beginning college classes during their last year of high school.
4. Put into place program to reduce and delete high school drop-out rates.

University


1. Delete beginning or remedial courses; high school students will have to qualify for full college status; the grades 10-14 program can be tied into this goal - local school districts must be educating high school graduates to enter a full university curriculum - not to take remedial courses in college because they didn't get the education in high school.
2. Reorganize all the community colleges and have their mission focus on tele-education and vocational education. Have only the campuses in Fairbanks, Anchorage and Juneau provide four-year curriculum.
3. As much as possible, consolidate all schools of study into one location and make each community college develop a specific specialty, such as Arctic environmental study in Kotzebue, mining in Nome or whatever. By doing this, we strengthen the missions of the community colleges and give them the opportunity for expansion and growth.
4. Increase Alaskan student enrollment through incentives, scholarships and availability of diversified curriculum through expanded community colleges and tele-education delivery.

Statewide Transportation System


1. Prioritize expansion of transportation network to all viable resource projects in the State.
2. Insure transportation access throughout the state - finalize all RS 2477 designations.
3. Expand and build a Northwest rail system from the Arctic Coal Project south to Kotzebue, Nome, Unalakleet and the mouth of the Yukon at St. Michael. Expand this rail line north to Point Lay and possibly Pt. Barrow. Not only will this expansion provide cheaper energy source to this whole section of Alaska, but it also creates a vast transportation system in which Alaskans can create commerce.
4. Build a trans-Alaska rail line from Fairbanks to Nome; tie this into the Arctic Rail line
5. Build roads into all mining projects that are now in the process of being developed, such as the Donlin Creek Mine, Pogo Mine, etc.
6. Upgrade all harbors in the state that need it and transfer ownership to local municipalities. Develop a program with local governments to designate marine fuel tax for maintenance of harbors.
7. Build a fast, light rail commuter train to serve Anchorage from the Matanuska Valley.
8. Designate the highway fuel tax now being paid for maintenance of highways throughout the state.

Statewide Energy Network


1. Fully develop Cook Inlet gas reserves.
2. If gas pipeline is built, guarantee percentage of gas to in-state users.
3. Distribution of Red Dog excess energy to users in the NANA Region.
4. Build an Arctic rail distribution system to bring Arctic coal to areas of Northwest Alaska.
5. When development of ANWR and NPR-A occurs, ensure distribution of this energy resource to residents of Arctic Alaska.
6. Develop all known types of energy, fuel cells, LNG, cold water fuels, shallow gas wells; and, build a transmission system for providing cheaper power to all communities in the state.

Deferred Maintenance


1. Complete all deferred maintenance projects on the 1998 priority list.
2. Provide legislation protecting the maintenance portion of every budget to insure the deferred maintenance problem does not reoccur.

Public Safety


1. Make sure public safety is a priority in all populated areas of the state.
2. Coordinate state efforts with that of local communities for insuring local involvement.
3. Wage a statewide war on the debilitating effects of drug and alcohol abuse.
4. Create intense work programs for non-violent offenders.

Water, Sewer, Public Health


1. Complete water and sewer projects to all population centers in Alaska.
2. Coordinate public health and medical care through statewide network of tele-medicine delivery.

Resource Development and Commerce


1. Actively solicit investors and entrepreneurs to develop all major resources in our state.
2. Complete all RS 2477 designations and acquire guaranteed title for Alaska in order to guarantee access.
3. Ensure access and transportation networks in order to develop resources.
4. Establish and Arctic Gold Exchange in Alaska in cooperation with Canada, Russia and Japan.
5. Continue work on the development of ANWR and NPR-A.
6. Capitalize on renewable fisheries.


3. SUSTAINABLE REVENUE BASE


Short-term


1. Fund K-12 education from earnings of the Earnings Reserve Account
2. Cut $45 - 50 million in this year's budget
3. Put tobacco settlement into health care budget
4. Fuel Tax to go into maintenance of highway and harbors

Long-term


1. Coordinate all funds into one income account to be managed for maximum return and for guaranteeing draw for the gap - this would include funds from the CBR, Earnings Reserve, AIEDA, AHFC, ASTF, the railroad, etc. These funds would be accessible by a majority vote of the legislature. Include legislation for a constitutional vote to de-authorize the CBR. All future tax settlements will go directly into the this income account
2. Institute a $100/year school tax to be paid by every employee in Alaska on July 1
3. Mandate that all state travel mileage be placed into the state transportation budget and none to anyone's personal account
4. Divest the state of the Matanuska Maid Dairy. Turn this over to private sector at NO further expense to the state.
5. Make certain all fuel taxes collected - both highway and marine - go to maintenance. Check to see where aviation fuel tax goes, and designate it for maintenance, if not already there.

All tobacco taxes and tobacco settlements go directly into income account