ALASKA'S POTENTIAL

JIM BORSETTI
Palmer, AK
JUNE 26, 2003

The battle for Alaska's future is being waged and the middle class is losing. It is time we examine our present fiscal realities and evaluate the relevance of our old fiscal policies. Can we design a plan that nurtures the wealth of all Alaskans?

Let us assume our proposal was in effect fiscal 03. We will solve the fiscal gap without harmful budget cuts, a State tax or increases in local taxes. We can have earnings based dividend checks. While our savings accounts, the Permanent Fund (PF) and the Constitutional Budget Reserve (CBR), grow.

The truth is we are incredibly wealthy. Our leaders are withholding unimaginable riches, while they hang on to plans designed for past situations. We must do away with the mindset of saving ourselves poor. Another folly is to embrace other State's systems such as internal taxation. We also have to compromise the use of our wealth between our public and private sectors.

First, the budget should not be needlessly cut. Jobs are being lost and people's finances ruined. Are oil company cuts, less federal spending or private sector cuts good for the economy? State cuts are just as stifling. Many of the proposed cuts will just burden local governments.

Second we impose a State tax on the tourist. Tourism can contribute more to our public sector. Fifty dollars each earns 150 million. This alone funds the Longevity payments as well as the other 100 million of cuts.

The next two actions require Constitutional amendments that reflect new fiscal realities. It takes a unified Alaska to make them work.

Step three removes waiting five years before we can add additional oil revenue into our State's cash flow. Our Governor wants to tax the people 300 million, while we deposit 400 million of oil revenue into the PF. So in actuality our Governor would be taxing the people 300 million to deposit it in the PF. This is unacceptable. The PF is so huge it no longer needs oil revenue. In fiscal 03 it has earned 2,941 million. Oil deposits into the PF are obsolete; their absence would not noticeably affect the dividend. The PF's growth is based on market trends. In good markets it earns billions, in losing markets it makes more sense to have our oil revenue available to the budget than depositing it into a bad market. This leads us to step three of our plan.

This requires a Constitutional amendment redirecting the 25% of oil revenue deposited into the PF into the Constitutional Budget Reserve. In the CBR these funds would be available, eliminating the need for a State tax. By redirecting the oil savings the CBR would grow.

In Alaska's present realities to design a fiscal plan we must make use of the vast wealth in the PF. Step four is an amendment implementing the Endowment system for the PF. We should adopt the formula of appropriating 5% of a five year averaged Fund balance. This is split 50% to the budget and 50% to dividends. This would result in a steady increase in funds to the budget, an increasing dividend check as well as an increase in the Funds balance. This system in fiscal 03 allows approximately 650 million to the budget. 03's deficit was less than 650 million so we would have not needed State cuts or taxes or use of the CBR. Another 650 million would pay dividends. Resulting in checks of about $1100. Under the existing system checks have been forecasted from nothing up to $1200. This Endowment system would result in 1.6 billion of earnings being deposited into the balance. The PF started 03 with 22,200,000,000. It would start 04 with 23,841,170,000. The CBR would have ended 03 at 2.3 billion instead of 1.5 billion.

Our plan was built on past accomplishments, then based on today's realities. We had 3.3 billion of earnings to solve a 600 million deficit. We used 650 million for dividends and our savings grew by 2 billion. We can enjoy the promise of Alaska. There is no so-called free ride. We either use our riches to nurture a prospering people or we can tax and cut and stifle our economy.