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HomeMy WebLinkAbout1996-01-25 Council Packet - Work Session Town Hall MeetingCITY OF KENAI 210 FIDALGO AVE., SUITE 200 KENAI, ALASKA 99611-7794 TELEPHONE 907-283-7535 FAX 907-283-3014 ~ 1992 MEMORANDUM TO: FROM: DATE: RE: Commission, Committee and Board Members City of Kenai John J. Williams, May~'" City of Kenai December 19, 1995 TOWN HALL MEETING City of Kenai The Kenai City Council has scheduled a Town Hall Meeting for 7:00 p.m. on January 25, 1996. The meeting will be held at the Kenai Senior Center. The purpose of the Town Hall Meeting is to listen to and discuss long-range fiscal planning for the State with local legislators (via teleconference call) and representatives from the State's Long Range Financial Planning Commission. Council invites you and members of the public to attend the meeting and offer any comments you may have. After listening to the concerns of the public, Council plans to draft a resolution supporting the concerns which the community feels strongly about. After action on the resolution, it will be forwarded to the Commission and our area legislators. JW/clf December 19, 1995 CITY OF KENAI 210 FIDALGO AVE., SUITE 200 KENAI, ALASKA 99611-7794 TELEPHONE 907-283-7535 FAX 907-283-3014 ~ 1992 Judy Brady, Vice Chair State Long-Range Financial Planning Commission 716 West Fourth Avenue, Suite 470 Anchorage, AK 99501 RE: TOWN H/ILL MEETING City of Kenai The Kenai City Council has scheduled a town hall meeting for January 25, 1996 which will be held at the Kenai Senior Center beginning at 7:00 p.m. The main topic to be discussed will be the State's long-range financial planning, recommendations of the Commission, and expected effects from those efforts to dose the fiscal gap. After hearing the concerns of the audience, Council plans to draft a resolution supporting concerns which the community feels strongly about. After action on the resolution, it will be forwarded to the Commission and our area legislators. We invite you and other representatives from your office to join us at the meeting. We hope you and others will speak to the audience, updating us on the Financial Planning Commission's findings and recommendations. We also request 200 copies of the publication, An Endowment for Alaska's Future, The State Long Range Financial Planning Commission Report be forwarded to this office. We plan to have them available for the public at the meeting. We look forward to hearing from you. CITY OF KENAI System of Sustainable State Spending How government is financed in Alaska · The State enloys an endowment composed of the revenue from the sale and taxation of natural resources, and of the income from the investment of that revenue.~ · A substantial part of-the endowment is available for appropriation.2 A problem · The size of the spendable part of the endowment varies considerably because of the short and long-term fluctuation of the natural resource revenue that feeds it. · When that part of the endowment expands, the Legislature spends freely from it. · When it shrinJcs, the spending can't be continued at tt~e accustomed level. · Then state programs are curtailed. · And the economy, which in Alaska is dependent on continuous state spending, suffers.3 The remedy · Replace the present system with one under which the Legislature would have to spend from the endowment at a sustainable rate? A proposed system · The endowment is formalized.~ · It is invested for long-term capital appreciation. · Every year, the amount that it's expected to grow, from investment only, is spent.6 · That rate of spending is the highest sustainable.? reverse/ ! That's what the federal government intended when it gave the natural resources to the State. It was unde~tood that. in ~dition to the t~xing power that every state has. Alaska would need wealth to pay for government. Several funds embody the endowment, which ha~ not been formalized: the Budget Reserve Fund. the Earn in gs Reset'ye Account. the Alaska Permnnent Fund and the C,~nern~ F~nd. 2 The part that is not available for approprin~.ion is the Alaska Permanent Fund, ~) Spending wa~ cut in 19~6. The economy collapsed. '~ In this outline, rate of spending is amount spent per year. The rate is sustainable if it's ren.~onable to expect that it generally won't decrease, in real (inflation-adjusted) terms. 5 That would define na~,ural resource revenue, put all of the endowment's a.~et~ into a single fund {the Alaska Permanent Fund) and generally prohibit appropriation from the endowment 6 The amount of expected growth from investment is a function of a fixed rate of real growth from investment and value of the endowment. A fixed rate of real growth from investment is determined by assuming a ra~ of toutl return on investment and a rate of infla~.ion. Value of the endowment is the average of its market value at the end of each of a prescribed number of preceding calendar periods. 7 Highest. bec~us~ spending more thn.n th· re~l growth eXl~cted fr~m inv·stm·nt could make th· ~endowment too dependent on fluctua~,ing natural resource revenue. SustaJ.nable, because it's reasonable to expect that the size of the endowment, as ~v·rn~ed, g~n~rally won't decrease, in real terms. (In a giv·n year the size of the endowment would decrease, ~t least in real terms, if the real growth from investment were le~ than the amount spent and if that year's n~turn, I resource revenue didn't make up the difference.) The principal advantage of the proposed system · It is much less likely that periodic curtailment ol' state programs, and the resulting economic busts, would occur. Another advantage · A meaningful budget becomes feasible, because during the budgetary process the Legislature would know how much money is available for spending,s Transition · During a period of many years the rate of spending from the endowment would be gradually decreased, at least in inflation-adjusted terms, to the rate that is the highest sustainable.9 · The length of the period would be determined with the objective of providing the most moneT' for spending and yet allowing the endowment to increase in size.l0 I mple mentation · The proposed system and transition require a constitutional amendment. Il Obstacles to implementation · The temotation to keet) on s~endint from the endowment at an unsustainable rate rather than face the cuts that adot)tion ~)f the ~)ro~os(~d system would entail.la · The misconception that the proposed system would eliminate the dividend program. IS Roger Cremo- 1/1/96 8 Except for what comes from sources outside the endowment, but that's easy to forecast. 9 A transition is necessary because the current rate of spending is much greater than what is sustainable. not only in terms of the spendable part but of the entire endowment. l0 Incongruously. a determination of the length of the transitional period must be based, in part. on the official forecast of natural resource revenue. 11 Constitutional amendments s. re proposed by the Legislature nad approved by the people 12 Nominally. the cuts would be shallow (if revenue from sources outside the endowment is modestly incrensed and the transitional period is not too short).. In real terms they would be deep. However. unlike the devastatingly abrupt cuts that might occur under the present system, they would be gradual. 1:) That program, like other governmental programs, is not constitutionally protected. Both now and under whst's prnpo~d, it is for the Lesisls~ure to decid~ whether to continu· it Under the prol~osed system. howe,'er, it may have a better chance of sureiving cuts in spending. Present System of State Spending I I IPermanent Fund Earni rigs Reserve Acount Buret Reserve Fund General Fund unsustainable income unsustaineble spending System of Sustainable State Spending Natural Resources People Endowment Permanent Fund sustainable income .-~ IGeneral Fund sustainable spending CONSTITUTION OF THE STATE OF ALASKA fpropo.eed amendment./ ARTICLE IX. SECTION 15 - ALASKA PERMANENT FUND (a} Eevenue derived by the State (1) From the disposition, by the State or the United States, of land, minerals, forestial resources or biological marine resources; and (2) from taxes (A) on the reservation, production, transportation or processing of those natural resources; and (B) on property used in, or corporate income from, the exploration, production, transportation or processing of those natural resources; and (3) from claims, against the United States or others, for deprivation of that revenue, or that land or those natural resources constitutes the Alaska Permanent Fund, which is invested and reinvested for long-term capital appreciation. Investment income, including realized capital appreciation, is retained in the fund and reinvested. Investments are made in accordance with standards prescribed by law. (b) Money in the fund cannot be appropriated. Every fiscal year an amount equal to ~ percent of the average of the fund's market value at the end of each of the quarters of the calendar years immediately preceding is permanently withdrawn from the fund and is appropriable. (c) Oil, gas, coal, sand, gravel, stone and water are considered to be among the minerals that are the subject of (a). ARTICLE XV. SECTION 29 - ALASKA PERMANENT FUND TRANSITION (a) The percentage prescribed in Article IX, Section 15, as amended in 1996, for determining the amount of money withdrawn annually l'rom the Alaska Permanent Fund, is inapplicable in fiscal years 1998 through 20 . In the first year of that period the applicable percentage is It decreases each fiscal year thereafter, geometrically, until the first year after that period, when it attains its permanent value. (b) The assets of the Budget Reserve Fund (Article IX, Section 17) and the Earnings Reserve Account {AS 37.13.145) are added to the fund on the effective date of this section. For the purpose of determining the average of the fund's market value, as required by Article IX, Section 15, as amended in 1996. those assets are treated as if they had been added to the fund three years before the period in (a). (c) In addition to the revenue and investment income described in Article IX, Section 15, as amended in 1996. the fund consists of the assets carried on its books on the effective date of this section and the assets added by (b). (d) Article IX, Section 15, as amended in 1996, does not affect other dedications permitted by Section 7 of that article. ~ (e) Article IX, Section 15, as amended in 1996, and this section are effec~e July 1, 1997. ARTICLE XV. SECTION 30 - REPEAL Article IX, Sections 16 & 17, and Article XV, Sections 27 & 28 are repealed. This section is effective July 1. 1997. 0~--~0~0~~00000000000~ ~~ooooooooooo~ooooooooooooo ~ndowment Notes ~ The State has an endowment, which presently contains the natural resource revenue and investment income that have accumulated in various funds, principally the Alaska Permanent Fund, the Earnings Reserve Account and the Budget Reserve Fund. In the proposed system the endowment is housed in the Alaska Permanent Fund, to which the contents of the other funds ("reserves") are transferred at the beginning of fiscal 1998. For the purpose of determining the endowment's value in and after 1998 (see "Value of the endowment"), the transfers are treated here as if they had been made in 1995. In the future, all natural resource revenue is added to the endowment and all investment income remains in the endowment. Assinned values. The values assigned here to transitional withdrawal rates, length of the transition, final withdrawal rate, rate of total return and rate of inflation should be taken as illustrative only. Thus, for example, the system will work whether the final withdrawal rnte is six percent or five percent. Value of the endowment. The average market value of the endowment at the end of a prescribed number of preceding calendar periods (here three fiscal years) is the basis for determining the amount that is withdrawn from it for spending. Since the Permanent Fund Corporation does not report market projections, it is assumed that the unrealized appreciation component ($1.7 billion) of the Alaska Permanent Fund's -ealue at the end of fiscal 1995 will not change throughout the three-year period before fiscal 1998. Natural resource revenue. The natural resource revenue is deposited into the endowment when it is received (here each year's receipts are treated as if they are deposited at the beginning of the year). Projections for the years after 2015 are based on an unofficial extension of the trend before that. Withdrawal from the endowment. The amount withdrawn from the endowment for spending in a fiscal year is a function of the withdrawal percentage and the endowment's value. Withdrawals are made as the money is needed for spending during the fiscal year (here withdrawals are treated as if they are made at the beginning of the fiscal year). m I I I I I I I I I I I I I I I I I I I I I I I I I I I FiscalGap (present system) Notes Fiscal ~ao. The fiscal gap is the difference between projected income and anticipated expense. When a year in which there is a gap is reached, that gap must be closed by enhancing revenue, reducing expense or using reserves, or any combination thereof. Natural resource revenue (1). This does not include the part (10-15%) that goes into the Alaska Permanent Fund. Conventional revenue (2), Here, conventional revenue is all revenue other than natural resource revenue and the income of the Alaska Permanent Fund. Projections for the years after 2015 are based on an unofficial extension of the trend before that. Permanent Fund income (3). This is the income of the Alaska Permanent Fund, after inflation-proofing, with the rate of return assigned here. The fund's rate of total return does not apply, since it is assumed that all of the fund's appreciation is not taken into income. Incidentally, that rnte of total return probably would be less than the rate of total return of the endowment under the proposed system, given the difference in investment objectives. Anticioated ex_oense (5). This is a typical estimate of how much might appropriately be spent if sufficient income were available. When compared with projected income, it serves to define the fiscal gap as it appears before revenue is enhanced and expense reduction is planned. For 1996, it is approximately what has been budgeted. For 1997, it is nssu med to be unchanged. Thereafter, it increases nt the rate of inflntion. Enhanced conventional revenue (8), For 1998, enhanced conventional revenue is equal to the conventional revenue projected for 1997, increased at the rate of enhancement. Thereafter. it increases each year at that rate. Planned exoense ( 11 ). This is anticipated expense (5), reduced according to a typical plan to cut spending. For 1998, it is equal to anticipated expense (5) for 1997, increased at a rate equal to the rate of inflation tempered by the rate of reduction. Thereafter, it increases each year at that tempered rate. Thus, if anticipated expense for 1997 were $100, the rate of inflation were 3.5% and the rate of reduction were 1%, planned expense for 1998 would be $102.50. ~ The amount spent depends on whether income (1 O) and reserves, combined, are adequate. If they are, the planned amount is spent. If not, the amount spent is equal to income and reserves. 000000000000000000000000000 IIIIIII ..... - IIII!111111111111111 rdscalGap (proposed system) Not~ ~ The fiscal gap is the difference between projected income and anticipated expense. When a year in which there is a gap is reached, that gap must be closed by enhancing revenue, reducing expense or using reserves, or any combination thereof. Conventional revenue (2). Here, conventional revenue is the revenue derived from all sources outside the endowment. Projections for the years after 2015 are based on an unofficial extension of the trend before that. Anticioated exoense (4). This is a typical estimate of how much might appropriately be spent if sufficient income were available. When compared with projected income, it serves to define the fiscal gap as it appears before revenue is enhanced and expense reduction is planned. For 1996, it is approximately what has been budgeted. For 1997, it is assumed to be unchanged. Thereafter, it increases at the rate of inflation. Enhanced conventional revenue (7). For 1998, this is equal to the conventional revenue projected for 1997, increased at the rate of enhancement. Thereafter, it increases each year at that rate. Enhancement is included here only to illustrate the effect that it has on income and is not part of the proposed system. ~ Income consists of the the enhanced conventional revenue and the amount withdrawn from the endowment. It is the amount available for financing government, including its dividend program. Spend ( 11 ). As planned, the amount spent is equal to income. ..T. \ ,..ooz i ~ ~00~ - I 0 0 0 0 0 0 0 0 CZ Cfi 0 ~.. '0 0 ~ ~ t~ t-- tfl Securing Alaska's Fiscal Future The Growing Fiscal Gap Alaskans for A Plan Revisiting the Fiscal Gap: Are We Crying Wolf?. · In 1989, ISER projected a gap starting in FY · By FY 94, the gap would grow to $1 billion · In FY 92, a 'crash landing" was predicted Why are we still flying? Is a crash inevitable? Revisiting the Fiscal Gap · ISER's predictions in 1989 were: · Slightly high on oil prices · Accurate on oil production volume ,, Low on state revenues ,. Accurate on expenditures So, Why Hasn't Alaska Crashed? Answer: Oil and Gas Settlements Opportunity for a Mid- Course Correction: Adopt a Long Range Fiscal Plan Tools to Make Ends Meet · Spending cuts · increased taxes and user fees · increased revenues through economic development · Use resal'~es · Use Permanent Fund income Tool to Make Ends Meet: Spending Cuts a Alaska spends more than twice as much per capita as the national average · Education, criminal prosecution, correctional facilities, and road maintenance are primanly state-provided in Alaska, while are typically provided by local governments in ot~er jurisdictions · Alaska has unique programs, such as PF dividends, Longevity Bonus, and Pioneer Homes Tool to Make Ends Meet: Taxes · Rnances for a ~/picai' state · Personal income tax - Meetly used to finance state govemme~ - Mostly used to fina~e state gov®rnn~nl · Property lax - Moltly used to finance local govemmem ar¢l local schools Tools to Make Ends Meet: Sales and Income Taxes · States with no state sales tax: · Alaska. Delaware, Montana. New Hampshire, Oregon · States with no personal income tax: ,. Alaska, Florida, Nevada, South Dakota. Texas, Washington, Wyoming · States with no state sales tax and no personal income tax: · Alaska Tool to Make Ends Meet: Personal Income Tax · Earned income in Alaska economy · $11 billion · Portion eamed by non-residents - $1 billion . Ii $300 million is raised lmm an income tax. S30 million would come from non-residents Tool to Make Ends Meet: Personal Income Tax -- · If $300 million is raised from an income tax: · $213 million in direct spending is removed lmm the Alaska economy; $75 million in secondary spending is removed from the Alaska economy .3,700 jobs would be Ios~ by removing this direct spending from the economy 2 Tool to Make Ends Meet: Sales Tax · Volume of Alaska sales of goods and SSn/Jces · $9 billion · Sales tax is more regressive than personal income tax · Typical sales taxes exempt retail food sales, and health and social services Tool to Make Ends Meet: Sales Tax .......... ~,...~;.:.~:.~;~:~:~:~:~:~:~:~.:.~.~.;.~:~:~~..~,, - ........... · A 1% tax on retail trade and services would raise $59 million · A 4% sales tax would raise $236 million: , $20 million from non-residents · $215 million in direct spending removed from the Alaska economy; $75 million in secondary spending removed from Ihe Alaska economy · Total spending reductions ol $290 million results in the lost of 3,500 jobs Tool to Make Ends Meet: Exdse Taxes · Highway Motor Fuel · Each 1 cent/gaJon increases results in $2.9 million i3 additional revenues · Tobacco · Each 1 cent4:}ack increase results in $500,000 in additional revenues Tool to Make Ends Meet: Excise Taxes · Alcohol · Each 50 cent/gallon increase in liquor tax results in $550,000 in additional revenues · Each 5 cent/gallon increase results in $62,500 in additional revenues · Each lcont/gallon increase in beer lax results in $136,000 in revenues Tool to Make Ends Meet: Use Reserves · Constitutional Budget Reserve (CBR) Fund projected to have $2.3 billion balance by June, 1997 · if continue to spend CBR to fill the gap, state warrants will bounce on October 31, 2000 when CBR balance hits zero Proposed Long Range Plans · Endowment Plan · "Rieger Plan" · "Cremo Plan" · ARose Plan" 3 Endowment Plan · Recommended by Long Range Financial Planning Commission · Recommendations include: ~ cut state spending ~ Increase revenues ~ Establish the Permanent Fund as an endowment - Cap the Penaanent Fund dividend pool Endowment Plan: Cut S?endmg ............. ~:~,,~._.~._..._.,:~;~;~i;i;~.;:i;i;i:i;i;;:~;;;;:i:;;~;~$i~.:.:.~×,~ .......... · Cut $100 million over 3 years (nominal dollars) ~ $40 million in FY 97 ~ $30 million in FY 98 ~ $30 million in FY 99 · In today's buying power, this equals: · $300 million reduction - A 5% per year reduction in existing slam programs and services Endowment Plan: How to Cut Spending · State employee salaries and benefits · Adopt a Retkemen{ Incentive Program - Reduce retirement benefils for new employees · Consolidate administrative support functions · Reduce growth in formula-driven programs · Make propert7 tax exemption program a local option instead of unfunded state mandate · Review opportunities for privafization, contracting out, out-sourcing and in-sourcing Endowment Plan: Increase Revenues · Tobacco and alcohol tax incrsase · $1 per pack of cigarettes · Double alcohol taxes to about 10 cents a drink · Highway motor fuel tax increase - Increase from lowest in U.S. (8 cents/gallon) to na~onal average (22 cents) · Double motor vehicle license fees · Establish tourism industry taxes · income tax re-instated when gap reappears (FY 02) Endowment Plan: Permanent Fund is Cornerstone ~~4:.:..i;i;i;i ~ ...~..-~ ..... · Establish PF as an endowment · Sets payout rate oi 4% of the average market value for the preceding 5 years · Increase dedicated percentage of royalties and bonuses from 25% to 50% · Requires constitutional amendment approved by voters · PF Eamings Reserve deposited into the Fund once endowment established Endowment Plan: Cap PF Dividend ~ ~`~.~..~;::.if~:.E:~¢i~i;i~[~i;i~i~i~i~i~i;~.i~i~.:;~.~:~.~` · Step down the dividend payment ,, Current year payments total S565 million - Cuts the dividend p<~ol by $50 n'.llmn in each of next 3 yearn = Dividend payment amounts: - ~ 1995 - ~ 1996 - $8(30 1997 ,, Dividend pool capped - Frozen at $415 million; individual cln~de~,~ amoun~ no Iong~' tied to Fund's pe~ormance 4 Endowment Plan: Reserve Funds · Constitutional Budget Reserve Purpose Changed · $1,5 billion balance malraalned to be tapped only to cover oil pdce Iluctuations; excess balance deposited into PF · Requires constilulional amendment al:~mved by voters · PF Earnings Account eliminated; current balance deposited into PF when endowment established "Cremo Plan" ............... . .... ~..;:'2;~:;;~::-::~:~:i:i:i,.;i;..i:::~.~ ..... ' · Dedicate all existing natural resource revenues to lhe PF ~ Windfalls (ANWR) automatically go into PF · Pays out an annual revenue stream to be available for state spending . Difference between spending and payout would be made up with conventional revenues - If 4% payout rate adooted, in FY 98 would be $1.7 million deficit which would gradually disappear · Constitutional amendment so needs voter approval 'Rieger Plan" (SB 51) · Change distribution of PF earnings . Payout of PF earnings based on real earnings of PF instead of nominal - Fund i~ aut~natmally inflation pro~ed - Reeraind~ of earmngs is s~it equally ~n generate fum:l &nd PF div~oflds · Same taxes, fee increases, and spending cuts as endowment--except no income tax · Reserve funds are available for spending · No voter approval required "Rose Plan" · Uses Constitutional Budget Reserve Fund to fill gap ,, Takes $2.5 billion in unrealized capital gains out of PF principal and deposits it into CBR ,, Caps PF dividend pool at lasl year's level ,, Net PF income deposited into CBR · Gap reappears in FY 05 and grows · By FY 05, $10 billion in liquid reserves on the table AlaskanS for A Plan 5 Revenues and Expenditures billion $ 4,000 3,000 2,000 1,000 1996 1997 t998 1999 2000 2001 2002 2003 2004 2005 Fiscal Year DOR Revenues LRFPC Revenues FY96 Expenditures w/3% growth LRFPC Expenditures Souyce: Draft LRFPC Reporm; DOR Spring 1995 Revenue Forecast: OMB FY96 Spending Plan:' DOR expenditure projection ?/24/1995 Revisiting the Fiscal Gap: Oil & Gas Settlements II million $ 1,6OO 1,400 1,200 1,000 8OO 6OO 4OO ,, ISER " .......................... _~ ....... ! .................... ~- Z ~ / / Actual ........ ii- ..... "- ........... 200 i ...... ; ...... 0 ~ 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Fiscal Year ojr¢ Cz. II ,rowth of State Government: FY79 to FY96-Full Time Employees (Programs as Located Currently) Law-Oil & Gas til& Vet Affairs Law-Criminal Governor omm & Reg Afl Law-Civil Legislature Commerce Education Revenue Env Cons Natural Res Courts Labor Fish & Game Pub Safety Admin-Oper Corrections Health & SS Trans & PF University I 0 1,000 Full Time Employees FY79 11,358 FY96 17,511 1 FY79 Increase to FY96 2,000 # of employees 3,000 4,000 Growth of State Government: FY79 to FY96 (Programs as Located Currently) Trans & PF Revenue Fish & Game Education Admin-Oper Governor University Labor Mil & Vet Afl 2omm & Reg Afl Pub Safety Health & SS Courts Natural Res Env Cons Law-Civil Legislature Law-Criminal Commerce Corrections 0 · oduct of Popula':tio :n Gro'Wth &, Inflation , , I 50 100 150 200 250 300 Percent Growth in General Fund $ Growth of State Government: FY79 to FY96 (Programs as Located Currently) Governor Admin-Oper Labor )mm & Reg Afl' Education Law-Civil Pub Safe~. Courts Trans & PF Revenue Fish & Game Legislature Law-Criminal University Natural Res Health & SS Commerce Env Cons ,~il & Vet Affairs Corrections ProdUct Of Population GroWth & Inflation 0 50 100 150 200 250 Percent Growth in Total $ 393 445 631 300 Projected Constitutional Budget Reserve Fund Balance aillion $ 2,500 2,000 1,500 1,000 500 October 31, 2000 1995 1996 1997 1998 1999 2000 Calendar Year 2001 SENT BY:OFFICE OF THE GOVERNOR; 8-61-48 ; ?:2g ; g?~ gO? 283 3014;# 2 GOVERNOR JUNEAU 1996 State of Budaet Address BY Alaska Governor Tony Knowle~ January 11. 1996 for releare until 8 p.m.; text ~ubject to cha~ President Dme Pearce, Speaker Oall Phillips, members of th~ 19th P.O. Box 110001 Juneau, AlasKa 99~11-00~1 Alaska Legislature, Lt. Gov. Fran Ulmcr, members of my cabinet, my wife Susan and fellow.~Maskans. Two evenings ago, I de.scribed a journey for Alaska's Family as 'w~ embark on a five- year expedilion t~vard the 21st cenutry. ~ us dram safe and sound r~luires thai we are properly equipped, thai we possess the basic gear I de.sc,-ibe as the commo Alaskans - jobs, better schools, safe, healthy communitics and budget disci Tonight I focus on d~c ~ necessity for our journey - budget disc we're not go~ng au vhere. Our greatest challenge ~ legislative session is to naviga~ Alaska' a sa~ landing as wc go from one that's Prudhoe Bay-based to an economy and more secure. The good news is, we can maks it So let's mr~ t~is journey - I urge thc Legislature to commit to a re.. ac~on ~o balance Alaska's budget in no more flmu six years. ThsI's what balance. Let each off us be judged on our abilily to balance the budget, whib ladder of opportunity for Alaska famih'es. Can we agree to help ~ privale sector create jobs, so fewer Alaskt us require state assistance? Can we agree to iml~'ove our schools, so our children are prepl red for the competitive global economy? Can we ~ to improve our schools so fl~at maybe - just maybe - we don't have ~o build so many prisons in the furore? Can we agrcc to properly manage our fish, wil&!ice and wildlands, ~ future generations enjoy ~ benefits? Can we a~rce to protect our homes and ne~hborhoods, so Alaskans are safe in our communities? Ca~ we agree thai hirning our backs on tll~se cssent~l services is is what I mean by a safc la~,tlng for Alaska's families and I believe we cm The m-.o~itude of thc problem wo collect, ivcly fac~ is enormous - a which lids year alone is ncarly half a billion dollars. Without responsible a~ reSP°nsiblc people in ti'ds room, the jobs, homes and businesses of Alaskan risk. So is Alaska's long-term financial security. a vision of )line. )]i~. Without it, economy toward that's diversified ~onsible course of mds d ipUn holding s'~.ady the acceptable? This mdget shortfall tion by f-r~ilies are at SENT BY:OFFICE OF THE GOVERNOR; 8-61-48 ; 7:30 ; 97~ 90? 283 3014;~ 3 Balancing Alaska's budget requir~ a plan - a commitment to available to us. The~ are thos~ who will offer .*impUstic, bumper sticker s clah~ may be memorable, but they don't measur~ up. Serious problems d solutions. Last year, virtually ail of us here agreed we needed a plan when va Range Financial Planning Commission. Senate President Pearce and Hous~ jointly sponsored the resolution that establlnhed tho commission, and I core your leadership. The commission - 10 members appointed by the Legislature and summer developing a long-term fmaagisl plan. This bipartisan group of 1 long and hard and de~erv¢ our thanks. LI thc tools ~lutions. Their nnend serious creal~d thc Long- Speaker Phillips mend you both for · by' mo - spent all Alsskans worked Speaker Phillips bas suggested - and I tlgnk it's a great idea - that tl~.p Lcsislatur¢ devote the initial weeks of this session to hearings on this plan. I urge a result or]these hearings be a £~rm legislalivc c, owrnillllont tO ba]anc~ AIMk~'s budget in no more than ~ix y~ars. Alaskans deserve no leu. | The financial commission realized there are no easy answers when ~t devised its plan. That's why it recommended using a ~mbination of all thc tools in Alaska'is toolbox - budget cuts, user fees, taxca and th~ earnings of thc Permanent Fund, while growh the Fund's principal. While not peri'~ the plan is a solid start. I~ most commendable fi works - th~ numbers add up, it balance~ Alaska's budget. Tonight, I want to share with you tl~ task thc cornmi~on faced. A try something a little different for a budget address - while you in thc chau outs on your desks, we'll be showing the illustrations to those ~ng on In Crraph l, you can se~ that for this year, Alaska has a budget gap beiwcen what wc colle~t and what we spend - totaling $429 million. Absen hole, our budiet g~o will widen into a giant crevasse of about $850 mi!lio= end to a billion dollars by the year 2000. The cumulative total of this proje those five years is nearly $4 billion. Why is this? A~ graph 2 shows, it's largely becausc Alaska depends tho oil industry - for most of our rev~nue~ Those revenues arc shrinking ai g and protecting ~ture is that it Id we're going to ~bex have h~nd. television. a shorffell action to fill the in just three years ~ deficit in on one SO~ - North Slope oil production declines. For years, Alaskans have debated taking st~ps to avoid a budget gayr But we've either lacked the political will or hav~ bo~ spared the hard choices, lik~ when th~ Persian Gulf war filled our treasury with revenues from skyrocketing oil prices. ! ' . Now, we must act. We should not deceive ourselves or Al.,.aa~__. int~ thinking this will bo easy. Cutting the budget is a vital lust step, but thai alone won t get us l~azre. For example, even cutting the entire state payroll would not save enough money to fill th~ budget gap. , The commission also r~,o~ that doing it through outs alone wottld send Alaska s economy into a tailspin. Graph 3 reminds us of the oil price depression of 986, when 22,000 Alaskans lost their jobs, property values droppext more than $7 billion and anlcmptoies reached almost 100 a month. No AIA,I~n~ wants to relive thai disaster. 2 SENT BY:OFFICE OF THE ~OVERNOR; 8-61-48 ; 7:~1 ; ~?- ~07 28~ ~01~;# 4 M~ny commission m~mbers we~ surprised ~e ~ r~ ~ ~~, ~ you ~ ~ ~ ~ 4. Ia 1979, ~ ~h p~n in ~. ~t ~t ~ ~ n~ly $6,000 ~cli~ s~ee. In ~y's do~, ~ ~ ~ ~ ~ ~ S250 l~ss From ~ ~~v~ ~ ~j~ for ~o~ ~ ~ o~~ 25 p~l s~ 1991. ~= co~~ ~~ a q~on ~ by ~y ~~ - wi more on pubic ~ ~ ~ ~ o~ ~. I~ ~v~ s~e of ~ ~ el~e by loc~ iov~en~ ~ ~ corem ~ cd--on. We ~ mmc ~hi~s done by no o~ ~ l~ ~ $~6~ million Pe~t F~d ~~ ~ ~ $72 ~on for se~or ~ Lo~ - ~o~ ~po~t ~ ~. To ~ ~ ~ ~ ~ w~t it ~s ~ ~c co~s~on tools. ~ m~ ~ ~ ~ s~e ~ol ~d ~mplem ~ ~ w~k toge~ ~ ~sgon ~ ~d~ ~e ~~ion's pl~ a new one, ~ m~ ~b~ a b~ is ~ ~ j~ a'~l~ of ~e v~s of ~ w~ ~~t i~ ~ I no~ ~ my ~ T~y ~ I ~c ~y l~g-~ ~o~dc a ~c l~g f~ ~ fsmili~ ~d ~ b~ on five p~plel on ~~on ~: * One, ~ m~t clo~ ~ b~g~ g~ ~ b~ o~ budg~ * ~, ~ m~ ~t ~ ~ ~e P~t F~ * Fo~, ~ pl~ ~ r~ ~ ~d f~ m pay for e~ * Five, ~ ~ be no ~~ ~ ~ P~ent F~ people. S~ ~~ r~~o~ ~ ~n~ov~s~ m I ~ lc stand, As ~ho counl~y song wails: "If you don't stand for something, you'll. The commission recommended doublin~ the amount of P~ahoe Bay into the Permanent Fund principal and u_,ing earaings from thc inflation-pro Fund to close thc budget gap. Then, they recommended that if necessary, az would be proposed if revenues are needed to balance the budget. I disagree approach. The values I would use in developing futwe-year budgets are as foil, First, coniinue cutting the budget while providi~ essential services health of the economy. Second, raise revenues through fees and taxes, including lhose on ti of-sram workers. Third, b~fom ~ver considering a change to Permanent Fund earnings an income l~x because it is more fair and includes people who get a fr~e riC money here but live Outside. ~n rcc~nt years to bout $4,000 for 1983, but has was 17 years ago. ~get has been cut ~y Alaska spends pays a greater · , h-'al~portation nmil Ala~kan~ in Bonus payments ~ointed to several df. md perhaps d~viso ~ers. It represents udaet plan must These are shown ~nu~ be fair. ~ vo~e of the tell you where I Fall for anything." royalty dcposits ~fgd and e~darg~xi with thi~ )WS. nd protecting th~ thou.~mds of out- would look to by making their SENT BY:OFF[CE OF THE ~0VERNOR; 8-61-48 ; ?:~1 90? 28~ ~014;~ 5 It will probably surpris~ no one ~ I apprecia~ tim opinion of one Alaska's Permanent Fund, former Governor Jay Hammond, who said in his las~ month: "Fonuna~y, there r~naln some i~ public office wi~h enough reco?i~ nonsense when fl~y se~ i~..Oo.v~l, or Knowlcs, for example, has l endorses much of the Plannin~ Commission's proposal, 'he believes dividm~ cut prior to imposition of au income ~ and before he will permit such a will demand a public vote on thc matter." The budgci I propose to the Le~sls.~c for the comin8 year reflec~ year rec~mmendalions of th~ commission. At the same lime, it adhere.s to budict principles I outlincd earlier. My budget proposal for the coming yea It reduces ~he budget gap by $40 million, including $35 million in the equivalent of abouI 160 full-lime and 100 pan-time positions. It provides for esscntial public services - education, transportation. economic development. In a fair way, it asks the Alaskans who benefit from cermi- smle se~ paying somethLng for ~.m. It raises additional state revenues by increasing select taxcs- on alcc gasoline. Finally, and perhaps most importantly, it enlarges and protects the Let me take ~ steps in order. Fir~ budget cuts. More than $20 ~f tbe falhe, rs of newspatmr column mmon g~II~ to aid that wMle ~ ~ ~d ~t ~ ~ to ~, h~ many of the first- · five bslanced includes thcs~ ,'ices to begin rmanent Fund. ~llion in cms comes directly from staIe agencies. No deparunent is umouchect, my office ~ncluded. $7 million is saved through retirement incentives and other sU'eamliztng measures. Taking a page from ~he privale-sector, I urge the Legislantre m pass the reft mnant program I introduced last year, which reduces the number and cost of public employcc ~. We negotiami new, cheaper contracts with more than 90 percent of'he slate work force. Compared to previously negofial~d contract, they save $34 million c ~ ~ ncot~ four years. Our negotiations were umgh, bu~ s~am cmployecs deserve credR for lmring dm responsibility in helping govemmenI make ench mc~. Thc Lctislavare shou d fund these We're saving more than $2 millioll by slream~ the way state go' business. We consolidal~l three divisions into one ~o make our economic d~ more efficient and saved 25 perc~t by downsizing the Division of Energy. New speed-regulator devices on highway sander tracks will save $3~. sand and salt use, and also cut down dust pollulion. ~rnmen~ does velopment efforts 4 more efficient and rows~ leafy and .w~n find a My budget gives the educational We're also using the bes~ and la, st technology to make government customer-friendly. Thousands of compumr users across the world can now ~ railroad schedules, get their business licenses, semi us E-mail messages and biography of their favorit~ legislator. Number two in our budget plan provides for essential public service~ us u~ tools to provide a healthy start for Alaska's children and it fully fund Foundation Formula. Anyone with a family or business knows prices are going up, so by ~equiring state departments m absorb $75 million worth of i,~flalionary increases, we're doing more with less. SENT BY:OFFICE OF THE 60VE~NOR; B-81-&8 ; ?:32 ; 97~ 90? 283 301&;# B It fosters economic development through the creation of jobs and j~ permits us to manege our natural resources wisely through sound science a involvemcn~ When it comes to the basics, next year's capital budget is again dec $110 million in barebones funding for Alaska's basic needs - transpormfi~ sewer, schools and defen~cl ~ at r~c university and other publk Third in our budgc~ plan is asking Alaskans who benefit from ccrta pay more for ~henz Our budgci reduces our dependence on off revenues having scrvicc users shoulder more of the costs. For example, at Pioneers' Homes it costs tho ste~e up to six thousa dollars a month for each resident, while the average monthly payment W Ii' $700. We asked senior citizens who could afford if to help pay more to nu They and their families said yes, so raW. s will gradually rise to a cost of care. We'll save about $2 million in st, ate support, but will be able and no one will be turned away for lack of money. Th~ commission thought muni¢ipalifics should mice on some service paid for by the state. While we are fully funding the education of students, communilies to pick up a small share of thc cos~ of gcUing them w school. reduction in ~ aid to communities is only 1.2 percem. Number four of thc budget plan is raising addilionsl revenues. This incorporate~ the financial comml.ssion's recommendations for three tax inch wholesale equivalent of 10 cents a drink more on alcoholic beverages, whit million a year. The budget includes s $1 tax increase on cigarenes and smokeless show price inereazes are the main doterrent to children ,_~i,_a cigarcV~. Alt projccl~.,d to generate $42 million, frankly, I hope this tn'opo~ doesn't rai~ This budget also calls for an increase in Alaska's gasoline ~ now nation. It would move from the i-cent-a-gallon rate set in 1961 to the natio cents, raisins $39 million a year. Alaskans deserve a safe and reliable public transpor, ation system. $¢ Legislature to consider a constitutional dedica~on of the revenues from a maintaining our roads and other public lransportalion facilities. I know man have been aI d~c forefron~ of figs initiative in the past and I look forward on it. Thc fifth, final and most importanI element of our budget plan is prote~ng th~ Permanent Fund. That's why I propos~ depositing surplus camin~ of $1 billion, $200 principal of the Fund, on top of the $~00 _million deposited in Sune. This $1 the second largest deposi~ ever. Alaskans have a special relationship with the Permanent Fund. It's o savings account, our share of a common public asset, livery year we realize Ii' we protect it and grow it, as I propos~ and is illuslrated in Graph help our children and grandchildren realize the benefits of living in th~ Ala~ b tt~ini-g. It ad public icatod to about 1, water ~ In state services to $8 million by ~ four hundred there is only intain services. closer to the continue s~,vices ~ which are now we're askln__g local Overall, the budget ,,ases. One is the h raises about $1 ibacco. Studies ~ough it's a single dollar. he lowest in the ~al median of 22 I urge thc soline tax to ~ in this room working with you arSing end million to thc .2 billion will be ~r long-term bcncfit~ fi.om it. i. the Fund will ~a we now enjoy. $6NT BY:OFFIGE OF THB ~OV~RNOR; 8-61-48 ; ?:33 ; 97- 90? 283 3014;~ ? All Alaskans should be thankful we have the oppommity to mak~ commend th~ loeislators in th_i~ chamber for their part. I know sow.~ have enfirc legislative deposit was not mado last year, Simply put, it was being done without a plan. I believed then and give thc Long-Range Financial Planning Commission an opportuzfity to overall budge~ skuatio~. Tho coram~ion has now recommended a ~pos!t to thc Pemutnent part of an ov~tll budg~ platt. I applaud th~ lcgishtors tonight who supper course .of a~tion to balance tho budget - for not taldag the en~ wzy out. In that vein, I'd like to recognize the people in this room for standh principles earlier this evening, for putting policy above politics. I've talked about what t~i, budget does. but there's also ~omethiag not do. It doe, aa't remove thc safety net from Alaska's most n~ty. Far too often th~ qui~t voices'of those in need get overwhelmed by in powerful places. Compassion is not something to be bargained for, like political poimr gang. It is something we prote~t and maintain. That brings up two impo~ places where we are controlling fa~t-i the budget to ~ave dol~,~ - welfare re. form and Medicaid. While Washington r~maim gridlock~, wo'v¢ stepped up to the plate reform. Th~ number of ~ on publi~ a~is~ d_mpped by mot~ that saving $6 million in welfare payments. To ensure more fnmili~ mow from we're putting tho~e savings into child ca~ anti job training, l~y reinvesting now, we'll ~ave t~ns of millions more itt tl~ As for Medictid - which provides basic m~ical cam to th~ ~lde, rl per, disabled and to low-incom~ mothers ,nd childrea - ~ ha~ n~_i .tlue need~ that are~ignored in Waahington. Under Congress' proposal, Alaska is at least $250 million of what v,~ need over the next ~even ye, ars. We're worths closely with our co~ional delegation to fur thishop~ tbey'll be succe~ful in protecting tl~ 69,000 vuinorable Alaskam who count on for their A~ we embark on our journey into the next ee, nntry. Ictus all ~ is a land of great ctmlleng~, great st~.o~s nnd even gre~m- pot~atial. The w~'ve mad~ in the 37 years since State. hood ~ been bard-foulg~. Yet, it is product of This year, as you se~ in tl~ final graph, w~ fac~ an ~lually daunling - eliminati~ the budget/ap in no more than six years. If we take for our future and quit livi~ off reserves, we can ca~ the stat~ to a safe landing. If we don't, if we contint~ bus~ as up. utl, the landi~ won't be at all. We'll ~puttcr and stall, then crash the economy ri~t into a mountainsi~. Our will be stuck pickin~ up th, piec~ of our rccklessnnss. We all know anyonn can engineer a crash lalzii~. It's tl~ safe s that take the collectivc skill and hard work of everyone on board. TI~ plan I've outlined here tonight is a flight plan for that safc l=or jobs. For better schools. For safe, healthy communities. For budget discipline. For family. Thank you ,i_, deposit and 'uestioned why tl~ tw, we needed to ,ow Fund principal as ~cl that responsible g up for thair .lis budget does h~ shouts of those omc chit in a 'owin~ areas of on wotfare welfare to work, ~:~ savi~s ~,laska ~tate Chamber of Commerce ~' 1~]1/21/96 ® 12:11 AM ~ 3/3 ABUDGET UPDATE FROM THE ALASKA STATE CHAMBER · VOL 2 ISSUE 1 · JANUARY 16, 1996 State Chamber's Top Priority: State's Long Term Fiscal Management "Fiscal Notes" to Keep Alaska's Business Conununity Informed Topping the Alaska State Chamber of Commerce's list of priorities for the 1996 legisla- tive session is the state's adoption of a long range fiscal strategy. Such a plan will not only ensure the state is on a sound fiscal course, but will also provide an environment in which Alaska's busi- nesses can plan their future. To enhance Alaska businesses understanding of the state budget and its consideration by the Legislature, the State Chamber will again publish "Fiscal Notes." "While last year may have been the first year we published "Fiscal Notes," it quickly became an important source of informa- tion to our members in their tracking of budget deliberations" explained Pam LaBolle, ASCC president. "It helped our members learn about not only what the Legislature was doing, but what it really meant" she continued. "Fmcal Notes" will be published bi-weekly and dislributed through a fax network to all interested, at no charge. Contact the State Chamber's Anchorage (278- 2722) or Juneau office (586-2323) to receive a copy. Chamber's Resolve: Closing Fiscal Gap Will Promote Economic Development WHEREAS the Alaska State Chamber of Commerce rates sound fiscal management for the state of Alaska as its number one priority; and WHEREAS the Alaska State Chamber of Commerce feels the uncertainty in the state budget process and state spending has created instability in the business and investment community; and WHEREAS the Alaska State Chamber of Commerce recognizes the hard work of the Long Range Financial Planning Commission and further recognizes that their plan provides a starting point for the 1996 State Legislature to close the fiscal gap; THEREFORE BE IT RESOLVED that the Alaska State Chamber of Commerce strongly urges the Alaska State Legislature to adopt and implement, during the 1996 legislative session, an overall long range fiscal plan for the State that not only addresses the fiscal gap but encourages and promotes eco- nomic investment and business development, and endeavors to maintain the state's infrastructure; and BE IT FURTHER RESOLVED that the Alaska State Chamber of Commerce strongly requests the Alaska Legislature address this issue as the first order of business and consider it the highest legislative priority; and BE IT FURT~ RESOLVED that the Alaska State Chamber of Commerce strongly urges the Alas 'ka Legislature to adopt a plan within the first 90 days of the 2nd session of the nineteenth Alaska Legislature. Adopted December, 1995. Alaska ?.ate Chamber of Commerce '~' Q~1/21/96 ®12:10AM 712/3 ALASKA STATE CHAMBER · FISCAL NOTES · JANUARY 16, 1996 Governor's FY 97 Budget: Cut $40 Million You Decide If He Got There Last Friday the Governor submitted his operating budget to the Legislature (FIB 412/SB 213). Following one of the recommendations of the Long Range Financial Planning Commission, the Administration's target was to cut $40 million from next fiscal year's spending (which starts July 1). (The commission's plan, presented to the Governor and Legislature last October, recommended MOO million in spending reductions over the next three years.) The Governor's budget starts an annual event in which the "beans" are counted to see ff his spending plan really cuts state government (the Legislature's spending plan will get the same critique). While the Governor's numbers total $40 million less in spending from the state's General Fund, he includes some reductions that aren't real "cuts"- automatic reductions in debt service, using other state accounts to pay for programs normally funded from the state's general fund, and collecting more in fees from users of state services. The chart below outlines how the Governor gets to his $40 million cut. You decide if it meets your definition of a cut in the state's budget. Getting to -$40 Milh'on FORMULA: To get a net cut of-$4.1 million, programs that pass state funds through to local governments were cut -$8.4 million to 'make room" for increases in other formula-driven programs. Also, a $6 million increase to cover K-12 enrollment increases is paid for from one-time tr~st funds instead of the general fund; this means next year this $6 million will have to be paid for from the general fund plus the funds needed to cover nextyear's enrollment increases. STATE PROGRAMS: Includes +$8.4 for pay increases for state and University employees; means $8.4 million had to he cut elsewhere to "make room" for these increases. Also includes +$23 million requested by the Judicial3t Branch. (~n MillionS) ~.~/ Operating Budget: (CurrentYear) X{Oovemor's)~. ~ / Formula Programs 1,074.1 ~ 1,070.0 ~ 4.1 ~./ LEGISLATION/ADJUSTMENTS: An income State Programs and Services 1,151.2 '~ 1,152.0 ~ 0.8 ~/ eligibility cap forLongevity Bonus will save- Legislatio~Adjustmonts -13.2 -13.2 ~ $6 million (lib 417/$B 217):Retirement TotalOperatingBudget 2.225.3 2,208.8 -16.5 Incentive Program for state employees saves - Other Spending*: $5 million. Another $2 million in spending is D ............. offset by taking $2 million from a reserve cbt :5elvlce 1 u"J ~+ "aY+ / -lq./ ~,. __ .'. .'. ~'^ % aceoum ~excess health henent payments). L.,oalls ,t..:) 1.2) U.U ~ Special Appmpriafic~s/T~s~ers 17.1 14.3 -2.8 . ~ DEBT SERVICE: The Supplementals (esnmates) 20 0 19 Total 2,3~tate and school bonds each SUPPLEMENTALS: Both years are 435 Plus Another 4t Equnls .$40 SPECIAL APPROPRIATIONS: The an estimate. Governor's current year Million: $5 million is shaved off the reduction is because the state will collect less request is due to the Legislature early February; expected to cover fiscal gap by generating more in user fees per barrel from the Oil/Hazardous Substance uncontrollable costs such as disasters, a~d payments for state services that are surchage because of declining oil production· fighting fires, court settlement~, fines. [o~nuy paid for by the state's general fund. What About Ali That Other Money the State Spends? The above chart only shows spending from the state's general fund (state revenues that can be used for any purpose; they are "unrestricted" revenues). Each year the state also spends about $1.1 billion in federal funds and nearly $2 billion in other kinds of state funds. While the state Constitution prohibits dedicating state funds, there are over 80 other state funds "designated" for a certain p~. These include penn,anent fund divi- dends, university tuition receipts, mental health trust funds, and marine highway system receipts. "Fiscal Notes" is a project of the Alaska State Chamber of Commerce. Information is compiled and written for the State Chamber by Cheryl Frasca. It is d~ributed to organizazUans, who fax it to their members. If you get more than one copy or no longer want to receive "Fiscal Notes" contact organizations of which you are a member. For other comments, suggestions, contact the Chamber's Anchorage office at 278-2722; fax 278-6643. Please copy and distribute "Fiscal Notes" to others interested. 19:53 JAN ~, 1996 peaking fo the Issues Conlad: ii.do Hu~ ~rnor's ~fi¢e P.O. Box l]O00l J unmu, Alaska 99811-000 i phone 907A6S.3S00 fax 907.465.3532 Idlp://www. gov. stale, aLus/gov/ home2.hlml Governor Knowles appears on stal'ewide public TV coil-in program from 8-9 p.m. on 1/24. Quote of the Week 'Some have questioned why the entire legislative depasil (lo the Permanent Fund) was not made last year. Simply pm, it was being done without a plan.' -Governor Tony Knowles ~ $1ale af ~ Budgel $5468 PAGE: 2/2 Talking Points for the Week Week of January 22, I g96 · Legislature introduces Long Range Commi.~sion bill.~. Governor Knowles continues to press legislative leaders to focus on a plan to balance Alaska's books within six years. On a positive note, the legislature today introduced the bills proposed by the Long Range Financial Planning Commi.qsion. The Governor is urging ,hat the first order of business be the discussion and passage of a resolution which defines the magnitude of the budget problem and agrees to balance the state budget in a specified number of years. · I~ Permanent Fund deposit part of a plan? Despite the absence of a 10ng-term budget balancing_ plan, legislative leaders are proceeding with an attempt for an immediate deposit to the Permanent Fund principal. A bill is being heard in the House Finance Committee Tuesday (1/23) to deposit most of the $1.2 billion from the Fund's earnings reserve account into the Fund principal. The move comes less than tWO weeks after the legislature failed to override Governor Kaowles veto of a similar plan last year. · Deposit will not increase dividends. Proponents of an early deposit argue it will increase dividends. Not mm. Dividends are calculated on all Fund assets, whether in the principal or reserve account. A deposit now, wiflaout a long-term budget balancing_ plan. a_m)ears irresp_ ousible. · Governor focuses on creating jobs. Governor Knowles travels to Anchorage Tuesday (1/23) to receive 200 recommendations by top Alaska bl~$iness leaders for job ~reation. The effort, under the Governor's Marketing Alaska initiative, is designed to assist businesses with expanqion and new opportunities. Also Tuesday, the Governor meets with Japanese and Korean consul generals to explore expanded international trade. The value of Alaska exports jumped 10 percent in just the first nine months of 1995, accounting for more than 50,000 Alaska jobs. Is lhis your correcl fox number? · Are you receiving duplicales? · Please mil our office with corrections or changes. ATtENDEES/PARTICIPANTS OF KENAI TOWN HALL MEETING JANUARY 25, 1996 City of Kenai Staff: Carol Freas (Clerk), Jay Sweeney (Finance Director), Keith Kornelis (Public Works Director) and Tom Manninen (City Manager) City Council Members: Joe Moore, Jim Bookey, John Williams, Linda Swarner (arrived at 8:30 p.m.) Others: Mike Burns, President, Key Bank, Anchorage Barbara Dedrick, Key Bank, 11311 Frontage Rd, Kenai Linda Shivers, Key Bank, 11311 Frontage Rd, Kenai Larry Simmons, Finance Director, Kenai Peninsula Borough, 144 N. Binkley, Soldotna Betty Glick, P.O. Box 528, Kenai Carl Glick, P.O. Box 528, Kenai Ron Goecke, P.O. Box 3474, Kenai Pauline Goecke, P.O. Box 3474, Kenai Dale Sandahl, 4040 Lupine, Kenai Tom Thibodeau, P.O. Box 362, Kenai Phil Bryson, P.O. Box 1041, Kenai (office) Mary Lee Kornelis, 1513 Toyon Way, Kenai Ethel Clausen, P.O. Box 2815, Kenai Jim Singree, Katmai Hotel (owner), 10800 Kenai Spur Highway, Kenai Lloyd Johnson, First National Bank, 11408 Kenai Spur Higway, Kenai Bob Peters, P.O. Box 24, Kenai Roger Meeks, P.O. Box 424, Kenai Don Aase, 10352 Kenai Spur Highway (King's Inn), Kenai Sylvia Johnson, P.O. Box 152, Kenai John M0nfor, 1509 Toyon Way, Kenai Sharon Williams, P.O. Box 459, Kenai Melissa DeVaughn, Peninsula Clarion, P.O. Box 3009, Kenai Post-it® Fax Note 7671 Date ~/,~)ipagesVl # of ,- ~ Co./Dept. :/ Co. Phone 9 Phone 9 Fax ~ Fax ~ Legislative Bulletin I~llelbt #19-0 January 19, 1996 President Joins Legislature Don Long replaces Rep. Eileen MacLean Governor Tony Knowles an- nounced his selection of former Bar- row Mayor and AML President, Don Long, as his choice to serve as repre- sentative for the North Slope and Northwest Arctic House District 37. Representative Long was sworn in on Thursday, January I 1. Long replaced Rep. Eileen MacLean who announced last month that she would resign due to health reasons. "Eileen MacLean has done an outstanding job as representative and I share her confidence that Don Long will continue the tradition of strong leadership from the North Slope," Knowles said. Don was bom in Noatak, raised in Kotzebue, lived in Point Hope, and served as mayor of Barrow. Don served on the AML Board from 1992 through 1994, and as President in 1994-95. A whaling captain, Long served two terms as mayor of Barrow, and worked previously for the North Slope Borough, Arctic Regional Cor- poration and Barrow area utilities. Long chaired the Governor's public safety transition team and was ap- pointed to the Alcohol & Drug Abuse ~Advisory Board. Governor Kn0wles to Meet with. Mayors and AML Board Will Discuss Proposal to Reinvent Municipal - State Relations During the joint AML Board of Directors and Alaska Conference of Mayors (ACoM) meeting in Juneau on January 24 and 25, a delegation of municipal offi- cials will meet with Governor Knowles to present the concept ora permanent state/ municipal partnership to improve communications and coordination between the state and its municipalities. The Governor will also address the full ACoM and AML Board meeting. The "Local Government Partnership Council" proposal was approved by the AML and ACoM at the annual conference in Valdez. According to President Joe Murdy, '~his type of municipal/state partnership has been successful and mu- really beneficial in several progressive states. The State of Alaska needs full coor- dination with municipalities if it is to really implement a meaningful long range financial plan. Municipalities provide over half of the state's direct government , (continued on page $) Cuts and Transfers to Municipalities Key Feature in Governor's Proposed Budget According to the OMB Budget Report: · Direct state aid to municipalities will decrease by -9.80% - Municipal Assistance (MA) -$2,556,700 (-8.0%) - Revenue Sharing (RS) -$2,101,700 (-8.0%) - Senior Exemption Mandate -$1.163.800 (- 100.0%) TOTAL -$5,822,200 Additional cuts/transfers/new unfunded mandates to municipalities: - Transfer pupil transportation -$ 2,627,400 (-8.0%) - Municipal Lands Trust Program - Coastal Management Grants - Community Schools - Health/Social Service Grants - Municipal Libraries-SLED grants - Fire Training fees - DEC landfill Permit increases TOTAL -$ 91,000 -$ 100,000 -$ 100,000 -$ 834,900 -$ 75,000 -$ 180,200 -$ 450.000 -$4,408,500 (-1% to all grants) TOTAL CUTS/TRANSFERS -$10,230,700 (continued on page 217 Second Street, Suite 200, Juneau, Alaska 99801 · Tel. (907) 586-1325, Fax (907)463-5480 Joe Murdy, Presider Assembly Member, Munk:il~iiy of Anchorage Tom Greene, 1st Vice President Mayor, C~/of Non~s/ton Roa~maw Hagevig Assembly Member, City and Borough of Juneau Pat Abney A~sembly Member, Municipality of Anchorage Elmer Arm~hung Reginald Cleveland Denni~ Egan Mayor, Cr~y and Borough of Juneau C~_.~tcil Member. City of Palmer Robert Knight Ken Lancaster IVleyor, City of Sokt3tna Coun~ Member, City of Bemel AIMre Stanton Budget ccon...ea from page 0 The Governor's budget justifies the 8 percent cut to Municipal Assistance and Revenue Sharing by stating the "ovErall reduction in state aid to local governments/ school districts is 1.2%." This is because they considered funding for the school foundation formula as municipal aid. However, schools are NOT a municipal aid program. The Alaska Constitution places education in a separate section and states, '°rhe legislature shall by general law establish and maintain a system of public schools...." Education funding is a state responsibility that is turning into an un- funded mandate on municipalities. Over the past ten years, the state has cut MA/RS by over $'90,000,000. The cumulative cuts are greater than any "new tax" on the table in the Long Range Financial Plan. Along with other state cuts, mandates, and transfers over the past ten years, municipal taxpayers have already absorbed amounts approximately equal to the projected revenue from a new income tax. The Governor's budget proposal may severely impact some small municipali- ties that have few or no revenue options, and will force a combination of tax in- creases and service cuts to larger communities. A $10 million cut equates to over 200 full-time jobs at the municipal level. The AML Board and Alaska Conference of Mayors will be addressing the League's response to the cuts st. their meeting on January 24 and 25 in Juneau. Betty GIIck, Past President Assemb/y Member, Kens/Pen/nsula Borough Jerome ~. Selby, PIIst Pre~ident Gaye Vaughan Alaska Assoc~aUon of Mun/c~oa/C/ed= Ga~y Hennlgh A/aska Mun/c/pa/Management Assoc/a#on Gerald Lee Sharp A/aska Mun/c/pa/A#omeys Judi Slajer Kevin CoRitchle Julle Kraflt Kris Unn Bus. ess Manager Su~an Behbaha.i Alaska Municipal League 217 Second Street, Suite 200 Juneau, Alaska 99801 907.586-1325 907-463-5~0 (fax) The AMI., Legislative Bulletin is published twice per month while the Alaska State Legislature is in session (January through May). After the ses~ion, it is replaced by The Touchstone, which is published momidyfrom July through December. Copim of these publications are sent free to member municipaliti~, Associate. a, and A. ffili- ate~. Additional copies are available to AML members at a cost of $35 per subscrip- tion to the same address. #19-9 Page 2. The Long Range Financial Planning Commission 716 West Fourth Ave., Ste. 470 Anchorage, Alaska 99501 2 · October 1995 State Long Range Financial Planning Commission Report ECImVE SUMMMIY Alaska's fiscal gap is real and growing The State is spending $524 million more than it will take in during the current fiscal year. That gap will grow to $1.3 billion per year in today's dollars by 2005 if we make no changes to the State's spending and revenue policies. The Long Range Financial Planning Commission was appointed jointly by the Legislature and Governor in March 1995 to recommend ways to close the gap and put Alaska on firm financial ground This report details our plan and our recommendations. What does the plan do? It: · Makes the Permanent Fund the cornerstone of Alaska's fiscal future. · Closes the fiscal gap by the year 2000. · Ensures growth of the Permanent Fund to offset declining oil and gas revenues. · Stabilizes and diversifies revenues. · Controls State general fund spending. · Maintains a reserve to dampen the effect of oil price swings. · Decreases our dependence on volatile oil revenues. This is a plan for ourselves and our grandchildren. It re- quires all Alaskans to share in the solution. No action to close the fiscal gap is the greatest threat to Alaska's financial future. The Commission was asked to recommend a plan for three, five and ten years. To be sure that plans for these time frames did not create a reoccurring fiscal gap after that, the Commission also looked at the likely effects of its plan over a fifteen year period. The first three years The key elements of the three-year plan are to: Cut spending · Cut current State general fund spending by $100 million m $40 million in 1996, $30 million in 1997, and $30 million in 1998 -- a reduction of $300 million in today's dollars. · Reduce per capita State general fund spending from $ 4,020 to $ 3,692 in four years -- a reduction to $ 3,255 in today's dollars. Increase Revenues · Increase tobacco taxes by $1 per pack ($43 million). · Increase alcohol taxes by 10 cents per drink ($20 million). · Increase motor fuel tax from the 1961 level of 8 cents/ gallon to 22 cents/gallon and increase marine fuel tax by 3 cents/gallon ($44 million). · Increase user fees by at least $3 million per year, double motor vehicle license fees, and eliminating motor vehicle license fee exemptions ($32 million). · Establish a new tax to generate at least $20 million from tourists and increase taxes on fisheries and other resources by $30 million. Use the Permanent Fund as an endowment · Establish the Permanent Fund as an endowment to partially replace declining oil revenues. · The endowment will pay up to 4 percent of the Fund's five-year average market value to the general fund for dividends and State services. · Constitutionally protect Permanent Fund principal by building long-term inflation-proofing into the endowment plan. · The endowment payont and increased Permanent Fund contribution require voter approval of a constitutional amendment in 1996. Boost the earning power of the Permanent Fund · Build Permanent Fund principal by (a) making additional special deposits to fund principal; (b) increasing the minimum annual deposit to' the ~ Permanent Fund; and (c) retaining additional earnings in the Permanent Fund. · Deposit $600 million from the Constitutional Budget Reserve into the Permanent Fund this year. · Close out the Permanent Fund Earnings Reserve once the endowment is in place, by depositing it into the Permanent Fund (approximately $1.2 billion) · Increase to 50 percent the minimum contribution to the Permanent Fund from certain oil, gas and mineral lease revenues. · Retain earnings in excess of the 4 percent annual payont in the fund. Since the projected rate of return to the fund is 4.79 percent after inflation, the Fund should retain earnings above inflation-proofing of at least 0.75 percent annually. Cap the Permanent Fund Diviclend pool · Reduce the total amount spent for the dividend program from $565 million this year by $50 million a year for each of the next three years. · Individual dividends will be about $900 next year, $800 in 1997, and $700 in 1998. Clarify the purpose of the State's reserves · Maintain the CBR at $1.5 billion to cushion against oil revenue volatility. Clarify its use and repayment in a constitutional amendment. Reform the budget process · Scrutinize all State spending, not just State general funds. · Report annually to the public on progress toward closing the fiscal gap. · Focus on whether programs are needed, cost-effective and achieve their intended results. The fivc and lO-year plan In 1999, Alaska comes to a fork in the road. By that time the budget is balanced under the Commission's plan. To prevent the fiscal gap from reappearing, we can cut the bud- get further, institute a personal income tax, increase other taxes, and/or further reduce dividends. The Commission rec- ommends that a follow-up review be done in late 1998 and early 1999 to adjust the overall plan as needed for the suc- ceeding five to ten years. By that time the budget is ~ced and we will know more about ANWR, the gas fine and fed- eral budget changes. As a result, decisions for first decade of the next century will be less dependent on speculation. Under our plan, after budget cuts, tax increases, the Perma- nent Fund endowment and dividend reductions have been made, this Commission recommends the State adopt a per- sonal income tax in 2000 to begin in 2002, once the deficit reappears. 525 $20 515 510 $5 5o 1996 1997 1998 t 1999 2000 ~ 2001 2002 I 2003 I 2004 200S This publication printed for the Long Range Financial Planning Commission. The report is produced at $0.30 cost per copy. Printed and produced in Anchorage, Alaska. October 1995 State Long Range Financial Planning Commission Report FINAL REPORI Alaska's fiscal gap is real, and it's growing The State of Alaska spends more than it takes in each year, and has done so for six of the past nine years. This year, the State will spend $524 million more from the State general fund than it will take in -- this is the fiscal gap. That gap will grow to $768 million in three years, to $879 million in 5 years, and $1,253 billion in 10 years (in today's dollars) if we make no changes to the State's spending and revenue policies. Our interim report contains more details about the growing fiscal gap and options available to close the gap. The Long Range Financial Planning Commission was appointed jointly by the Legislature and Governor in March 1995 to recommend how to close the gap and put Alaska on firm financial ground. In the past six months, as directed by the resolution creating the Commission, the Commission has: · Reviewed and evaluated State fiscal policy and strategy recommendations and assumptions from reports and pub- lications from similar efforts in the past made by the ex- ecutive branch, the legislative branch, the University of Alaska, nonprofit organizations, and private individuals and organizations, · Identified and evaluated all current State income sources and assets, including recurring revenue, reserves, physi- cal resources, and investments, · Identified systemic changes to stabilize the State's revenue stream, · Identified maior reductions in State expenditures, · Identified new sources of revenue, · Projected a sustainable long-range financial plan based on a stable revenue stream, · Evaluated constitutional, statutory, and regulatory language re/ating to the budget process, · Reviewed and evaluated forward funding of the State budget, · Considered the division of responsibility for providing services and raising revenue between the State and local governments and evaluated the effect of the long-range fi- nancial plan on local governments, · Submitted a preliminary report to the Governor and the Legislature, and · Disseminated information and solicited public comment. The Commission's deliberations were aided by substantial work and informative presentations by State agency person- nd, the Alaska Permanent Fund Corporation staff, Alaska Municipal League and Conference of Mayors, and private citi- zens who brought additional perspectives to the table. The Commission's work focused on elements of State spend- ing which affect the fiscal gap. These include: · General funds, including program receipts · Permanent fund earnings · Funds created by appropriations for specific purposes or as "holding accounts" · Special revenue funds set out in the constitution or statute. Certain other funds, while included in the overall budget of the state, are not commonly reported in budget presenta- tions, and do not materially affect the fiscal gap. These include: · Federal funds · Loan amounts and loan administrative costs · University receipts · Internal service funds · Transfers between agencies for contractual obligations, including interagency receipts. The Commission believes the State budget process should include examination of all spending, regardless of whether the funds affect the fiscal gap. To meet the Commission's charge of closing the fiscal gap, though, we focus on the gen- eral fund and Permanent Fund. The Commission has developed a financial plan for the State of Alaska. It brings Alaska's spending into line with recurring revenues. It balances the needs of current Alas- kans with the needs of future generations. It requires that all Alaskans share in the solution. What the plan does: Makes the Permanent Fund the cornerstone of Alaska's fiscal future The plan calls for a constitutional amendment establishing the Permanent Fund as an endowment fund with an annual payout to the general fund based on a rolling five year aver- age. The Permanent Fund will continue to grow with addi- tional deposits, and retain some of its earnings in the next f~ewyears .,so thatj~, ~'~,~o~e replaces d~oil revenues in the future. Closes the fiscal gap by the year 2000 The combination of spending cuts, revenue increases, and uses of Permanent Fund income closes the fiscal gap in four years. With imposition of a State personal income tax in about 2002, the budget balances for another five years. Ensures growth of the Permanent Fund to offset declining oil and gas revenues The constitutional dedication of mineral lease revenues, royalties and bonuses to the Permanent Fund increases to 50 percent. The annual payout rate from Permanent Fund earn- ings is capped at a rate of up to four percent of the five-year average market value of the fund, which will allow additional retained earnings to build up the fund. Earnings in excess of the four percent payout rate will, over the long term, fully inflation-proofthe fund, and preserve its earning power. Since the projected earnings rate is 4.79 percent above inflation, continued good performance by the fund will result in addi- tional retained earnings of 0.79 percent. The Plan Recommended By This Commission · Creates a new philosophy for state revenues - Permanent Fund income begins to replace oil revenues · Enhances our ability to save for future generations · Imposes some spending discipline on the State * Defines a role of the Permanent Fund in Alaska's future , Clears up some of the confusion over cash reserves * Suggests embarking upon some structural changes in State government . involves the public in the decision making process Stabilizes and diversifies revenues A reliable payout from Permanent Fund earnings will sta- bilize Alaska's income during periods of oil price volatility and substitute for declining oil revenues. New consumption taxes and business taxes will provide a portion of the State's revenues. These revenues will grow as the State's population grows, providing some links between State revenues and its service needs. The State personal income tax. once imposed in about 2002, will be related to State population growth, and will bring in revenues from non-resident workers. Controls State general fund spending The "bottom line" for general fund spending will shrink by five percent per year in today's dollars for the next four years. Depositing of reserve fund balances and a higher level of oil revenues into the Permanent Fund limits the money available to fuel State spending growth. Maintain a reserve to dampen the effect of oil price swings The Constitutional Budget Reserve will be available to cush- ion oil price decreases, and be used to absorb revenues from oil price increases. The second state reserve, the Permanent Fund Earnings Reserve, will be closed and deposited into the Permanent Fund. The Commission recommends maintain- ing a level of $1.5 billion in the Constitutional Budget Re- serve fund. That amount is approximately one year's oil rev- enues. Amounts in excess of the $1.5 billion level should be deposited in the Permanent Fund. The CBR will be replen- ished by its own interest income, and we further recommend any excess revenues from temporary oil price increases be deposited in the (:BR. Decreases our dependence on volatile oil revenues The combination of Permanent Fund income, increased and new taxes and user fees, and the reimposed State in- come tax, will offset oil revenues as the primary source of funding for State government operations. The plan closes the fiscal gap with the following steps: · Cuts spending, · Increases revenues, and · Establishes the Permanent Fund as an endowment, · Caps the Permanent Fund dividend pool. The first three years The key dements of the three-year plan are to: Cut spending The State cannot continue to spend at the same level it does today. Notwithstanding needs and demands for increased spending and the impending federal transfer of programs to the State, the Commission believes Alaska cannot close the fiscal gap without cutting State spending. · The plan calls for State general fund spending to be re- duced by $1OO million in three years-- $40 million in FY97, $30 million in FY98, and $30 million in FY99 -- a reduction of $300 million in today's dollars. · This decline of State spending reduces per capita State general fund spending from $4,020 to $ 3,692 in four years -- a reduction to $3,255 in today's dollars. · The Commission believes this level of reduction in State spending will be painful, but is a necessary step toward dos- ing the fiscal gap. Recent legislatures have managed to hold spending level, which has resulted in real reductions to some State programs. · Within these budget targets, the Commission believes the State should give attention to deficits in the State's infrastruc- ture spending, most particularly for maintenance on pub- licly-owned facilities, roads and highways. · The Legislature and the Administration may wish to con- Continued On Next Page 4 · October 1995 State Long Range Financial Planning Commission Report FINAL REPORT Continued From Previous Page sider voter-approved general obligation bond debt as a way to finance capital projects. General recommendations for budget reductions include: Public salaries and benefits · Enact a retirement incentive program to reduce personal services expenditures. · Enact a new Tier Ill retirement system to reduce retirement benefits for new State and local government employees. · Revise geographic pay differentials for non-covered State employees. · Study geographic cost differentials in Alaska for use during collective bargaining negotiations with covered State employees (and for use in other State formula programs). · Compare salaries and benefits of public employees to appropriate public and private markets in Alaska and the Pacific Northwest. Use that comparison to move Alaska's public pay system for State employees, local government employees, and school districts to market. · Examine the publicly funded health plans for State, local government, school district, and University employees as well as those who receive Medicaid. Look for opportuni- ties to save substantial costs through pooling or other mechanisms. Administrative realignment · Reengineer the delivery of State services to eliminate excessive administration. · Consolidate state departments and agencies, and realign administrative services. · Look for opportunities to privalize State progran~ otto contract out State services. Allow "insourcing" so groups of State employees can offer their own solutions to reduce costs in programs that may otherwise be contracted out. Target high-cost programs · If the current litigation against the Alaska Longevity Bonus is successful (ending the current phase-out), eliminate the program. · Change the Public School Foundation Formula to reduce the growth in education spending. The required local effort should be reexamined, as well as provisions that allow school districts to obtain greater funding for special category students regardless of the programs offered to those students. · Enact a welfare reform package to reduce dependency on welfare programs and put current welfare recipients to work. · Revise fee schedules for services such as Honeers' Homes to reflect cost and ability to pay. · Examine areas of State spending with disproportionately high costs when compared with other States and determine whether there are legitimate reasons for such programs. Shift revenues and responsibilities to local governments · Repeal the State mandate for senior citizens' and veterans' property tax relief by local municipalities, but allow local option to grant or withhold the exemption. · Transfer a portion of State motor vehicle and motor fuel tax receipts to local governments together with the respon- sibility for class IH local road maintenance. · Eliminate or shift some inspections to local governments with the ability to collect fees for progranl support. · Eliminate State general fund support of troopers for road patrols in communities of more than 2,500, but allow com- munities to continue retain such services if they are willing to pay for them. Avoid new costs · Freeze issuance of certificates of need for new hospitals and reassess need for additional nursing homes Funds Which Affect The Fiscal Gap · General funds, including program receipts · Permanent Fund earnings · Created by appropriation for specific purposes or as a "holding account" · Special revenue funds where specified in the constitution or statute · FUnds Which'Do NOt Affect The .Fiscal Gap · . '.' · ;, Loan fund: administrative costs · ' Loan amounts. · University receiPts · Internal service funds · , Transfers between agencies for contractual obligations, including interagency receipts Funds Which Cannot Be Appropriated To Other Purposes · Federal funds · Retirement funds · Health insurance funds · Trust funds Increase Revenues The Commission believes Alaska cannot balance its budget responsibly without new revenues. The Commission has cho- sen a short-term package of taxes on consumption that im- poses real service costs on the state, with a longer-term plan of reimposing the State personal income tax. Increases to existing taxes include: Tobacco taxes · Increase tobacco taxes by $1 per pack on cigarettes and comparable amounts on other tobacco products (raises $43 million annually, beginning in FY97). This tax increase will dramatically lower teenage smoking and tobacco use, and should somewhat reduce tobacco use by adults, both of which will reduce the State's future expenditures on health care costs. The Commission recommends the taxes increase 25 cents per pack every three years. Alcohol taxes · Increase alcohol taxes by an average of 10 cents per drink (raises $20 million annually, beginning in FY97). Testimony before the Commission indicated that a substan- tial portion of the criminal justice system's costs -- for police, prosecution, public defense, the courts, and the. correctional system -- are a result of alcohol abuse. This tax increase pays a small portion of the State's costs that result from abuse of alcohol. The Commission recommends also that taxes be equalized among beer, wine, and dis- tilled spirits so that all alcohol users share in the tax bur- den. We further recommend that alcohol taxes increase every three years. Over time, certain of Alaska's tax rates have fallen below the national norms, or have not kept pace with inflation. We recommend the following increases: Motor fuel taxes · Increase motor fuel tax increases from the 1961 level of 8 cents/gallon to the national median of 22 cents/gallon (raises $39 million annually, beginning in FY98). This tax should be indexed to inflation, so it rises as consumer prices rise. The Commission believes these tax receipts should be used to fund road maintenance efforts at the State and local level. "Marine motor fuel taxes · Increase marine fuel taxes by 3 cents/gallon (raises $5 million annually, beginning in FY98). This tax should be indexed to inflation, so it rises as consumer prices rise. The Commission believes these tax receipts should be used to fund port and harbor maintenance efforts at the State and local level. Motor vehicle license plates · Double motor vehicle license fees and eliminate exemptions (raises $29 million, beginning in FY98). These fees are currently well below the national average. Continued On Next Page October 1995 State Long Range Financial Planning Commission Report FIN/U. REPORI User fees · Raise user fees by approximately $3 million annually and index fees to inflation where practicable. Fishery and other resource taxes · Increase taxes on fisheries and other resources by $30 million. New taxes and changes to tax apportionment include: · Establish new taxes to generate at least $20 ntillion from tourists. While the Commission was unable to reach consen- sus on the precise method for gaining additional revenue from tourists or the tourism industry, The Commission believes this part of our economy does not fully pay for the State's cost of providing infrastructure and support to the industry. · The Commission believes the State's oil and gas produc- tion property tax, currently set at 20 mills, should benefit both the State and local governments affected by oil develop- ment. State law should be amended to limit the local govern- ment share to 10 mills on new oil and gas properties built after 1995, ensuring the State receives at least 50 percent of this revenue source. The Commission considered additional taxes on the oil industry. We found that Alaska is currently in the mid-range of oil taxation nationally. We believe that Alaska is already too dependent upon oil revenues, and that higher oil taxes would create a disincentive to attract and retain petroleum development in Alaska. We believe our plan for closing the fiscal gap and providing a stable revenue and spending cli- mate will ultimately result in increased petroleum revenues as the industry responds by further investment in Alaska oil exploration, development and production. Establish the Permanent Fund as an endowment When the Permanent Fund was established in 1976, pub- llc debate centered on setting aside a portion of today's oil wealth to meet the needs of future generations of Alaskans. Later, the Legislature adopted the dividend plan to heighten public interest in preserving the fund and guarding its invest- ment performance, and to directly distribute some of Alaska's oil wealth to its citizens. The Commission believes it is time to follow the original intent of the fund, preserving current capital wealth for current and future generations of Alaskans. The Commission believes the best method for doing this is to follow traditional endowment principles. For our Perma- nent Fund those principles include preservation of the fund, the best possible level of performance of the fund, and the preservation of Alaska's oil wealth for future generations of Alaskans. $2,500 $2,000 Today's Dollafl ]-- PF revenues to GF ~Oil revenues to GF $1,500 $1,000 $500 $0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Our plan calls for the Permanent Fund to grow as an en- dowment for the State. · The plan establishes the Permanent Fund as an endow- ment that pays up to four percent of the Fund's five-year aver- age market value to the general fund for the dMdend pro- gram and State services. This use of Permanent Fund earn- ings will partially replace declining oil revenues. The Com- mission recommends a four percent payout based on the ex- perience of other endowment funds in the United States, and takes into account the Permanent Fund's earning experience, asset allocation, and need to protect the principal. · Earnings of the Permanent Fund in excess of this four percent payout rate are retained in the fund. Years with good investment performance will, over the long run, balance years with poor investment performance in order to more than fully inflation-proof the fund. · 'The plan calls for an increase to 50 percent of the mini- mum contribution to the Permanent Fund from certain oil, gas and mineral lease revenues. The plan calls for an amend- ment to the constitution to achieve that increase. · The endowment is further built up by a deposit from the Permanent Fund Earnings Reserve and deposits of any funds in excess of $1.5 billion in the Constitutional Budget Reserve. Cap the Permanent Fund Dividend pool The Permanent Fund Dividend program is an important source of protection for the principal of the Permanent Fund and it is important source of income to Alaskans. Without changes to the program, however, dividends will grow to take a major share of State revenues -- $965 million in 2005. The Commission recommends: · Reduce the total amount spent for the Permanent Fund Dividend program from $565 million this year by $50 mil- lion a year for three years. · Individual dividends will be about $900 next year, $800 in 1997, and $700 in 1998. Clarify the purpose of State's reserves The State maintains two reserve funds that are important in the effort to close the fiscal gap -- the Constitutional Bud- get Reserve (CBR) and the Permanent Fund Earnings Reserve Account (PFER). The CBR consists of funds received in settle- ments of administrative proceedings or litigation regarding mineral lease bonuses, rentals, royalties, royalty proceeds and taxes. The PFER is a holding account into which is de- posited all investment income until the transfers to principal for inflation proofing and to the dividend fund are made. Excess funds in the PFER are held and invested in tile same manner as the principal of the Permanent Fund. The Com- mission determined that under our plan the state needs only one significant reserve. · The CBR should be maintained at a level of $1.5 billion to provide stability in the event of a rapid decline in oil prices or production or in the event of a natural disaster. That amount is approximately one year's oil revenues. Funds in excess of that amount should be deposited into the principal of the Permanent Fund. Earnings from CBR investment should continue to flow into the CBR. · Funds in the CBR should be invested in accordance with the prudent investor rule based upon the purposes of the reserve. The commission recommends that the general fund be allowed to borrow against the CBR to even out the flow of funds required to meet monthly cash flow needs. · The sweep provisions in the current CBR should be elimi- nated (Article X, Section 17 (d) of the Constitution). Suffi- cient controls on the use and withdrawal of funds from the CBR are achieved by limiting withdrawals from the fund to make up for projected annual revenue declines rather than availability of funds. · Once the constitutional amendment establishing the Per- manent Fund as an endowment is in place in FY98, all funds in the Permanent Fund Earnings Reserve should be deposited into the principal of the Permanent Fund. As an endowment, the Permanent Fund will be effectively inflation-proofed. The divi- dends will be payable out of the automatic annual withdrawal. Reform the budget process The commission found the budget process does not yield Continued On Next Page October 1995 State Long Range Financial Planning Commission Report FINAL REPORI How Big Is The Fiscal Gap? $524 Million in Ftscal Year 1996 · Equal to all the salaries and benefits paid to all state agency employees · Almost as much as the whole Permanent Fund dividend program · It equals three-quarters of the entire K-12 public school funding program Continued From Previous Page adequate information concerning the State's finances, nor does it describe what we get for what we spend. It discour- ages appropriate scrutiny of overall State spending. Although the fiscal gap relates to State general fund spending, special funds set aside or collected affect services delivered by the State and require oversight and control. · The budget process should include review of all State spending, not just State general funds. The executive and legislative branches should establish procedures to provide appropriate scrutiny and disclosure. · A report to the public should be prepared annually on progress toward closing the fiscal gap. The Commission sug- gests the spreadsheet format it has used to show the exist- ence or absence of a fiscal gap for the current and succeed- ing 10 years. * The legislature should review each program funded or operated by the Slate, including loans and special appropria- tions to determine whether or not it meets its intended pur- pose and whether the program is needed in the 21st century. State programs should also be reviewed to determine if the service is better delivered at the local level. ,, Capital improvement funding should be based on a six- year plan to achieve greater efficiencies in funding, planning, construction and maintenance. The Commission was asked to examine the division of re- sponsibility for providing services and raising revenues be- tween the State and local governments. This area deserves intensive examination, substantially more than the Commis- sion had time to give it. The Commission believes that the State and local governments must continue to work on the issue of the division of State and local responsibilities. The five- and ten-year plan In 1999, Alaska comes to a fork in the road. To prevent the fiscal gap from reappearing, we can cut the budget further, reinstitute the State personal income tax, increase other taxes, and/or further reduce dividends. The Commission recom- mends that a follow-up review be done in late 1998 and early 1999 to adjust the overall plan as needed for the succeeding five to ten years. By that time the budget should balance and we will know more about several things that are now uncer- tain such ANWR, the gas line and federal budget changes As a result, decisions for the first decade of the next century will be less dependent on speculation. This Commission recommends reimposition of the State personal income tax once the deficit reappears. Under the Commission's plan, after cutting spending and raising rev- enues, the fiscal gap reappears in about the year 2002. A personal income tax act will require enactment in the year 2000 in order for it to take effect in 2002. First Session Progress Report on the Financial Plan Legislation 1. Resolution approving financial plan. 2. Permanent fund endowment constitutional amendment goes to the voters. 3. Constitutional budget reserve constitutional amendment goes to the voters. 4. Retirement incentive program. 5. Tier III to reduce retirement costs for new hires. 6. Geographic pay differential for non-covered employees. 7. Road/harbor transfers to local government and fuel tax increases. 8. Senior/veterans tax exemption becomes local option. 9. New oil & gas property tax has 50/50 split before debt 10. Tobacco tax increase. 11. Alcohol tax increase. 12. User Fee increases of at least $3 million Budget Action 1. Meet fiscal gap target (about $390 million); $40 million cut from FY96. 2. Show all funds in State spending plan. 3. Deposit from CBR into Permanent Fund as in plan. 4. Administrative consolidations. 5. Six year capital plan approved. 6. Show Permanent Fund earnings and dividends as part of budget. 7. Do maintenance and deferred maintenance within budget target. 8. Start performance based budgeting. 9. Reduce growth rate of Medicaid and AFDC. Second Session Progress Report Legislative Action 1. Fisheries and other resource tax. 2. Tourism tax or self-support of industry promotion. 3. Deposit from CBR to Permanent Fund as in plan. 4. Additional $3 million in fee increases/indexing. Budget Action 1. Meet fiscal gap target of about $220 miJlion; $70 million cut from FY96. Third Session Progress Report Legislative Action 1. Resolution creating financial planning Commission to review progress and make new recommendations. Budget Action 1. Meet fiscal gap target of about $60 million; $100 million cut from FY96. What The Plan Does · Makes the Permanent Fund the cornerstone of Alaska's fiscal future · Closes the fiscal gap by the year 2000 · Ensures growth of the Permanent Fund to offset declining oil and gas revenues · Stabilizes and diversifies revenues · Controls state general fund spending · Maintains a reserve to dampen the effect of oil price swings · Decreases our dependence on volatile oil revenues October l995 · ? State Long Range Financial Planning Commission Report FIN/U. REPORI (Today's Dollars) LONG-RANGE FINANCIAL PLANNING COMMISSION FY 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 AVAILABLE REVENUES ($ Millions): General Fund Source Permanent Fund Earnings (Net of inflation proofing & ERA deposits) NEW TAXES AND FEES ($Millions) Highway Motor Fuel Tax (@ $.219/ga1., indexed) Marine Motor Fuel Tax ($.08/gaL indexed) Tobacco Tax ($1/pkg cigs; 75%/chewing; +25¢ triennially) Motor vehicle license fees (double) User fee increases Fishery and other resource tax increases Tourism tax increases Alcohol taxes (increase triennially) Income tax 1,952 1,882 1,669 1,641 1,607 1,575 1,509 1,464 .1,414 1,362 565 500 630 648 677 700 727 759 785 810 38 39 39 40 41 41 42 43 43 5 5 5 5 5 5 5 5 6 42 41 40 50 49 48 57 56 55 27 27 26 26 26 25 25 24 3 6 8 11 13 12 12 12 11 28 28 28 28 28 28 28 28 19 19 19 19 19 19 19 19 19 19 19 22 22 22 21 25 25 58 224 227 23O TOTAL REVENUE 2,517 2,490 2,483 2,475 2,485 2,478 2,495 2,656 2,639 2,614 EXPENDITURES ($ Millions): Total GF spending on current programs PF Dividends 2,476 2,365 2,264 2,167 2,118 2,135 2,152 2,169 2,186 2,204 565 500 438 378 367 356 345 334 324 314 TOTAL EXPENDITURES 3,041 2,865 2,702 2,546 2,485 2,490 2,496 2,503 2,510 2,517 PROJECTED ANNUAL FISCAL GAP ($ Ymlons) (524) (37'6) (219) (71) 1 02) __{1) 153 129 97 J CONSTITUTIONAL BUDGET RESERVE ENDING BALANCE ($ Millions) PERMANENT FUND EARNINGS RESERVE ENDING BALANCE PERMANENT FUND MARKET VALUE ($ Millions) PER CAPITA PERMANENT FUND DIVIDEND PER CAPITA SPENDING 1,500 1,456 1,412 1,368 1,326 1,285 1,245 1,207 1,170 1,134 922 1,194 17,766 17,625 19,391 20,131 20,804 21,459 22,110 22,897 23,657 24,379 990 852 727 611 582 553 526 501 475 452 4,938 4,579 4,250 3,941 3,786 3,735 3,685 3,636 3,589 3,543 Special Acknowledgements The membersof the Long Range Financial Planning Commission acknowledge with thanks the contribution of its staff: Brad Pierce, Mdlssa Fou~e, and Bob Waish. Thanks are due also to House Speaker Gall Phillips, Representative Richard Foster, and OMB Director Annalee McConnell for sharing their staff resources with the Commission. In addition, the members of the Commission acknowledge the contributions of the Alaska Journal of Commerce and Northwest Strategies In procludng this report. The State Long Range Financial Planning Commission Members Brian Rogers Fairbanks Chairman Judy Brady Anchorage Vice-Chair Lee Gorsuch Anchorage Sen. Georgianna Lincoln Rampa~ Robert Loescher Juneau Bruce Ludwig Juneau Annalee McConnell Juneau Hugh Motley Cooper Landing Rep. Mike Navarre Kenai Mary Nordale Fairbanks Mike O'Conner Anchorage Rep. Sean Pamell Anchorage Pat Pourchot Anchorage Sen. Steve Rieger Anchorage Marie Westfall Ketchikan ell System of Snstainable State Spending How government is financed in Alaska · The State enloys an endowment composed of the revenue from the sale and taxation of natural resources, and of the income from the investment of that revenue.I · A substantial part of-the endowment is available for appropriation.2 A problem · The size of the spendable part of the endowment varies considerably because of the short and long-term Huctuation of the natural resource revenue that feeds it. · When that part of the endowment expands, the Legislature spends freely from it. · When it shrinks, the spending can't be continued at the accustomed level. · Then state programs are curtailed. · And the economy, which in Alaska is dependent on continuous state spending, suffers.3 The remedy · Replace the present system with one under which the Legislature would have to spend from the endowment at a sustainable rate? A proposed system · The endowment is formalized.5 · It is invested for long-term capital appreciation. · Every year, the amount that it's expected to grow, from investment only, is spent,s · That rate of spending is the highest sustainable.? {'see reverse) I That's what the federal government intended when it gave the natural resources to the State. It was understood that. in addition to the taxing power that every state has. Alaska would need wealth to pay for government. Several funds embody the endowment, which has not been formalized, the Budget Reserve Fund. the Earnings Reserve Account. the Alaska Pei"manent Fund and the General Fund. 2 The part that is not available for appropriation is the Alaska Permanent Fund. 3 Spending was curia 1986. The economy collapsed. "In this outline, rate of spending is amount spent per year. The rate is sustainable if it's reasonable to expect that ~t generally won't decrease, in real (inflation-adjusted) terms. 5 That would define natural resource revenue, put all of the endowment's assets into a single fund (the Alaska Permanent Fund) and generally prohibit appi"opriation fi-om the endowment 6 The amount of expected growth from investment is a function of a fixed rate of real growth from investment and value of the endowment. A fixed rate of real growth from investment is determined by assunung a rate of total return on investment and a rate of inflation. Value of the endowment is the average of its market value at the end of each of a prescribed number of preceding calendar periods. ? Highest. because spending more than the real growth expected from investment could make the -endowment too dependent on lluctuating natural resource revenue. Sustainable, because it's reasonable to expect that the size of the endowment, ns averaged, generally won't decrease, in real terms. (In a given year the size of the endowment would decrease, at least in real terms, if the real growth from investment were less than the amount spent and if that year's natural resource revenue didn't make up the difference.) The principal advantage of the proposed system · it l,~ much le,~,~ hkely that periodic curtailment oi' state programs, and the resulting economic busts, would occur. Another advantage · A meaningful budget becomes feasible, because during the budgetary process the Legislature would know how much money is available for spendLng.8 Transition · During a period of many years the rate of spending from the endowment would be gradually decreased, at least in inflation-adjusted terms, to the rate that is the highest sustainable.9 · The length of the period would be determined with the objective of providing the most money for spending and yet allowing the endowment to increase in size.fo I mple mentation · The proposed system and transition require a constitutional amendment.~! Obstacles to implementation · Tl~e temotation to keeo on soendin_~ from the endowmen~ itt an unsustainable rate rather than face the cuts that adootion of the orooosed system would entail. 12 · The misconception that the proposed system would eliminate the dividend program,ts Roger Ctemo- 1/1/96 ~) Except for what comes from sources ou~ide the endowment, but that's easy to forecast. 9 A transition is necessary because the current rate of spending is much greater than what is sustainable. not only in terms of the ,~pend~ble part butof the entire endowment. I 0 Incongruously. ~ determination of the length of the transitional period must be based, in part. on the official forecast of natural resource revenue. 11 Constitutional amendments are proposed by the Legislature and ~pproved by the people 12 Nominally. the cuts would be shallow (if revenue from sources outside the endowment is modestly increased and the transitional period is not too short).. In real terms they would be deep. However. unlike the devastatingly abrupt cuts that might occur under the present system, they would be gradual. 13 That program, llke other governmental programs, is not constitutionally protected. Both now and under wb~t'~ prnpoe~d, it i~ for the L~gi~ln~ure to decid~ whether tn continue it Un(tar the prolme~d ey~tem. howe,'er, it may have a better chance of surviving cuts in spending. Present System of St:te Spending Endowment INatural Resources Permanent Fund B~t I ~~~ Fund General Fund~ unsustalnable income iPeople I unsusteinable spending System of Sustainable State Spending Endowment ~ Permanent Fund ~// sustainable Income I General Fun.I I sustainable spending CONSTITUTION OF THE STATE OF ALASKA tpropo.eed am en dm en ARTICLE IX, SECTION 15 - ALASKA PERMANENT FUND (a) Eevenue derived by the State (1) from the disposition, by the State or the United States, of land, minerals, forestial resources or biological marine resources; and (2) from taxes (A) on the reservation, production, transportation or processing of those natural resources; and (B) on property used in, or corporate income from, the exploration, production, transportation or processing of those natural resources; and ($) from claims, against the United States or others, for deprivation of that revenue, or that land or those natural resources constitutes the Alaska Permanent Fund, which is invested and reinvested for long-term capital appreciation. Investment income, including realized capital appreciation, is retained in the fund and reinvested. Investments are made in accordance with standards prescribed by law. (b) Money in the fund cannot be appropriated. Every fiscal year an amount equal to ~ percent of the average of the fund's market value at the end of each of the quarters of the calendar years immediately preceding is permanently withdrawn from the fund and is appropriable. (c) Oil, gas, coal, sand, gravel, stone and water are considered to be among the minerals that are the subject of (a). ARTICLE XV. SECTION 29 - ALASKA PERMANENT FUND TRANSITION (a) The percentage prescribed in Article IX, Section 15, as amended in 1996, for determining the amount of money withdrawn annually from the Alaska Permanent Fund, is inapplicable in fiscal years 1998 through 20 In the first year of that period the applicable percentage is It decreases each fiscal year thereafter, geometrically, until the first year after that period, when it attains its permanent value. (b) The assets of the Budget Reserve Fund (Article IX, Section 17) and the Earnings Reserve Account {AS 37.13.145) are added to the fund on the effective date of this section. For the purpose of determ_i_n_i_n_g the average of the fund's market value, as required by Article IX, Section 15, as amended in 1996, those assets are treated as if they had been added to the fund three years t~efore tl~e period in (a). (c) In addition to the revenue and investment income described in Article IX, Section 15, as amended in 1996. the fund consists of the assets carried on its books on the effective date of this section and the assets added by (b). (d) Article IX, Section 15, as amended in 1996, does not affect other dedications permitted by Section 7 of that article. ~ (e) Article IX, Section 15, as amended in 1996, and this section are effete July 1, 1997. ARTICLE X¥, SECTION 30 - REPEAL Article IX, Sections 16 & 17, and Article XV, Sections 27 & 28 are repealed. This section is bffective July 1. 1997. ~ndowment Note~ ~ The State has an endowment, which presently contains the natural resource revenue and investment income that have accumulated in various funds, principally the Alaska Permanent Fund, the Earnings Reserve Account and the Budget Reserve Fund. In the proposed system the endowment is housed in the Alaska Permanent Fund, to which the contents of the other funds ("reserves") are transferred at the beginning of fiscal 1998. For the purpose of determining the endowment's value in and after 1998 (see "Value of the endowment"), the transfers are treated here as if they had been made in 1995. In the future, all natural resource revenue is added to the endowment and all investment income remains in the endowment. Assigned values. The values assigned here to transitional withdrawal rates, length of the transition, final withdrawal rate, rate of total return and rate of inflation should be taken as illustrative only. Thus, for example, the system will work whether the final withdrawal rate is six percent or five percent. Value of the endowment. The average market value of the endowment at the end of a prescribed number of preceding calendar periods (here three fiscal years) is the basis for determining the amount that is withdrawn from it for spending. Since the Permanent Fund Corporation does not report market projections, it is assumed that the unrealized appreciation component ($1.7 billion) of the Alaska Permanent Fund's value at the end of fiscal 1995 will not change throughout the three-year period before fiscal 1998. Natural resource revenue. The natural resource revenue is deposited into the endowment when it is received (here each year's receipts are treated as if they are deposited at the beginning of the year). Projections for the years after 2015 are based on an unofficial extension of the trend before that. Withdrawal from the endowment. The amount withdrawn from the endowment for spending in a fiscal year is a function of the withdrawal percentage and the endowment's value. Withdrawals are made as the money is needed for spending during the fiscal year (here withdrawals are treated as if they are made at the beginning of the fiscal year). I I t I I I I I I I I I I I t I I I I I I I I I I I I ~~oooooooooooooooooooooooo~ Fisc. alGap (present s3'stem) Notes Fiscal eao. The fiscal gap is the difference between projected income and anticipated expense. When a year in which there is a gap is reached, that gap must be closed by enhancing revenue, reducing expense or using reserves, or any combination thereof. Natural resource revenue (1). This does not include the part (10-15%) that goes into the Alaska Permanent Fund. Conventional revenue (2 }. Here, conventional revenue is all revenue other than natural resource revenue and the income of the Alaska Permanent Fund. Projections for the years after 2015 are based on an unofficial extension of the trend before that. Permanent Fund income (3). This is the income of the Alaska Permanent Fund, after inflation-proofing, with the rate of return assigned here. The fund's rate of total return does not apply, since it is assumed that all of the fund's appreciation is not taken into income. Incidentally, that rate of total return probably would be less than the rate of total return of the endowment under the proposed system, given the difference in investment objectives. Antici0ated exoense (~), This is a typical estimate of how much might appropriately be spent if sufficient income were available. When compared with projected income, it serves to define the fiscal gap as it appears before revenue is enhanced and expense reduction is planned. For 1996, it is approximately what has been budgeted. For 1997, it is assumed to be unchanged. Thereafter, it increases at the rate of inflation. Enhanced conventional revenue (8). For 1998, enhanced conventional revenue is equal to the conventional revenue projected for 1997, increased at the rate of enhancement. Thereafter, it increases each year at that rate. Planned exoense ( 11 ). This is anticipated expense (5), reduced according to a typical plan to cut spending. For 1998, it is equal to anticipated expense (5) for 1997, increased at a rate equal to the rate of inflation tempered by the rate of reduction. Thereafter, it increases each year at that tempered rate. Thus, if anticipated expense for 1997 were $100, the rate of inflation were 3.5% and the rate of reduction were 1%, planned expense for 1998 would be $102.50. Soend {13), The amount spent depends on whether income (10) and reserves, combined, are adequate. If they are, the planned amount is spent. If not, the amount spent is equal to income and reserves. IIIIfll ~0~0000000000000000000000000 FiscalGap (proposed system ) Notes ~ The fiscal gap is the deference between projected income and anticipated expense. When a year in which there is a gap is reached, that gap must be closed by enhancing revenue, reducing expense or using reserves, or any combination thereof. Conventional revenue (2). Here, conventional revenue is the revenue derived from all sources outside the endowment. Projections for the years after 2015 are based on an unofficial extension of the trend before that. Anticioated ex0¢nse (4). This is a typical estimate of how much might appropriately be spent if sufficient income were available. When compared with projected income, it serves to define the fiscal gnp ns it appears before revenue is enhanced and expense reduction is planned. For 1996, it is approximately what has been budgeted. For 1997, it is assumed to be unchanged. Thereafter, it increases at the rate of inflation. Enhanced conventional revenue (7). For 1998, this is equal to the conventional revenue projected for 1997, increased at the rate of enhancement. Thereafter, it increases ench year at that rate. Enhancement is included here only to illustrate the effect that it has on income and is not part of the proposed system. Income (8). Income consists of the the enhanced conventional revenue and the amount withdrawn from the endowment. It is the amount available for financing government, including its dividend program. ~pend ( 11 ). As planned, the amount spent is equal to income. 0 0 0 0 0 0 0 Register , 1996 ENVIRONMENTAL CONSERVATION TABLE 1 FEE REQUIREMENTS (Fees rounded to nearest $100) NEW FACILITY PERMITS Estimated Hours Estimated Required Maximum Total Fee Advance Fee* Class I MSWLF 100 Class II MSWLF 60 Off Site Drilling Waste (18 AAC 60.430) 100 On Site Drilling Wastes (18 AAC 60.430) 40 Asbestos (18 AAC 60.450) 40 Mining (18 AAC 60.455) 100 Large Inert (18 AAC 60.460) 80 Small Inert (18 AAC 60.460) 25 Sewage Solids (18 AAC 60.470) 40 One Time S. Solids (18 AAC 60.470) 25 Wood (18 AAC 60.480) 40 Plan Storage Facility** (18 AAC 60.010(h) 30 Plan Treatment Facility** (18 AAC 60.010(i) 30 Plan Transfer Facility** (18 AAC 60.010(g) 30 Closure Plan 30 New General Permits*** (18 AAC 60.255(c) 40 Coverage under General Permit**** (18 AAC 60.255(e) 15 7,1 O0 3,500 10,500 4,300 2,100 6,400 7,100 3,500 10,500 2,800 1,400 4,200 2,800 1,400 4,200 7,100 3,500 10,500 6,000 3,000 9,000 1,800 900 2,700 2,800 1,400 4,200 1,800 900 2,700 2,800 1,400 4,200 2,000 1,000 3,000 2,000 1,000 3,000 2,000 1,000 3,000 2,000 1,000 3,000 2,800 1,400 4,200 1,000 500 1,500 The maximum fee covers staff time spent after a complete application is received Review of plans that are not part of a larger permitted facility Costs associated with writing a general permit requested by one or more applicants Costs associated with coverage under a general permit that has already been approved -6- Register , 1996 ENVIRONMENTAL CONSERVATION FACILITY PERMIT RENEWALS OR UPGRADES Estimated Estimated Required Maximum Hours Total Fee Advance Fee* Major Facility** First renewal after / /96 80 5,600 2,800 ' 8,400 Subsequent renewals 40 2,800 1,400 4,200 Minor Facility*** First renewal after / /96 6 500 250 750 Subsequent renewals 3 250 125 375 All others First renewal after / /96 30 2,200 1,100 3~200 Subsequent renewals 15 1,100 550 1,650 The maximum fee covers staff time spent after a complete application is received Major Facility includes Class I MSWLF, mine permits, or offsite drilling waste disposal Minor Facility refers to coverage under a general permit, or a small inert waste facility. FACILITY PERMIT MODIFICATIONS OR AMENDMENTS (made during the life of the permit) Estimated Hours All Modifications 8 Estimated Required Maximum Total Fee Advance Fee* 500 250 750 The maximum fee covers staff time spent after a complete application is received FACILITY INSPECTIONS* Estimated Estimated Estimated Maximum No. Per Year** Hours Total Fee Fee/Year** Class I MSWLF 4 15 1,1 O0 4,400 Class II MSWLF 2 15 1,1 O0 2,200 Mining 1 15 1,1 O0 1,1 O0 Large Inert 1 15 1,1 O0 1,1 O0 Others 1 8 570 570 No advance is required for an inspection Maximum fee applies only to routine inspections. It does not include an inspection made because of significant or continuing noncompliance resulting in or required because of a notice of violation, compliance order, compliance order by consent, or other enforcement action. -7- TOWN HALL MEETING JANUARY 25, 1996 7:00 P.M. KENM SENIOR CENTER OPENING REMARKS - Presentation by Legislators, if available PRESENTATION OF GOVERNOR'S BUDGET ADDRESS AND GRAPHS (Alaska State Chamber of Commerce Analysis) PRESENTATION OF FISCAL GAP COMMITYEE REPORT EFFECTS ON CITY AND MUNICIPAL GOVERNMENT -- CUTS AND TRANSFERS TO MUNICIPALITIES -- REVENUE SHARING SHORTFALLS FOR CITY OF KENAI REMARKS BY GUESTS: MIKE BURNS - KEY BANK ROGER CREMO QUESTIONS AND ANSWERS 1791 o 199! ~ CITY OF KENAI. 'az o( 210 Fidalgo, Suite 200 ~.Alaska 99611-7794 · ~ Phone 907-283-7535 Fax 907-283-3014 TO FROM Date Nmber of Pages ASHLEY: JOHN ASKED THAT YOU BE NOTIFIED THAT AN APPOINTMENT WITH THE GOVERNOR HAS BEEN SCHEDULED: JANUARY 24, 1996 - 2:50 TO 3:10 P.M. · JOHN WOULD ALSO LIKE DETAILS FOR TRIP TO DC. IF YOU WERE SERIOUS ABOUT HIM GOING, HE NEEDS TO KNOW DATES FOR THE TRIP, HOTEL INFORMATION (IF ANY), ETC. PLEASE ADVISE. JOHN WANTED TO REMIND YOU ABOUT YOUR BREAKFAST ON TUESDAY, JANUARY 23, 1996 AT 7:30 A.M. AT THE BARANOF. CITY OF KENAI MEMORANDUM 210 FIDALGO AVE., SUITE 200 KENAI, ALASKA 99611-7794 TELEPHONE 907-283-7535 FAX 907-283-3014 ~ 1992 TO: Senator Judy Salo Senator John Torgerson Representative Mike Navarre Representative Gary L. Davis Representative Gail Phillips FROM: Carol L. Freas,~City Clerk (283-7539) City of Kenai ~ // DATE: January 19, 1996 RE: TOWN HALL MEETING City of Kenai As Mayor Williams has discussed with several of you, the Kenai City Council will be holding a Town Hall Meeting on January 25, 1996 at the Kenai Senior Center. The meeting will begin at 7:00 p.m. Discussion will include the State of Alaska Fiscal Gap and what effects it may have on Kenai Peninsula communities. We would appreciate your participation. To that end, Tom Ackerly has arranged for the use of the Fahrenkamp Room where you will be connected to our meeting by teleconference phone. WE LOOK FORWARD TO HEARING FROM YOU DURING OUR JANUARY 25, 1996 TOWN HALL MEETING. Securing Alaska's Fiscal Future The Growing Fiscal Gap AlaskanS for A Plan Revisiting the Fiscal Gap: Are We Crying Wolf? · in 1989, ISER projected a gap starting in FY 89 · By FY 94, t~e gap would grow to $1 billion · In FY 92, a Wcrash landing" was predicted Why are we still flying? Is a crash inevitable? Revisiting the Fiscal Gap · ISER's predictions in 1989 were: ~ Slightly high on oil prices ,, Accurate on oil production volume ,, Low on state revenues ~ Accurate on expenditures So, Why Hasn't Alaska Crashed? Answer: Oil and Gas Settlements Opportunity for a Mid- Course Correction: Adopt a Long Range Fiscal Plan Tools to Make Ends Meet ............. ~'~.;;4:i~::.:i:i:~i:i&.i:~:~.~: :.&:i&.i:i:..i&:i&:~:~ .... - ........ · Spending cuts · Increased taxes and user fees · Increased revenues through economic development · Use reserves · Use Permanent Fund income Tool to Make Ends Meet: Spending Cuts .......... ~.~-,..~,~..~:.~:i:~:i~.:~.i>;~&&:~&:.&:i...:..:..~:~:i:~~.~..~. ~ - ......... · Alaska spends more than twice as much per capita as the national average · Education, cdminal prosecution, correctional facilities, and road maintenance are primarily state-provided in Alaska, while are typically provided by local governments in other jurisdictions · Alaska has unique programs, such as PF dividends, Longevity Bonus, and Pioneer Homes Tool to Make Ends Meet: Taxes · Finances for a "typical" state . Personal income tax - Mostly used to finance state governmem ~ Sales tax - Mostly used to finance state government ~ Properly tax - Mostly used to finance local government and local schools Tools to Make Ends Meet: Sales and Income Taxes · States with no state sales tax: . Alaska, Delaware, Montana, New Hampshire, Oregon · States with no personal income tax: ,, Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming · States with no state sales tax and no personal income tax: ~ Alaska Tool to Make Ends Meet: Personal Income Tax · Earned income in Alaska economy * $11 billion · Portion earned by non-residents ~ $1 billion ~ if $300 million is raised from an income tax, $30 million would come lrom non-residenls Tool to Make Ends Meet: Personal Income Tax ® If $300 million is raised from an income tax: - $213 million in direct spending is removed from the Alaska economy; $75 million in secondar7 spending is removed from the Alaska economy ,, 3,700 jobs would be lost by removing this direct spending from the economy 2 Tool to Make Ends Meet: Sales Tax ........... ....~............~,.~,~::;~:i~$i:i:~i. Li~i:i:i~i~i:i3 :i:i:;~:~:~.i~i~i~i:~:!~i:i~i:~i:i:i:i~,.,×.~,: ......... · Volume of Alaska sales of goods and services - $9 billion · Sales tax is more regressive than personal income tax · Typical sales taxes exempt retail food sales, and health and social services Tool to Make Ends Meet: Sales Tax · A 1% tax on retail trade and services would raise $59 million · A 4% sales tax would raise $236 million: - $20 million from non-residents ~ $215 million in direct spending removed from the Alaska economy; $75 million in secondmy spending removed from the Alaska economy ,~ Total spending reductions of $290 million results in the lost of 3,500 jobs Tool to Make Ends Meet: Excise Taxes · Highway Motor Fuel . Each 1 cent/gallon increases results in $2.9 million in additional revenues · Tobacco - Each 1 cent/pac~: increase results in $500,000 in additional revenues Tool to Make Ends Meet: Excise Taxes · Alcohol ~ Each 50 cent/gallon increase in liquor tax results in $550,000 in additional revenues - Each 5 cent/gallon increase resulls in $62,500 in additional revenues ,, Each lcent/g~llon increase in beer tax resulls in $136,000 in revenues Tool to Make Ends Meet: Use Reserves ~_ ~..~.~:~:~::;.~.~::.:.i~;:i:i~i:.:i.i.:.:;i;i~i;i:i:~:~:~:.::~:i~i~i~i~.~.`.. ........ · Constitutional Budget Reserve (CBR) Fund projected to have $2.3 billion balance by June, 1997 · If continue to spend CBR to fill the gap, state warrants will bounce on October 31,2000 when CBR balance hits zero Proposed Long Range Plans -----~ `.~.~.~..~.~:~<<.:~.~:~:~.~i.~:::~:~:~:i:~:~:~:~:~:~:~:~:~:~:~:~:k:~ ~.....:.:.:.~.:~ ~_~.~_ _ _ _ · Endowment Plan · "Rieger Plan" · "Cremo Plan" · "Rose Plan" 3 Endowment Plan ......... -_,- _~_~._.,t,!.:..~~...::.:~:~:~:~:~:i:~:i:::~.i:i`~`i.::~:~:~:i:i:i::;.;:.>~;i:i:i:i~.:.::~!.~.-`~`~- _-_- ............ · Recommended by Long Range Financia~ Planning Commission · Recommendations include: - Cut state spending ,, Increase revenues - Establish the Permanent Fund as an endowment ,, Cap the Permanent Fund dividend pool Endowment Plan: Cut Spending · Cut $100 million over 3 years (nominal dollars) ~ $40 million in FY 97 ~ $30 million in FY 98 ~ $30 million in FY 99 · In today's buying power, this equals: ~ $300 million reduction - A 5% per year reduction in existing state programs and services Endowment Plan: How to Cut Spending -,~ ~;.::i;i:~;~;~:~;~;~:~:~;:;~:~:::~;~;~;~;~i~;~~;.;.; ....... · State employee salaries and benefits ,, Adopt a Retirement Incentive Program ,, Reduce retirement benefits for new employees · Consolidate administrative support functions · Reduce growth in formula-driven programs · Make property tax exemption program a local option instead of unfunded state mandate · Review opportunities for privatization, contracting out, out-sourcing and in-sourcing Endowment Plan: Increase Revenues · Tobacco and alcohol tax increase ~ $1 per pack o! cigarettes ,, Double alcohol taxes to about 10 cents a drink · Highway motor fuel tax increase ~ Increase from lowest in U.S. (8 cents~gallon) to national average (22 cents) · Double motor vehicle license fees · Establish tourism industry taxes · Income tax re-instated when gap reappears (FY 02) Endowment Plan: Permanent Fund is Cornerstone · Establish PF as an endowment , Sets payout rate o! 4% o! the average market value for the preceding 5 years · Increase dedicated percentage of royalties and bonuses from 25% to 50% · Requires constitutional amendment approved by voters · PF Earnings Reserve deposited into the Fund once endowment established Endowment Plan: Cap PF Dividend · Step down the dividend payment ~ Current year payments lotal $565 million - cuts the dividend pool by $50 million in eacn of next 3 years - Dividend payment amounts: - $990 1995 - $900 1996 - $8oo 1997 - Dividend pool capped - Frozen at $415 million; individual dividen~ ar'nc~nt no Icng~ tied to Fund's performance 4 Endowment Plan: Reserve Funds ............ . ~ ..~.-~..~:~:i:i:2:~:~.:i:i.i:~:i~i:i:~:i:~:i:~:2:~:i:i:~:i~..~ .... - ....... · Constitutional Budget Reserve Purpose Changed ~ $1.5 billion balance maintained to be tapped only to cover oil price fluctuations: excess balance deposited into PF ~ Requires constitutional amendment approved by voters · PF Earnings Account eliminated; current balance deposited into PF when endowment established "Cremo Plan" ................ ;~,,;~:i:i~. ;i;~;~;i:i;i:~:~:~.~:~:i::..:.:i:~:i:~:~:~~ ~ ~.....-,,.~. ~ · Dedicate all existing natural resource revenues to the PF * Windlalls (ANWR) automatically go into PF · Pays out an annual revenue stream to be available for state spending ~ Di~erence between spending and payout would be made up with conventional revenues - If 4% payout rate adol2ted, in FY 98 would be $1.7 million deficit which would gradually disappear · Constitutional amendment so needs voter approval "Rieger Plan" (SB 51) · Change distribution of PF earnings - Payout of PF earnings based on real earnings of PF inslead of nominal - Fund is automatically inflation ~roofed - Remainder of earnings is split equally between generate fund and PF dividends · Same taxes, fee increases, and spending cuts as endowment---except no income tax · Reserve funds are available for spending · No voter approval required "Rose Plan" · Uses Constitutional Budget Reserve Fund to fill gap ~ Takes $2.5 billion in unrealized capital gains out ot PF principal and deposits it into CBR - Caps PF dividend pool at last year's level ~ Net PF income deposited into CBR · Gap reappears in FY 05 and grows · By FY 05, $10 billion in liquid reserves on the table AlaskanS for A Plan 5 Revenues and Expenditures billion $ 4,000 2,000 1,000 1996 1997 t998 1999 2000 2001 2002 2003 2004 2005 Fiscal Year DQR Revenues FY96 Expenditures w/3% growth LRFPC Revenues LRFPC Expenditures Source: Draft LRFPC Report; DOR Spring 1995 Revenue ~Forecast: OI~"IB FY96 Spending Plan; DOR expenditure projectionj ~-/'24/1995 Revisiting the Fiscal Gap: Oil & Gas Settlements million $ 1,600 1,400 1,200 1,000 80O 600 400 200 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Fiscal Year I .~rowth of State Government: FY79 to FY96-Full Time Employees (Programs as Located Currently) Law-Oil & Gas Mil & Vet Affairs Law-Criminal Governor Comm & Reg Aff Law-Civil Legislature Commerce Education Revenue Env Cons Natural Res Courts Labor Fish & Game Pub Safety Admin-Oper Corrections Health & SS Trans & PF University 0 1,000 FY79 FY96 Full Time Employees 11,358 17,511 FY79 Increase to FY96 2,000 # of employees 3,000 4,000 II Growth of State Government: FY79 to FY96 (Programs as Located Currently) Trans & PF Revenue Fish & Game Education Admin-Oper Governor University Labor Mil & Vet Afl Comm & Reg Afl Pub Safety Health & SS Courts Natural Res Env Cons Law-Civil Legislature Law-Criminal Commerce Corrections Product of Population GroWth & inflation o 50 100 150 200 250 300 Percent Growth in General Fund $ Growth of State Government: FY79 to FY96 (Programs as Located Currently) Governor Admin-Oper Labor 3omm & Reg Afl Education Law-Civil Pub Safety Courts Trans & PF Revenue Fish & Game Legislature Law-Criminal University Natural Res Health & SS Commerce Env Cons vlil & Vet Affairs Corrections Product Of population GroWth & Inflation 0 50 100 150 200 250 Percent Growth in Total $ 393 ,445 ,631 300 II I Projected Constitutional Budget Reserve Fund Balance million $ 2,500 2,000 1,500 1,000 500 0 1995 October 31, 2000 I i I t 1996 1997 1998 1999 2000 2001 Calendar Year DEPT. OF ENVIRONMENTAL CONSERVATION DIVISION OF ENVIRONMENTAL HEAL~ DIRECTOR'S OFFICE 555 CORDOVA STREET ANCHORAGE, ALASKA 99501 Dear Interested Party: Xd.d~.~i}....x Telephone: (907) 269-7644 Fax: (907) 269-7654 TONY KNOWLES, GOVERNOR Enclosed you will find a copy of the revised proposal for solid waste fees. The proposal is now out for public comment. The fee structure as proposed has been significantly revised based on the comments we received during the last public comment period. We believe that we have addressed the concerns expressed, and will look forward to your comments. There were a number of common concerns expressed on the last proposal. They were: ~' applicants and permittees should pay for only the services they receive, and not subsidize any other operation; there needed to be a cap on the total fee the department would charge; ~' $91/hour was too high; "per ton" fee was unfairly burdensome to the hard rock mining industry; ~' class III municipal landfills not associated with an industrial camp should get some kind of financial break; and the regulations were not clear as to what fee applied to what kind of facility. We took these comments and concerns and started over. The proposal you'll find enclosed is based only on an hourly rate - $71/hour. There is no other type of fee. It is hourly only. Hours will be billed to a facility for work performed for that facility only. We will bill for time spent issuing a permit, renewal, amendment or modification, and the time spent on inspections. There are tables for both types of work with an estimate as to how much time we believe the different activities will take. There is a not-to-exceed maximum for all that is 50% higher than our estimated total fee. Applicants will be asked to submit one-half of the estimated total fee with their application. The department will charge against that advance, and will also continue to provide a monthly statement to the applicant even if there is a credit balance. If the advance exceeds the billable time, the balance will be refunded within 60 days of the final statement. _,~,~ 0tinted or~ reo,,cied DdDe~' : - :.g Class III landfills that are not a part of an industrial camp are exempt until they have to become Class II's under the regulations (by 2010). Any facility that upgrades to the next level of landfill, i.e. a Class III to a Class II, or a Class II to a Class I, will be treated as a renewal rather than a new permit. The table which outlines the estimated number of hours, estimated total and the maximum fee allowed is cross referenced to the section in the substantive regulations that deal with that kind of facility. The hourly rate has been reduced to $71/hour. You'll find enclosed a break down of how we arrived at that hourly rate for your information. Finally, in order to help ensure the amount of time needed for permit issuance is as short as can be, we are offering every applicant a preapplication conference at no charge. Every permittee will also receive two hours a calendar month of technical assistance at no charge. I believe this structure meets the concerns that have been expressed. The hourly rate is reduced and there is a cap so people will know the most they will pay. But, since they are paying by the hour, they will pay for only the work done on their behalf. To keep everyone's costs down, we are encouraging a preapplication conference so applications can be submitted as complete as possible. To encourage proper solid waste management, we are offering every permittee two hours of technical assistance at no charge. To encourage facilities to upgrade, we will treat those upgrades as renewals rather than new permits. The regulations have been written to be as explanatory as possible with the permit types cross referenced to the permit requirements. The information that will be provided on the billing from the department has also been outlined. There will be three hearings on this proposed regulation as outlined in the Public Notice that is enclosed. We encourage you to attend any of those hearings that is convenient for you, or to submit any comments you have in writing to me by February 15, 1996. Specifically, we'd like to know whether or not this structure is agreeable to you, if there are modifications to it you'd suggest, or if it is not agreeable, what other structure might you suggest. It is our goal to establish a workable fee for solid waste. To that end, your comments are very important. Thank you in advance for taking the time to review the enclosed proposal and share your comments with us. Sincerely, Director Enclosure J~a NOTICE OF ADDITIONAL PUBLIC COMMENT PERIOD ON PROPOSED CHANGES IN THE SOLID WASTE REGULATIONS OF THE ALASKA DEPARTMENT OF ENVIRONMENTAL CONSERVATION Notice is given that the Alaska Department of Environmental Conservation (DEC), under authority vested by AS 44.46.025, AS 46.03.020, 46.03.100, 46.03.110, 46.03.810, and AS 46.06.080, is providing an additional public comment period on a portion of its proposal to amend Chapter 60, Title 18, of the Alaska Administrative Code dealing with Solid Waste Management (18 AAC 60), to implement AS 44.46.025, AS 46.03.020, 46.03.100, and AS 46.06.080 as follows: DEC provided an ~idditional opportunity for public comment on proposed user fees in a public notice dated September 1. After reviewing those comments and making substantial changes to the proposed regulations in response to those comments, DEC is providing another opportunity for public comment on the proposed fees. In this proposal, only fees based on hourly charges will be collected. The hourly rate has been reduced to $71/hour and a full explanation of the calculation for that rate is enclosed with the proposal. There is a cap on the maximum fee charged each facility, and facilities will be charged only for work done on their behalf. To increase efficiency, DEC encourages applicants to participate in a preapplication conference at no charge so that complete applications can be submitted. No fee will be required for a Class III facility, unless that facility is associated with an industrial camp. The proposed user fees are intended to parti~illy fund DEC's implementation of recent amendments to 18 AAC 60 which take effect on January 28, 1996. To comply with Administrative Order 157 and to make its regulations easier to understand, DEC seeks comments on this chapter regarding how it might be improved, including the use of "plain English" wherever oossible. DEC also seeks comments regarding the cost of complying with the proposed regulations, including any alternative practical methods of complying that might cost less and still accomplish the purpose of the regulations. If portions of this chapter are confusing or unnecessarily burdensome, or if you have other suggested improvements, please send your comments by February 15, 1996. NOTICE IS GIVEN that any interested person may present written comments relevant to the proposed action, including the potential costs to private persons of complying with the proposed action, by writing to Janice Adair, Director of Environmental Health, Alaska Department of Environmental Conservation, 555 Cordova Street, Anchorage, AK 99501-2617, or by facsimile at: (907) 269-7654. Comments will be included in the record if they are received by 4:30 p.m. on February 15, 1996. Additionally, any interested person may present oral or written comments relevant to the proposed action, including the potential costs to private persons of complying with the proposed action, at public hearings to be held as listed below. Beginning at 7:00 p.m., department staffwill present information about the proposal, and public testimony will be taken after the presentation. Date Time City. Location Januai'y 23 7-9 p.m. Anchorage Public Conference Room Loussac Library, 3600 Denali Street January. 24 7-9 p.m. Fairbanks Conference Room Noel Wien Library, 1215 Cowles January 30* 7-9 p.m. Juneau First Floor Conference Room DEC Building, 410 Willoughby *Teleconference facilities will be available for those wishing to participate in the January 30 heating from locations outside Juneau. To participate by teleconference, please contact Doug Toland at (907) 465-5160 no later than January 26 to make any necessary arrangements. The department will arrange for an opportunity to testify for those present before the hearing closes who do not have an opportunity to testify. If you are a person with a disability who may need special assistance in order to participate in the process on the proposed regulations, please contact Fran Podmolik at 465-5041 no later.than January 18, 1996, so that any necessary arrangements can be made. This action will not require an increased appropriation. Copies of the proposed regulations, may be picked up at DEC's Juneau, Anchorage, or Fairbanks offices or are available by writing to Ms. Adair at the address given above. They are also available on DEC's interact homepage at: http://www.state.ak.us/locai/akpages/ENV.CONSERV/home.htm After the close of the public comment period on February 15, 1996, DEC will either adopt these or other proposals dealing with the same subject, without further notice, or decide to take no action on them. The language of the final regulations may vary from that of the proposed regulations. You should comment during the time allowed if your interests could be affected. Dated: January 5, 1996. ~ Gene Burden, Commissioner Department of Environmental Conservation DEC's Interact Homepage Address: http://www.state.ak, us/local/akpages/ENV.CONSERVgnome.htm STATE OF ALASKA DEPARTMENT OF ENVIRONMENTAL CONSERVATION PROPOSED REGULATIONS SOLID WASTE MANAGEMENT 18 AAC 60 PUBLIC REVIEW DRAFT January 5, 1996 COMMENT PERIOD CLOSES Febmary t5, I996 Tony Knowles Governor Gene Burden Commissioner Register , 1996 ENVIRONMENTAL CONSERVATION CHAPTER 60. SOLID WASTE MANAGEMENT. The article listing for 18 AAC 60 is amended to read: Article 1. General Standards, Requirements, and Limitations (18 AAC 60.005 - 18 AAC 60.035) 2. Waste Disposal Permit (18 AAC 60.200 - 18 AAC 60.265) 3. Municipal Solid Waste Landfills (18 AAC 60.300 - 18 AAC 60.397) 4. Monofills (18 AAC 60.400 - 18 AAC 60.495) 5. Land Application of Biosolids (18 AAC 60.500 - 18 AAC 60.510) 6. (Reserved) 7. User Fees (18 AAC 60.700 - 18 AAC 60.730) [(RESERVED)] 8. Monitoring and Corrective Action Requirements (18 AAC 60.800 - 18 AAC 60.860) 9. General Provisions (18 AAC 60.900 - 18 AAC 60.990) 18 AAC 60.210(b) is amended by adding a new paragraph to read: Register __ Authority: (18) the fee advance required by 18 AAC 60.700(d). (Eft.__ __ ; am __/__/96, Register __) / /96, AS 44.46.020 AS 44.46.025 AS 46.03.010 AS 46.03.020 AS 46.03.100 AS 46.03.110 18 AAC 60.250(a) is amended to read: (a) In addition to the requirements of this section, permit renewal under this chapter is also subject to the permit renewal rea_uirem~nts of 18 AAC 15 and the fee rea_uirement, of 18 AAC 60,700. (Eft.__/__/96, Register __; am __/__/96, Register __) Authority: AS 44.46.020 AS 44.46.025 AS 46.03.010 AS 46.03.020 AS 46.03.100 AS 46.03.110 AS 46.03.810 AS 46.06.080 -1- Register , 1996 ENVIRONMENTAL CONSERVATION 18 AAC 60.255(c) is amended to read: (c) Application for a general permit must be made by submitting to the department a petition in which the applicant demonstrates that the facilities to be covered meet the conditions described in (a) of this section. Although a general permit may be sought by a single owner or operator, priority will be given to those applications jointly submitted by two or more owners or operators of facilities that would be subject to the general permit. An application under this subsection must be accompanied by the fee advance required by 18 AAC 60.700(d). If the department approves an application for a general permit under this section or, on its own motion proposes to create a general permit, the department will publish notice of the proposed permit in two issues of a newspaper of general circulation in the area where the waste management is to take place and in other media the department considers appropriate. The notice will summarize the proposed permit, state where the waste management is to be allowed, state where copies of the proposed permit and supporting documents may be obtained, and state that any person who wants to express an opinion to the department may send written comments to the department within 30 days. The department will send a copy of the public notice and the proposed general permit and supporting documents to the commissioners of [no further changes to this subsection] 18 AAC 60.255(e) is amended to read: (e) A general permit will contain criteria by which facilities may qualify for coverage under the general permit. A person who seeks to be covered under a general permit issued under this section may submit an application to the department on a form provided by the department or in accordance with the conditions of the general permit. The application must be accompanied by the fee advance required by 18 AAC 60,700(d) and must (1) be submitted within the time period identified in the form for the general permit under which coverage is sought; and (2) clearly show how the proposed activity meets the criteria and conditions of the general permit. (Eff. __/__/96, Register __; am __/__/96, Register ) Authority: AS 44.46.020 AS 44.46.025 AS 46.03.010 AS 46.03.020 AS 46.03.100 AS 46.03.110 AS 46.03.120 -2- Register __,,. 1996 ENVIRONMENTAL CONSERVATION 18 AAC 60.455 is amended to read: 18 AAC 60.455. MINING WASTE. Tailings from hard rock mines, and tailings from placer mines that have been amalgamated or chemically treated, are subject to 18 AAC 60.010 - 18 AAC 60.265, 18 AAC 60.400 - 18 AAC 60.495, 18 AAC 60.700 - 18 AAC 60.730, and 18 AAC 800 - 18 AAC 60.860 as necessary to prevent a violation of the air quality standards in 18 AAC 50 or the water quality standards in 18 AAC 70. The department will, in its discretion, incorporate applicable provisions of this chapter into a wastewater permit issued under 18 AAC 72 or a solid waste disposal permit issued under this chapter. (Eft.__/__/96, Register __; am __/__/96, Register __) Authority: AS 44.46.020 AS 44.46.025 AS 46.03.010 AS 46.03.020 AS 46.03.100 AS 46.03.110 AS 46.03.810 -3- Register , 1996 ENVIRONMENTAL CONSERVATION 18 AAC 60 is amended by adding a new article to read: ARTICLE 7. USER FEES Section 700. Fee requirements 720. Billing procedures 730. Fee appeal procedures 18 AAC 60.700. FEE REQUIREMENTS. (a) Unless exempted under (b) of this section, and subject to the limits in Table 1 in (e) of this section, the owner or operator of a solid waste treatment, storage, processing, or disposal facility shall pay to the department a fee of $71 for each hour of staff time for (1) technical review and procedures necessary to evaluate and take action on a permit application or plan submitted under this chapter; time spent by staff to review and comment on an incomplete application does not apply toward the maximum fee set out in Table 1; (2) consultation or analysis requested by the owner or operator regarding regulatory or technical matters that is in excess of the time allowed under (b)(2) of this section; and (3) inspections, compliance assessments, and compliance actions associated with a facility subject to this chapter. (b) No fee is required for (1) one preapplication meeting held to discuss an application for a new facility, or for a renewal, modification, or amendment; (2) time spent, up to two hours in each calendar month, for consultation or analysis requested under (a)(2) of this section; (3) activities associated with a Class III MSWLF that is not located in a place where public access is restricted as described in 18 AAC 60.300(c)(3)(B); (4) a composting facility; or (5) land application of biosolids. (c) In addition to the fee for services assessed under this section, the applicant shall reimburse the department for the publication cost of each public notice required under 18 AAC 15, estimated to be between $200 - $800. The department will provide the applicant with a copy of each publication invoice with its billing. -4- Register , 1996 ENVIRONMENTAL CONSERVATION (d) Before the department will review a permit application or an application for permit renewal, modification, or amendment, the applicant must submit to the department as an advance against expenses at least 50 percent of the estimated total fee set out in Table 1. An application submitted without this advance will be considered incomplete and will be handled in accordance with 18 AAC 60.210(e). If an applicant is unsure how to classify a facility, the department will, in consultation with the applicant, choose the classification most appropriate for that facility. If an application covers more than one type of operation listed in Table 1, the applicant shall pay the fee advance associated with the operation that requires the highest number of estimated hours. Facility classification and required fees are activities to be discussed at a preapplication meeting. (e) After the department receives the fee advance required by (d) of this section, it will credit hours worked against that advance. The department will provide the applicant with monthly statements, billing for time expended up to the maximum shown in Table 1. Each statement will include the information described in 18 AAC 70.720. If the fee advance exceeds the total fee charged, the department will refund any excess to the applicant within 60 days after issuing its final billing. (f) For purposes of the fee requirements of Table 1, a facility that upgrades in accor- dance with 18 AAC 60.300(d) will be treated as a renewal rather than a new facility. -5- Register , 1996 ENVIRONMENTAL CONSERVATION TABLE 1 FEE REQUIREMENTS (Fees rounded to nearest $100) NEW FACILITY PERMITS Estimated Hours Estimated Required Maximum Total Fee Advance Fee* Class I MSWLF 100 Class II MSWLF 60 Off Site Drilling Waste (18 AAC 60.430) 100 On Site Drilling Wastes (18 AAC 60.430) 40 Asbestos (18 AAC 60.450) 40 Mining (18 AAC 60.455) 100 Large Inert (18 AAC 60.460) 80 Small Inert (18 AAC 60.460) 25 Sewage Solids (18 AAC 60.470) 40 One Time S. Solids (18 AAC 60.470) 25 Wood (18 AAC 60.480) 40 Plan Storage Facility** (18 AAC 60.010(h) 30 Plan Treatment Facility** (18 AAC 60.010(i) 30 Plan Transfer Facility** (18 AAC 60.010(g) 30 Closure Plan 30 New General Permits** * (18 AAC 60.255(c) 40 Coverage under General Permit**** (18 AAC 60.255(e) 15 7,100 3,500 10,500 4,300 2,100 6,400 7,100 3,500 10,500 2,800 1,400 4,200 2,800 1,400 4,200 7,100 3,500 10,500 6,000 3,000 9,000 1,800 900 2,700 2,800 1,400 4,200 1,800 900 2,700 2,800 1,400 4,200 2,000 1,000 3,000 2,000 1,000 3,000 2,000 1,000 3,000 2,000 1,000 3,000 2,800 1,400 4,200 1,000 500 1,500 The maximum fee covers staff time spent after a complete application is received Review of plans that are not part of a larger permitted facility Costs associated with writing a general permit requested by one or more applicants Costs associated with coverage under a general permit that has already been approved -6- Register __., 1996 ENVIRONMENTAL CONSERVATION FACILITY PERMIT RENEWALS OR UPGRADES Estimated Estimated Required Maximum Hours Total Fee Advance Fee* Major Facility** First renewal after / /96 80 5,600 2,800 ' 8,400 Subsequent renewals 40 2,800 1,400 4,200 Minor Facility*** First renewal after / /96 6 500 250 750 Subsequent renewals 3 250 125 375 All others First renewal after / /96 30 2,200 1,100 3,200 Subsequent renewals 15 1,100 550 1,650 The maximum fee covers staff time spent after a complete application is received Major Facility includes Class I MSWLF, mine permits, or offsite drilling waste disposal Minor Facility refers to coverage under a general permit, or a small inert waste facility. FACILITY PERMIT MODIFICATIONS OR AMENDMENTS (made during the life of the permit) Estimated Estimated Hours Total Fee All Modifications 8 500 * Required Maximum Advance Fee* 250 750 The maximum fee covers staff time spent after a complete application is received FACILITY INSPECTIONS* Estimated Estimated Estimated Maximum No. Per Year** Hours Total Fee Fee/Year** ClassIMSWLF 4 15 1,100 4,400 Class lIMSWLF 2 15 1,100 2,200 Mining 1 15 1,100 1,100 Large Inert 1 15 1,100 1,100 Others ! 8 570 570 No advance is required for an inspection Maximum fee applies only to routine inspections. It does not include an inspection made because of significant or continuing noncompliance resulting in or required because of a notice of violation, compliance order, compliance order by consent, or other enforcement action. -7- Register , 1996 ENVIRONMENTAL CONSERVATION (Eft.__/__/96, Register ) Authority: AS 44.46.020 AS 44.46.025 AS 46.03.010 AS 46.03.020 AS 46.03.080 AS 46.03.100 AS 46.03.110 AS 46.03.810 18 AAC 60.720. PAYMENT PROCEDURES. (a) Within 30 days after receiving a detailed statement of the total fee for a service provided, the applicant shall submit any balance due to the department. The statement will include the name of the employee conducting the work, the type of work done, the number of hours for each type of work, and the total time spent. (b) A payment that is more than 60 days past due accrues interest at the rate prescribed in AS 45.45.010. (Eft.__/ /96, Register__) Authority: AS 44.46.020 AS 44.46.025 AS 46.03.010 AS 46.03.020 AS 46.03.080 AS 46.03.100 AS 46.03.110 AS 46.03.810 18 AAC 60.730. FEE APPEAL PROCEDURES. (a) A person who disputes a determination of a fee owing under this chapter or who disputes a computation of charges may request the director of the division of environmental health to review the matter. A request under this subsection must be submitted within 30 days after receipt of the disputed determination or computation and must be accompanied by a written discussion that sets out the reasons why the fee or computation is disputed and how it should be adjusted. The division director will issue a written decision on the disputed invoice within 30 days after receiving the request. (b) A person aggrieved by the director's decision under this section may request the commissioner to review the matter. A request under this subsection must be submitted within 30 days after receipt of the director's decision and must be accompanied by a written discussion that sets out the reasons why the decision is disputed and how it should be adjusted. The commis- sioner, or the commissioner's designee, will issue a written decision on the disputed matter within 30 days after receiving the request. A decision made under this subsection is a final agency decision. A person aggrieved by that decision has the right to appeal it to the superior court in accordance with the Rules of Appellate Procedure of the Alaska Rules of Court. (Eff.__/__/96, Register ) Authority: AS 44.46.020 AS 44.46.025 AS 46.03.010 AS 46.03.020 AS 46.03.100 AS 46.03.110 AS 46.03.810 AS 46.03.08O -8- Analysis of Solid Waste Hourly Fee for solid waste permits/plans 365 -104 -I1 -15 235 1762.5 Calculation for actual annual staff work days and work hours: Total Days Annually Weekends (52 * 2) Paid State GGU Holidays 3 weeks paid leave (annual and sick combined---average employee) Annual Work Days Number of work hours (7.5 hour days) $ 69,451 Technical Staff Cost Analysis Average annual salary + benefits $ 39.40 Average Hourly Cost Technical Staff (Average annual salary divided by number of annual work hours) $ 40,458 Clerical Staff Cost Analysis Average annual salary + benefits $ 22.95 Average Hourly Cost Clerical Staff (Average annual salary divided by number of annual work hours) $ 11.48 Assume half an hour clerical support to each hour technical stafftime Overhead/indirect Cost & Total Cost 50.88 Total StaffCost (1 hour technical + 30 minutes clerical support) 20.96 Indirect Cost Pool (Rate of 41.19% applied against unit staff cost) <Note that this rate does not include allocation for Division of Statewide Public Services**.> 71.84 ADEC Hourly Solid Waste Fee Rate ** The Statewide Public Services Divisions operates the Public Service Area offices in DEC. This division will perform some solid waste inspections, primarily for Class II and Class III landfills. It will also review some permit applications for area-specific considerations as well as monitor some compliance/enforcement actions. SWFEES2.XLS Page 1 ALASKA DEPARTMENT OF ENVIRONMENTAL CONSERVATION ADDITIONAL REGULATIONS NOTICE INFORMATION (AS 44.62.190 (d)) Please note: These are costs to this agency related to the proposed amendments to these regulations, not costs to the regulated community. 1. Adopting Agency: Alaska Department of Environmental Conservation 2. General subject: Solid Waste Management (user fees) 3. Citation of applicable regulations being amended: 18 AAC 60 4. Reason for proposed action: Implement solid waste user fees 5. Program category and BRU affected: Environmental Health/Solid Waste Program 6. Cost of implementation to agency, and available funding: Initial Year Subsequent Years Cost $16,725 $10,225 General Funds $16,725 $10,225 Federal Funds $ $ Other: change, or other): Agency staff 9. Date: January 8, 1996 Prepared b~ ~ ,/v (kignature) Name (typed}.~J~anice Adair Title: Director, Environmental Health Division Contact person (name, title, address, telephone, facsimile): Janice Adair, Director of Environmental Health 555 Cordova Street, Anchorage, Alaska 99501-2617 Telephone: (907) 269-7644 Facsimile: (907) 269-7654 Origin of the proposed action (agency staff, federal government, general public, petition for regulation Phone: (907) 269-7644 ~,l&ska S, tate Chamber of Commerce '~' 1~1/21/96 ®12:11 AM P13/3 ABUDGET UPDATE FROM THE ALASKA STATE CHAMBER · VOL. 2 ISSUE 1 · JANUARY 16, 1996 State Chamber's Top Priority: State's Long Term Fiscal Management "Fiscal Notes" to Keep Alaska's Topping the Alaska State Chamber of Commerce's list of priorities for the 1996 legisla- tive session is the state's adoption of a long range fiscal strategy. Such a plan will not only ensure the state is on a sound fiscal course, but will also provide an environment in which Alaska's busi- nesses can plan their future. To enhance Alaska businesses understanding of the state budget and its consideration by the Legislature, the State Chamber will again publish "Fiscal Notes." "While last year may have been Business Community Informed the first year we published "Fiscal Notes," it quickly became an important source of informa- tion to our members in their tracking of budget deliberations" explained Pam LaBolle, ASCC president. "It helped our members learn about not only what the Legislature was doing, but what it really meant" she continued. "fiscal Notes" will be published bi-weekly and distributed through a fax network to all h~terested, at no charge. Contact the State Chamber's Anchorage (278- 2722) or Jm~eau office (586-2323) to receive a copy. Chamber's Resolve: Closing Fiscal Gap Will Promote Economic Development WHEREAS the Alaska State Chamber of Commerce rates sound fiscal management for the state of Alaska as its number one priority; and WHEREAS the Alaska State Chamber of Commerce feels the uncertainty in the state budget process and state spending has created instability in the business and investment community; and WHEREAS the Alaska State Chamber of Commerce recognizes the hard work of the Long Range Financial Planning Commission and further recognizes that their plan provides a starting point for the 1996 State Legislature to close the fiscal gap; THEREFORE BE IT RESOLVED that the Alaska State Chamber of Commerce strongly urges the Alaska State Legislature to adopt and implement, during the 1996 le~slative session, an overall long range fiscal plan for the State that not only addresses the fiscal gap but encourages and promotes eco- nomic investment and business development, and endeavors to maintain the state's infrastructure; and BE IT FURTHER RESOLVED that the Alaska State Chamber of Commerce strongly requests the Alaska Legislature address this issue as the first order of business and consider it the highest legislative priority; and BE IT FURTHER RESOLVED that the Alaska State Chamber of Commerce strongly urges the Alaska Legislature to adopt a plan within the first 90 days of the 2nd session of the nineteenth Alaska Legislature. Adopted December, 1995. Alaska ~tate Chamber of Commerce ~' ALASKA STATE CHAMBER 11~1/21/96 ®12:10AM 752/3 · FISCAL NOTES · JANUARY 16, 1996 Governor's FY 97 Budget: Cut $40 Million You Decide If He Got There Last Friday the Governor submitted his operating budget to the Legislature (HB 412/SB 213). Following one of the recommendations of the Long Range Financial Planning Commission, the Administration's target was to cut $40 million from next fiscal year's spending (which starts July 1). (The commission's plan, presented to the Governor and Legislature last October, recommended $100 million in spending reductions over the next three years.) The Governor's budget starts an annual event in which the "beans" are counted to see if his spending plan really cuts state govemment (the Legislature's spending plan will get the same critique). While the Governor's numbers total $40 million less in spending from the state's General Fund, he includes some reductions that aren't real "cuts"- automatic reductions in debt service, using other state accounts to pay for programs normally funded from the state's general fund, and collecting more in fees from users of state services. The chart below outlines how the Governor gets to his $40 million cut. You decide if it meets your definition of a cut in the state's budget. Getting to -MO M/Ih'on fFORMULA: To get a net cut of-$4.1 million, programs that pass state funds through to local governments were cut-$8.4 million to "make room" for increases in other formula-driven programs. Also, a $6 million increase to cover K-12 enrollment increases is paid for from one-dine trust fimds instead of the general fund; this means next year this $6 million will have to be paid for from the general fund plus the funds needed to cover next year's enrollment increases. SUPPLEMENTALS: Both years are an estimate. Governor's current year request is due to the Legislature early February; expected to cover uncontrollable costs such as disasters, lfight ng fires, court sett ements, fines. Operating Budget: Formula Programs S .tale Programs and Services Legislation/A djusrm enos Total Operating Budget 2,225.3 2.208.8 -16.5 Other Spending*: Debt Service 109.4 94.7 -14.7 ~ Loans 1.5 1.5 0.0 Special Appropriations/Transfers 17.1 14.3 -2.8 ~ Supplementals (esl/mates) 20.0 19.~._~.~L0.~ Total 2,373.3~2~~338.3 ( -35.0 / -$34 Plus Another ,$~ Equals .$40 Million: $5 million is shaved offthe fiscal gap by generating more in user fees and payments for state services that are leurrently paid for by the state s general fund. STATE PROGRAMS: Includes +$8.4 for pay increases for state and University employees; means $8.4 million had to be cut elsewhere to "make room" for these increases. Also includes +$2.3 million requested by the Judiciary Branch. (A~u~ta4~in MillionS) 96 ~ FY--gJ..~ Difference ~.~V (CurrentYear) ~(.Governor's)~. ~ / 1,074,1 x~ 1,070.0 ~ 4.1 ~/ LEGISLATION/ADJUSTMENTS: An income 1,151.2 '~ 1,152.0 ~ 0.8 / eligibility cap forLongevity Bonus will save- -13.2 -13.2 Il. $6 million (HB 417/$B 217):Retirement Incentive Progrnm for state employees saves - $5 million. Another $2 million in spending is offset by taking $2 million from a reserve account (excess health benefit payments). DEBT SERVICE: The I amount of debt service due on state and school bonds each year is based on a formula. SPECIAL APPROPRIATIONS: The reduction is because the state will collect less per barrel from the OiFHazardous Substance surchage because of declining oil production. What About Ali That Other Money the State Spends? The above chart only shows spending from the state's general fund (state revenues that can be used for any purpose; they are "unrestricted" revenues). Each year the state also spends about $1.1 billion in federal funds and nearly $2 billion in other kinds of state funds. While the state Constitution prohibits dedicating state funds, there are over 80 other state funds "designated" for a certain purpose. These include permanent fund divi- dends, university tuition receipts, mental health trust funds, and marine highway system receipts. "Fiscal Notes" is a project of the Alaska State Chamber of Commerce. Information is compiled and written for the State Chamber by Cheryl Frasca. It is distributed to organizations, who fax it to their members. If you get more than one copy or no longer want to receive "Fiscal Notes" contact organizations of which you are a member. For other comments, suggestions, contact the Chamber's Anchorage office at 278-2722; fax 278-6643. Please copy and distribute "Fiscal Notes" to others interested. 19:53 JAN ~ 1996 , peaking 10 lhe Issues Canted: ·do Huss Governor's Off'ice P.O. Box 110001 Juneau, Alaska 99811-0001 phone 907.465.3500 fox 907.465.3532 http:/~ww, gov. state.ak.us/gov/ home2.html Governor Knowles appears on statewide public 'IV call-in program from 8-9 p.m. on 1/24. Quote of the Week "Some have questioned why the entire legislative deposit (to the Permanent Fund) was not made last year. Simply pm, i~ was being done without a plan." -Governor [ony Know/es State af ll~e Budget ~5468 PA~E: 2/2 Talking Points for the Week W'~_--_k of January 22, 1996 · Legislature introduces Long Range Commission bill.q. Governor Knowles continues to press legislative leaders to focus on a plan to balance Alaska's books within six years. On a positive note, the legislature today introduced the bills proposed by the Long Range Financial Planning Commi.qsion. The Governor is urging that the first order of business be the discussion and passage of a resolution which defines the magnitude of the budget problem and agrees to balance the state budget in a specified number of years. · Is Permanent Fund deposit part of a plan? Despite the absence of a long-term budget balancing plan, legislative leaders are proceeding with an attempt for an immediate deposit to the Permanent Fund principal. A bill is being heard in the House Finance Committee Tuesday (1/23) to deposit most of the $1.2 billion from the Fund's earnings reserve account into the Fund principal. The move comes less than two weeks after the legislature failed to override Governor Knowles veto of a similar plan last year. · Deposit will not increase dividends. Proponents of an early deposit argue it will increase dividends. Not true. Dividends are calculated on all Fund assets, whether in the principal or reserve account. A deposit now, without a long-term budget balancing plan, appears irresponsible. · Governor focuses on creating jobs. Governor Knowles travels to Anchorage Tuesday (1/23) to receive 200 recommendations by top Alaska business leaders for job creation. The effort, under the Governor's Marketing Alaska initiative, is designed to assist businesses with expansion and new opportunities. Also Tuesday, the Governor meets with Japanese and Korean consul generals to explore expanded international trade. The value of Alaska exports jumped 10 percent in just the first nine months of 1995, accounting for more than 50,000 Alaska jobs. Is this your correcl fax number? · Are you receiving duplicates? · Please call our office with corrections or changes. SENT BY:OFFICE OF THE GOVERNOR; 8-61-~8 ; ?:29 90? 283 3014;g 2 TONY GOVERNOR 1996 State of BudEet Address By_ Alaska Governor Tony Knowles January 11. 1996 (Embargoed for'release until 8 p.m.; text subject to cleo ge) President Drue Pearcc, Speaker (}ail Phillips, members of thc 19th Lt. Gev. Fran Uimcr, members of my cabinet, my wife Susan and fellow. Two evenings ago, I described, a journey for Alaska's Family as w~ year expedition toward the 21 st century. C-etI~U~ us there safe and sound ~ properly equippcd, that we possess ~he basic gear I describe as the commo Alaskans - jobs, better schools, safe, heal,by communities and budget disci Tonight I focus on thc/~,~,1 necessity for our jouracy - budget disc we're not going anywhere. Our greatest challenge this lcgislativc session is to navigate Alaska' a safe landing as we go lmm one that's Pmdhoe Bay-based to an cconom and mote secure. The good news is, we can make it. So let's start this journey - I urge thc Legislature to commit to a re action to balance Alaska's budget ia no more than six years. That's what m~ns - an end to tho dangerous practice of draining cash reservea to malt balance. Let each of us be judged on our ability to balance the budgct, while ladder of opportuzfity for Alaska families. Can we agree to help the private sector create jobs, so fewer Alask~ a.s require state assistance? Can we agree to improve our schools, so our children are prepa :cd for the competitive global cconomy? Can we agree to improve our schools so that maybe - just maybe - we don't have to build so many prisons in the future? Can we agrcc to properly manage our fish, wildlife and wfldlands, sp future generations enjoy their benefits? Can we agree to protect our homes and neighborhoods, so Alaskans are safe in our communities? ] Can we agree that turning our backs on the..~ cssenfiai services is mtacceptable? T~is RO. Box 11O001 Juneau, Ala-~ ggs1143001 (go7} 4~-$~oo Alaska Legislature, ~laskans. embark on a five- quires that we are L vision of fline. ,line. Without it, is what I mean by a safe landing for Alaska's families and I believe we car The m_a.~itude of the problem we collectively fac~ is enormous - a which this year alone is ncarly half a billion dollars. Without responsible ac reSPOnsible people in this room, thc jobs, homes and businesscs of Alaskan risk. So is Alaska's long-tcrm financial security. economy toward that's diversified ~onsible course of zalgct di~ip!in~_ tbe budgct holding steady the ~aglget shortfall tion by families are at SENT BY:OFF~CE OF THE ~OVERNOR; 8-61-~8 ; ?:30 ; $?w ~07 283 301~;# 3 Balancing Alaska's budget requires a plan - a commitment to use e available to us. There are those who will offer .~implistic, bumper sticker s claims may be memorable, but they don't measure up. Serious problems d solutions. Last year, virtually all of us here agreed we needed a plan when w, Range Financial Planning Commission S~nate President Pearce and House jointly sponsored the resolution that established the commission, and I con your leadership. The commission - 10 members appointed by the Legislature and fi~ summer developing a long-term financial plan. This bipartisan group of 15 long and hard and deserve our thanks. Speaker Phillips has su~es~d - and I ~ink it's a great idea - that th, the initial weeks of this session to hearings on this plan. I urge a result of firm legislative oommi~ent to balance Alaska's bud/et in no more than deserve no less. The financial commission realized there are no easy answers when: That's why it r~commended using a combination of all the tools in Alaska' cuts, user fees, taxes and the earnings of the Permanent Fund, while growi~ the Fund's principal. While not perfect, the plan is a solid stsrt. Its mos~ commendable fe works - the numbers add up, it balances Alaska's budget. Tonight, I want to share with you the t~k the commission faoed. A~ try somethin/a little different for a budget address - while you in the chan outs on your desks, we'll be showing the illuslrations to those watehinl; on In Graph 1, you can s~ that for this year, Alaaka has a budget gap between what we collect and what we spend - Wtaling $429 million. Absen hole, our budget gap will widen into a ~ant crevasse of about $850 millio= and to a billion dollars bi' the year 2000. The cumulative total of this proj¢ those five years is nearly $4 billion. Why is this? As graph 2 shows, it's largely because Alaska depends the oil industry - for most of our revenues. Those revenues are shrinkinE al production declines. For years, Alaskans have debated laking sieps to avoid a budl~et i~ap lacked the political will or have been spared fl~ hard choiees, like when th~ filled our treasury with revenues from skyrocketing oil prices. Now, we must ac~. We should not dec~ive ourselves or Alaskans int be easy. Cutting the budget is a viud first step, but that alone won't get us ~ even cut~ing the entire stale payroll would not save enough money to ~l th The commission also recognized that doing k th. rough outs alone we economy into a tailspin. Graph 3 reminds us of thc oil price depression of Alaskans lost their jobs, property values dropped more than $7 billion and reached almost 100 a month. No Alaskan wants to relive u~at disaster. 2 [1 thc tools olutions. Their mand serious crea~l thc Long- Speaker Phillips mend you both for e bY me - spent all Alaskans worked ,Lcgislature devote these hearings be a six years. Alaskans devised gus plan. toolbox - budget and protecting alure is that it ~d we're going to ~ber have hand. television. a shortfall action to fill the in just three years :ted deficit in On one sollrcc - North Slope oil But we've either Persian Cmlf war thinking this will tere. For example, budgc~ gap. fid send Al_..~ka's 986, when 22,000 ankruptcies SENT BY:OFF[CE OF THE ~OVERNOR; 8-61-48 ; ?:31 ; 97w 90? 283 3014;# 4 1Vlally commi-_~SiOI1 melxlbers w"~ su~sed there has bee. ri pl'ogrogs reduce state spcnding, as you can see in Oraph 4. In 1979, thc statc spent l each pcrson in Alaska. That amount peaked at nearly $6,000 per person in declined since. In today's dollars, per person spending in Alaska is $250 less than i From another perspective, when adjusted for inflation, thc state operating b 25 percent since 1991. Thc commission addresscd a question raised by many Alaskans - wl more on public services and benefits than other states. It discovered Alaska share of services funded elsewhere by local govcrnmcnts, such as correctioa and education. We do somc things done by no other suttc, like the $565 million we Permanent Fund dividends and the $72 million for senior citizens Lon~evi~. - pro,rams knportant to Alaskans. To maIch what Alaska spends with what it takes in, thc commission tools. All mcmbcrs agreed that no single tool could complete thc job by its~ As we work togethe~ this session to consider the commission's plan a new one, wc must remember a budget is more than just a'column of num' the values of those who consiruct it. As I noted in my spcech Tuesday evening, I believe any long-term provide a safe landing for Alaskan famili~ and bc based on five principles on Illustration 5: * One, we must close the budget gap and balancc our budget. * Two, we mu~ continue to cut the budget. * Throe, wc must protect and enlarge the Permanent Fund. * Four, any plan to raise taxcs and fees to pay for essential services * Five, there will be no tinkering with the Permanent Fund without people. Several commission recommendations are controversial, so I want tc stand. As thc country song wails: "If you don't stand for something, you'll. Thc commission recommended doubling the mount of Pruclhoe Bay into the Permanent Fund principal and using earnings from the inflation-pro Fund to close thc budget gap. Then, they tocommendcd that if ncccssary, az would be proposed if revenues are needed to balance thc budget, I disagrcc approach. The values I would use in developing future-year budgets are as foil First, conlinue cutting the budget while providing essential services health of the economy. Second, raise revenues through fees and taxes, including those on ti: of-state workers. Third, bcforc over considering a chsn_ge to Permanent Fund carnings. an income tax because it is more fair and includes pcoplc who gct a free rig money hcrc but live Outside. n rccent years to ~out $4,000 for [983, but has was 17 years ago. dget has becn cut y Alaska spends pays a greater s, transportation mail Alaskans in Bonus payments ~ointed to several ,If. md I~rhal~ devi~ ~ers. It represents udget plan must These are shown must bc fair. vote of the tell you where I ~all for anytb~ug." royalty deposits ~fed and enlarged with ~his nd protccting the thousands of out- I would look to by making their SENT BY:OFFICE OF THE GOVERNOR; 8-61-48 ; ?:31 ; 97w 90? 283 3014;~ 5 It will probably surprise no one that I appreciate the opinion of one Alaska's Permanent Fund, former Governor Jay Hammond, who said in his las~ month: "Fortunately, gacrc remain some in public office with enough c( rccol~izc nonscusc when they see it. Oovernor Knowlcs, for cxamplc, has endorses much of the Planning Commission's proposal, 'he believes divide~ cut prior to imposition of an income tax, and before he will permit such a will demsnd a public vote on thc matter." The budget I propose to the Legislature for the coming year reflect., year rccommendations of the commission. At the same _time, it adheres to g budllct principles I outlincd earlier. My budget proposal for the coming yea clements: It reduces the budget gap by $40 million, including $35 million in c the equivaient of about 160 full-time and 100 pan-lime positions. It providcs for esscntial public services - education, transportation, p economic development. In a fair way, it asks the Alaskans who benefit from certain slate sex paying something for them. It raiscs additional state revenues by increasing select taxes - on alcc gasoline. Hn~ly, and perhaps most impommfly, it erdargcs and pro~cts the P~ Let me ~ke these steps in order. Fh's~, budget cu~s. More ~hsn $20 ~ comes d~ecfly £rom state agencies. No d~ment is untouched, my offi~ $? million is saved ~ttough retirement incan~ives snd other s~rem~li~ Taking a page from thc private-sector, I urge the Legislature to pass the r~ introduced last year, which reduces ~ numbe~ and cost o£ public employee We negotia~d new, cheaper contracts with more than ~0 percent of )f the faIhers of newspaper column mraon g~ll~ to aid that while he $ should not b~ ~ to occur, hc many of the firs~- · five balauced includes these Lts, and eliminates ~ices to begin :nnaneat Fund. Ilion in cuts tcluded. ~ement program I L he state work force. Compared to previously negotiated contracts, they save $34 million c~,er the mxt four years. Our negotiations were wugh, bu~ s~a~ employms de.rye credit for ~haring tb~ responsibility in helping govemm~t make ends mee~. The Legislature should fund these contract. We're saving more than $2 .rr~llion by slreamlining the way state go~ernmeatt does business. We consolidated three divisions in~o .one to m~_ke our economic d~velopment efforts morc cfficicnt and saved 25 percent by downsizing the D/vision of Energy. New speed-regulator dcvices on highway sander trucks will save $5~0,000 by reducing sand and salt use, and also cut down dust pollution. Anyone with a family or business knows prices are going up, so by ]'equlring state departments to absorb $75 million worth of inflationary increases, we're doiag more with less. We're also using the best and latest technology to make government customer-friendly, Thousand~ of computer us~s across the world can now railroad schedules, get their business licenses, send us E-mall messages and biography of their favorite legislator. Number t~o in our budget plan provides for essential public services My budget gives us u~ tools to provide a healthy start for Alaska's children and it fully fund the educalional Foundation Formula. 4 more efficient and rowse fm~r and ,-ven find a SENT BY:OFFICE OF THE QOVERNOR; 8-61-48 ; ?:32 ; 907 283 3014;~ 8 It fosters economic development throu~,h thc creation of jobs and permits us to manage our natural resources wisely through sound involvement. When it comes to the basics, nex~ year's capital budget is a~ain de $110 million in bareboncs ~ for Ah,~'s basic nccd~ - Uansponatio: .scwcr, schools and defen~l main~c~mce at ~hc un/versiW and other publk Third in our budget plan is a~dng Alaskans who benefit from cc~ pay more for them. Our budget reduces our dcpcndencc on oil revenues having service uscrs shoulder more of the costs. For example, at Pioneers' Homes it costs thc sta~e up to six thousa dollars a month for each residcnt, while the avcrage monthly payment ~o li $700. We asked senior citizens who could afford it to help pay more to They and their families said yes, so rates will/radually rise to a lc~ cost of care. We'll save abou~ $2 mill/on in s/ate support, but will be able and no one will be turned away for lack of money. The comm/ssion thought mu~cipalit/cs should ~akc on some service pa/d for by ~le state. Wh/le we are fully funding the education of students, commuu/fies to pick up a small sbs~e of thc cost of geiting them W school. reduct/on in state aid ~o coramun/t/es is only 1.2 percenL Number four of the budget plan is raisin~ additional revenues. This incorporates the fmanc/al commission's rccommendat/ons for thrcc tax incr. wholesale equivalent of 10 cents a drink more on alcoholic beverages, whi¢ million a year. The budget includes a $1 tax incres~e on cigare~e~ and amokclcss u show pricc incre~es are the main d~Tent to children ~ ciEar~es. Alt projected to generate $42 million, frankly, I hope this proposal doe~l't TMs budget also calls for an incrc~e in Alaska's gaso!i~ tax, now nation. It would move from the 8-cent-a-gallon ratc set in 19~1 to the nafic cents, rais/ng $39 mi[lion a year. Alaskans des~'vc a safe and reliable public ~rausportation system. Si Legisla~tre to consider a constitutional dedication of the revenues from a mainudning our roads and other public ~ransponation facilities. I know rna~ have been at thc forefron~ of fhis initiative in the past end I look forward tc on it. Thc f/fd~, £mal and moa importaul elemenl of our budgel plan is cn pro~tin~ the Permanent Fund, That's why I pwposc dcposifint surplus camings of $1 billion, $200 principal of the Fund, on top of the $~00 million deposited in June. TMs $1 the second largest deposi~ ever. Alaskans have a special rela~/onslfip with the Pcrmsncnt Fund. It's savin/s account, our share of a common public a~et. Every year we realize If we protect it and/~'ow it, as I propose and is illustrated in Graph help our children and Erandch/ldrcn realize the bencfit~ of living in the Als., b traM~ng. It ~d pubUc icatcd to aborn t, wamr and facilities. n state serv/ces to $8 million by thcrc is only intain scrviccs. closer m the continue services i wh/ch are now we're asking local Ovcral], ~he ~udgct ases. One is the raises about $19 bacco, Studies ,ough it's , a single dollar. he lowest in the ~al median of 22 urge thc soline tax to in ~his room workin~ with you million to thc ,2 billion will be ~r lon~-m-m benefits from it. i, the Fund w/ii ~a we now enjoy. SENT DY:OFFICE OF THE QOVERNOR; 8-61-48 ; 1:33 ; 97w 90? 283 3014;# All Alaskans should be thsnkful we have the opportunity to mak~ commend the legislators in this chamber for th{ir part. I know some have entirc legislative deposit was not made last year, Simply put, it was being done without a plan. I believed then and give the Long-Range Financial Planning Commission an opportunity to overall budget situation. The commission has now recommended a deposit to thc Permanent part of au overall budget plan. I applaud th~ legislators tonight who course .of action to balance the budget - for not taki~ the easy way out. In thai vein, I'd like to recoipoize the people in this room for principles earlier this evening, for putting policy above politics. I've talked about what this budget doe,s, but there's also something not do. It doesn't rcmovc thc safety n~ from Alaska's mos~ needy. Far mo often the quiet voices 'of those in need get overwhelmed by in powerful places. Compassion is not something to be bargained for, like political poker game. It is something we pwtect and maintain. That brings up two imporlant places where wc are corarolling the budget to save dollars - welfare reform and Medicaid. While Washington remains gridlock~d, we've stcpp~I up to thc on welfare reform. The number of Alaska~ on pubUc assistance dropped by more :500 ia 1995, saving $6 million in welfare payments. To ensure more familie~ move from welfare w work, we're putting those savings into child care and job training. By reinvesting savings now, we'll save ~ns of millions more in the As for Medicaid - which provides basic medical cam to the elderly to low-income mothers and children - Alaska has unique needs that are Washiiagton. Under Congress' proposal, Alaska is at least $250 m/Ilion need over the next seven years. We're working closely with our congressional delegation to fL~ this be successful in protec~ng the 69,000 vulnerable Alaskam who count on health care. As we embark on our journey into rim n~xt cenUu3,, let us all land of great challenge,/rent success and even greater pol~niial. The we've made in the 37 years since Statehood has bca~ hard-foughL Yet, it is unity and courage, not partisan squabbling and political expediency. ~ year, as you se~ in the final graph, we face an equally daubing eliminating the budget gap in no more than six years. If we take and quit living off reserve, we can ease the s~ate to a safe landing. If we don't, if we continue business as usual, the landin~ won't be sputter and stall, O~en crash the economy right into a mouncaiaJi~. Our ttuclc picki~ up the pieces of our recklessness. We all know anyone can engineer a crash landing, h's the safe collective skill and hazd work of everyone on board. The plan I've outlined hare tonight is a flight plan for that safe better schools. For safe, he, althy communities. For budget discipline. For Thank you deposit aud I why the we needed to Alaska's principal as that responsible up for their budget does shouus of those chitin a areas of disabled and of what we hope they'll for their Alaska is a produ¢~ of for our futm~re at all. We'll will be For jobs. For family. 6 (~TTY OF K]~NAI. ~ ~ 210 Fidalgo, Suite 200 - "(~~/''~/ /~ i 7~'~ ~ai~.Alaska99611-7794 - ~ Phone 907-2~7~ ~ pos~.it~ ~a~ No~ ~ ~ F~ 907-2~3014 TO Date Number of Pages ,. ~ PUBLIC MEETING NOTICE The Kenai City Council will meet in a TOWN HALL MEETING on January 25, 1996, at the Kenai Senior Center, beginning at 7:00 p.m. Discussion will include the State of Alaska Fiscal Gap and its effect on the City of Kenai. The public is invited to attend and participate. Questions? Call Carol at 283-7539. Carol L. Freas City Clerk Publish: January 19, 22, 24, 1996 PUBLIC MEETING NOTICE The Kenai City Council will meet in a TOWN HALL MEETING on January 25, 1996, at the Kenai Senior Center, beginning at 7:00 p.m. Discussion will include the State of Alaska Fiscal Gap and its effect on the City of Kenai. The public is invited to attend and participate. Questions? Call Carol at 283-7539. Carol L. Freas City Clerk