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Business looks at 18th Legislature.

An unusually large number of new members, as well as narrow majorities, the effects of reapportionment and the potential for fiscal deadlock, will create a lot of uncertainty for the Alaska Legislature when it convenes on Jan. 11.

Not since 1967 has there been such turnover in the Alaska Legislature. In the 40-member House, only 18 representatives were members last session, and only 8 of the 20 senators held Senate seats in 1992.

Never before have urban legislators occupied so many seats. The Anchorage delegation in the Senate, for example, counts nine members, up from eight in 1992.

In the Senate, an urban-dominated 11-member coalition led by Rick Halford, R-Chugiak, will likely support "owner state" investment in resource development.

"When we had so much oil wealth, we avoided dealing with the resource conflicts," says Halford. "We didn't have to have resource development. Now we do."

"Getting the economy moving again is going to be our first priority," says the likely House leader, Anchorage Republican Ramona Barnes. Barnes will appoint a bipartisan House task force to develop specific proposals, but she appears cool toward development initiatives requiring big investments of state money.

"I support the gas line, but it should be built with private money," she says. "Incentives are fine, but not a government expense."

Halford and Barnes both say spending cuts are a priority, but a consensus on how and where remains elusive. If oil prices average $18 per barrel during the next fiscal year, the budget gap will be a manageable $300 million, but if average prices drop below $15 per barrel -- it's happened twice in the last decade -- the gap will be $1 billion.

Whatever its size, options for filling the gap are the same as last year:

Cut capital spending. The capital budget has always been important to Alaska companies, especially those in construction. This year, the state budgeted $300 million of its own money on capital, but if a bigger budget gap is feared, the capital budget is likely to suffer. Fortunately, $200 million to $300 million is likely to be available in federal capital money.

Reduce the operating budget. Despite the usual rhetoric from legislative leaders, big operating cuts are not in the cards unless Gov. Hickel takes the lead on unpopular steps -- like lowering welfare spending, reducing the longevity bonus and making real cuts in education aid.

Liquidate financial assets. Billions are available, but each pot has its powerful constituency. Real estate firms, for example, are organized to protect Alaska Housing Finance Corp.'s assets.

Use Permanent Fund reserves or income. The reserve account of the fund will soon reach $900 million.

Taxes and fees. Alaska has the lowest level of taxes on households of any state, and the lowest on businesses, too, provided one ignores taxes on oil producers.

"We've been subsidizing everything off oil and gas. It's about time we started the adjustment process," says Rep. Mike Navarre, D-Kenai, the leader of the 17-member Democratic minority in the House. "In my personal opinion, the gasoline tax could make sense."

Barnes emphatically disagrees. "People aren't ready for any new taxes, and they won't be ready until government takes a new direction. We haven't seen that yet."

In an odd way, legislators may find the tough budget decisions easier if the gap gets bigger. With a bigger gap, there would be less argument, because all the options would be required. Now, with any one of the available options sufficient to muddle through another year, nobody can agree on which is best.

In the long term, Alaska's business climate is likely to suffer from a continuing fiscal deadlock. In the short term, considering that taxation is on the agenda, a legislative deadlock on budget issues may not be the worst outcome for business, even though other matters of importance could get tangled in the stalemate.

For example, Mapco, Tesoro and other companies are likely to show up in Juneau asking for relief from the $378 million the state is trying to collect on state royalty oil sold to the companies between 1978 and 1989.

According to Barnes, the companies deserve relief. "They sold refined products to Alaskans based on the price they paid for the royalty oil. Alaskans benefited."

Sen. Halford says the companies will get a fair hearing. "The Mapco and Tesoro issues cut several different directions," he cautions.

The mental health lands dispute is another issue that could get caught in the budget crossfire. "A 500,000-acre conflict has grown to a 6-million-acre conflict. We aren't any closer to resolution," Halford complains. Failure to act on the mental health issue could stymie oil and mining developments, he says.

Barnes agrees, but says land has to be the key element in resolving the dispute. "Judge Greene says we have to re-establish the trust. There's not enough dollars in the state coffers to do that. It has to be land."

Amid shifting constituencies, unprecedented turnover and the chance of fiscal deadlock, retiring Sen. Arliss Sturgulewski summed up the one thing that remains certain about this year's Legislature: "If you're looking for good theater, this is the place."

Gregg Erickson is a Juneau-based economic consultant.
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Title Annotation:Alaska Legislature focuses on industry
Author:Erickson, Gregg
Publication:Alaska Business Monthly
Date:Jan 1, 1993
Previous Article:Railroad land.
Next Article:The Kuvlum Well.

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