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At Fairbanks conference, revenue chief urges balanced fiscal solution

FAIRBANKS -- Restrain public spending. Enact individual taxes. Look again at oil and gas taxes. And make wise use of the state's existing financial assets.

State Revenue Commissioner Randy Hoffbeck said all or some of those steps are needed to resolve the Alaska financial challenges brought on by the twin problems of declining oil production and prices. He said that while the Legislature remains in a "little bit of an impasse" on the final budget details for the next fiscal year, the spending plans under review in Anchorage would cut about $800 million from the budget.

The actions by Gov. Bill Walker and the Legislature over the past six months to study state spending have advanced to the point where it's time to talk about revenue, he said.

"But we do have to act. And if we fail to act, we take the challenge and we turn it into a crisis," he told more than 200 people attending the "Building a Sustainable Future" discussion at the University of Alaska Fairbanks. In an overview of revenue options for the state, he said there are no easy answers to balancing a $3 billion budget gap and maintaining services that people want.

He said holding down spending will be essential to getting Alaskans to accept the idea of tax increases, adding that Walker has made that commitment.

Hoffbeck said one of his favorite quotes is from a 1910 speech in which Theodore Roosevelt referred to the man in the arena whose "place shall never be with those cold and timid souls who neither know victory nor defeat."

He said those words are a mantra for this time in Alaska and that it is no time to be timid: "The discussions are going to be incredibly difficult but the discussions need to be had. And the decisions are going to be even more difficult but the decisions need to be made."

The second day of the weekend gathering was all about difficult discussions and decisions about the Alaska budget.

"We're going to have taxes that impact individual Alaskans. We're going to have to look at changes to oil and gas taxes. We're going to have to look at strategic use of our legacy assets," Hoffbeck said, referring to the Constitutional Budget Reserve, the Permanent Fund and other accounts.

Hoffbeck said oil and gas tax changes could be part of the solution but "I don't want anybody to misinterpret this as saying, 'It's time to go after the oil companies again.'

"Is there room to modify oil and gas taxes? To make them more efficient, to make them work better, generate more incentives for investment, while still being fair? I think that's an honest intellectual discussion that we need to have."

His words came at the end of a day that featured reviews of the state's financial predicament and attempts to identify places in the budget that are ripe for cutting. The meetings produced recommendations for increasing spending in some spots and about $20 million in budget cuts, which, Hoffbeck said, reveals how hard budget cuts will be.

"People value the services that government offers and they've been delivered for a long time at very little cost," he said. "The idea of switching to paying for those is going to be difficult but I think it's even more difficult for people to actually think about living without them."

The day-long meetings in the Wood Center and the Gruening Building at UAF began when Walker's budget director, Pat Pitney, encapsulated the situation with a single pie chart showing the sources of state revenues. A quarter of the pie was missing, representing the $2.9 billion the state expects to draw from savings this year to balance its budget.

"This is the problem we face," Pitney said. "We're short almost $3 billion."

Then the conference split into seven different groups to scrutinize different areas of state government and look for savings.

In university classrooms -- with students taking SAT exams in at least one adjoining room -- participants were handed red, yellow and green stickers. They were asked to stick them on posters next to typed rows of state services and their costs, with the different colors representing participants' view of each service as critical, medium- or low-priority.

The exercise made for some frank discussions. Members of the health group liberally sprinkled green dots next to Alaska's $90 million public health budget.

But the $61 million for the state's Pioneer Homes got more yellow and red dots than green, with participants raising the possibility of privatization. The homes aren't the most efficient way for the state to care for senior citizens, and they're not the best way to care for Alaska Natives since they're located in urban areas, said Myra Munson, a Juneau attorney who was part of Walker's transition team.

"If we can afford them, great," said Munson, a former state health commissioner. "If we can't, I can't put that green dot beside the Pioneer Home."

Other areas of state health spending, however, didn't receive a single low-priority red dot from participants, like the $665 million for Alaska's Medicaid program, the $183 million for public assistance, the $100 million for the state's Office of Children's Services and the $127 million for behavioral health.

Those areas did, however, receive a few red dots when participants were asked about the level of service provided by the state, reflecting a view that the state invested "too much" in those programs.

Valerie Davidson, the state health commissioner, said the views expressed by participants ended up being "pretty close" to her sense of the public's attitude.

Summarizing the results of a group that looked at spending on commerce and transportation, Tim Navarre of Kenai told fellow participants that planning has important implications for Alaska.

"If we don't get this right this time and work all together and find a solution, the next generation will only have red dots to play with; they won't have the green and yellow," he said.

A few others, however, questioned whether the exercise was realistic.

"$4 billion deficit before this conference has turned into an $8 billion deficit with the must-haves listed," the Alaska Republican Party tweeted.

During a break from the proceedings, a group of representatives of the state's oil and resource development trade groups stood off to one side from the stickered posters, and they wouldn't answer a reporter's questions about what they thought of the exercise.

But Rachael Petro, the president of the state chamber of commerce, said in an emailed statement that her group conducted a poll earlier this year showing that a majority of Alaskans want to see the state make deep cuts in spending, even if it means a reduction in services.

"We hope participants at this weekend's sustainable future event will focus first on making sure government is spending tax dollars wisely and efficiently, and making sensible reductions where possible, before asking the business community or individual Alaskans for more money," Petro's statement said.

Some of the group discussions Saturday morning did go beyond the focus on individual programs and broadened into ways state government could be restructured to be more efficient.

At the "public protection" group, Joe Geldhof, a Juneau attorney on Walker's transition team, proposed combining the three state departments under discussion — corrections, military and veterans affairs and public safety — into one.

"The only place to get really significant savings is combining," Geldhof said.

The functions performed by each department still need to take place, Geldhof added. "But centralized."

Other participants said they thought the state should work harder to create partnerships with Alaska Native tribes to cut costs for corrections and public safety.

"We have to start thinking about doing something in the state that's different," said Al Kookesh, a transition team member, former state senator and Alaska Native leader. "Nobody's ever sat down with the tribes and said, 'Let's have a dialogue.'"

About halfway through the group discussion, Walker walked in in his shirtsleeves, carrying a leather folder with a notebook inside. He stood at the back of the room and listened for about 30 minutes, exchanging a few whispered words with Ana Hoffman, the co-chair of his transition team.

Afterward, Walker compared the different views aired in the discussion to a bouquet of flowers and said the group of participants is "about as diverse as it's going to get."

"This is the essence of what this is about," he said.

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