JANIE LEASK: I think we've all read in the paper or heard on radio or television that we're looking at a $1 billion windfall. So I've asked Representative Rokeberg if he could please tell us some of the things that are being proposed for this projected surplus and how they would address the current needs of the State.

REP. NORMAN ROKEBERG: Well, thank you, Janie. And in response to the question I'd like to just delay that slightly because whenever you get a politician to the microphone then you take care. And I would like to respond to a couple of points made by prior speakers just to clarify and put it in perspective.

Number one, I appreciate Mr. Langland's historic perspective on the need for a fiscal plan. I've been a strong spoken opponent -- advocate for a long range plan. I strongly support the Permanent Fund Corporation's board of trustees and the percentage of market value concept. But I would point out that the House -- and I shouldn't do this 'cause former Speaker Gail Phillips sitting down here staring at me as you know matronly teacher's eye to make sure I defend the House. There is now in House Finance the POMV resolution, hopefully, I have been asked and will be pushing for passage this year to get on the ballot. The House in the 23rd Legislature passed the POMV provision and sent it to the Senate where it failed. We also passed the attendant legislation, House Bill 298, which provided for 50 percent of the use of the POMV the same market value of 5 percent proceeds to be used for the permanent fund dividend, 45 percent for educational use and 5 percent for local revenue sharing which would have created $166 increase in the permanent fund dividend check which was deposited in the bank, what, yesterday? Today, right.

Had that passed the Senate and been presented to the voters and approved by the voters $166 more into the pockets of the people of the state of Alaska if the POMV had passed. And the House passed it.

Also in the 22nd Legislature the House passed the long range fiscal plan which had a statutory POMV of 4 1/2 percent, and some taxes that would occur, Davies hybrid tax, and various things, but that was sent to the Senate and failed.

Also the famous 21st Legislature's 1999 advisory bill was a form of a plan. And I will tell you this as unpopular as that plan was it would have worked. So in terms of responding to my -- defending my colleagues I think that's important for people to keep in mind. We are aware of the problem. We are working on it. We need your support. We'll continue to work on it.

In terms of Professor Goldsmith's analysis I agree with him on two major points. The surplus may not be as large as we may think. And secondly, we ought to save it. Save a great deal of it. This last session we did not. There was a huge amount of pressure to spend on deferred maintenance, particularly in the rural education areas, and we have significant problems in our pension programs.

Let me give you my brief analysis, very quick given our demands of our time here. With the public education fund, we pre-funded education to the tune of $414 million in '05 and '06. Don't let this confuse you, it's very confusing now. Just assume that a base line general fund appropriations for this fiscal year is $3 billion, but because of our need for supplemental appropriations we have the FMAP Medicaid problem, 53 million. We lost the Ninth Circuit, our fair share, 100 some million that's going to have a $45 million impact. Right there we've got a $100 million in Medicaid money we have to make up for right there. We have the fuel costs. We've got the expanded ferry service. Totality we have 60 million in our budget for supplementals, about 140 million, about $200 million rounded to 3.1 billion. Okay. That's today's budget, that's the '06 budget, 3.1 billion.

Next year going into having this amount of surplus and Gretchen will speak to this, we typically raise our costs of Medicaid and this doesn't necessarily include and would include our problems with the FMAP, that's the share we have to contribute to the state of about 50 million. Our TERS/PERS if we were to do the state employees and the futures and so forth and with the amount of money we're having it's going to be difficult not to, we're going to be looking at $85 million there. We're going to have significant pressure for increases to K through 12. I'm just looking at about $40 million. The University wants 53 million, we give them 25. We have a 2 percent plug number. We're up to that's another $250 million. All of a sudden, folks, we're at $3.4 billion base line GF funds. Very realistic. Very conservative, yes. But that's the base line.

And I agree the consistent more or less, $100 million more or less, right, Dr. Goldsmith? He's right on. I think I'm a little closer. I've been talking to Budget Finance about this the last few days, but this could yield us at various prices the following: if the price of oil stays at $55 barrel we could have a $1.2 billion '06 surplus assuming it stays at 55. Here today is 59.50 as of yesterday, here today. And if we have the budget scenario I've just suggested of 3.4 billion we would have the break even point of $52.50 just to meet the cash flow requirements that I just explained to you. 52.50.

Now I asked Michael Williams in the Department of Revenue to look up what the 200 day moving average is on the Alaska ANS crude. They never -- oh, I've never done that before. Well, figure it out. He does it in the market all the time. That amount looking backwards to approximately the first of the year, 220 days is $51.87. That's the 200 day moving average for all of this current calendar year. It's $51.87. So just to put it in perspective, the Delta right now is $3.55 between WTI -- or Comex pricing versus ANS, so anyway now to my question.

Forgive me gentlemen. I think it was important to understand the perspective of some of the problems we have, and in terms of what we should do with the money and what programs have been suggested one is deferred maintenance. Well, the budget we have right now has $340 million in capital budget. As had been pointed out we've had significant deferred maintenance we do in the state. That's one area that Dr. Goldsmith mentioned. We have some fudge in there. If we leave that amount alone I think we have adequate monies to be able to continue satisfying the demands and meeting our maintenance over the next few years, so we don't need to spend extra money on that.

The TERS/PERS situation that's -- the unfunded liability right now is 5.7 billion. As of June 30th of next year I think it's going to be 6.6 billion or another I've heard about 6.9. It's a huge amount of money. Unfunded pension liabilities. About half of that should be general funds however, so we can moderate that. The Legislature needs to look at this. We are working on it. It's a huge phenomenal problem and it's -- because it adds to our base. Just in terms of say we have $3.1 billion budget, just to keep up our pension obligations that are current actuarial requirements is going to add two to $300 million per year to our base just to meet our future obligations.

We need to work on that. We are working on it. We passed legislation last year, I think there's problems with that. We are continuing to look at it. We may want to make a small contribution to that, but I think relatively small at this time. It's good faith. And we need to work on the nuts and bolts of it more.

A third alternative has been the using or putting the bulk of the money in the public education fund which we created last year. Frankly, this is a device that we were taking the surplus in '05, taking it -- snatching it out of the negotiation hands, putting it and parking it in a place where we pre-funded the current '06 budget, and frankly, we did it for, in large part, political purposes, to avoid a CBR vote potentially. We didn't need it because of the high end price of oil, but we thought we may need it earlier on. And frankly, it was a political device for the creation of the public education fund to avoid the what I call the three-quarter blackmail vote of the minority to the majority.

We have that in place. The trouble is I think it's sweepable under the CBR, the Constitution Budget Reserve, and unless we pre-appropriate the money into the '07 and '08 budgets that money is subject to a sweep under the CBR in my opinion. So I think we'll use that device, but we'll use it and work with the minority on that. If we want to do an increase on the foundation formula which I think will come this year it'll be a matter of pre-funding it, but it's in the base now at the $3 billion level so we'll just continue to do that and then add to it if we make that policy call to do so. So it's there. I think it'll be in play for a number of years, but it's not -- I don't think that's the right place to park extra money right now because it is sweepable.

The fourth proposition has been using it, the Governor's mentioned using it for the pipeline, the equity position, the State's equity position in the gas pipeline.

The simple calculation is at a $20 billion project, 20 percent interest, 4 billion, 20/80 debt to equity ratio, $800 million and or moral obligation bonds, other things. Frankly, right now I would take the Dr. Goldsmith/Rokeberg viewpoint, the conservative, I'm not sure how much money we'll have. I think that it's appropriate in my opinion even though I'm a devout capitalist that we have an equity position in the line. I'm not sure that we want to take it out of our cash flow right now. And whether we'll need it, the timing of it is, so we need to save this money for that eventuality I think, which leaves me to the fifth proposition of using the money.

And my favorite is saving. Dr. Goldsmith and I agree on this. He mentioned the CBR, I disagree. The question now is where do we put it and how much do we put. I think we'll leave the surplus down a little bit by the budget process. As I say I don't think the public education fund is the right place to put it. I want to avoid the CBR because of the three- quarter vote sweep. Plus the return on investment even though we have $100 million small basket there, it gets a higher rate of return. It's all managed with very short term money. So 1 or 2 percent ROI on its purpose. It's a bad place to park money. It doesn't have a good return.

We have a statutory savings account, there again, it's sweepable. It doesn't work.

So my suggestion today at this time is I'm going to recommend to my colleagues that we put at least one-third of any savings or $500 million more or less into the earnings reserve of the permanent fund. Into the earnings reserve of the permanent fund. That's a good place to park the money, to place it there because it gets a higher yield. The trustees manage the earnings reserve as they manage the corpus. The earnings reserve is the equivalent to general fund availability of monies. I'm sure the bond counsels will love this. If they see that we have extra money in the earnings reserve and we show a willingness to make a pre-commitment to go into that earnings reserve and use the money for a good purpose, specifically being an equity investment in the gas line.

And with that I'll turn the mic over.

JANIE LEASK: Well, we all know what the role of politics plays in decisions and policy, making public policy in the state, so I've asked Senator Gretchen Guess to address the process for consideration for potential uses as well as what are the pressures facing the Legislature with respect to the budget surplus.

SEN. GRETCHEN GUESS: Thank you. I was walking over here and I actually couldn't figure out why I was asked to speak today, and then I realized I think I'm one of the few people left in the Legislature that voted for a comprehensive fiscal plan. There's very few of us left even though it was just four years ago.

The process in Juneau as most of you know as I look out on the audience and I've seen most of you down in Juneau is an interesting one at best. And as far as pressure, the interesting thing about the Senate after serving the House is I'm not sure the Senate feels pressure. I'm still trying to figure that one out to be honest with you.

So given those caveats what I see about the surplus is it going to come down to conversations that some of us will be in and few of us will see. Those conversations are going to be between the Governor and the majority leadership. The minority will create a message as we do every year on what we think and we will try to insert what we believe we should do at appropriate times during session, so it really comes down to caucus pressures and caucus politics, whether it's the minority or the majority about how to use the surplus.

And Norm and I were talking beforehand and he's right, you have more pressure now when we didn't have money 'cause now everyone wants some. I don't believe how many meetings I've been in this interim that people said oh, we're going to ask the Legislature for that, we're going to ask the Legislature for that. Nonprofits, education, lots of things have lots of good needs in the state, but there is this thought that there's all this money out there. And so it's your time to grab it because it's not going to be here that much longer.

So you're going to have pressures within caucus. You're going to have the natural increases which I would actually agree with Scott, I don't think there's much of a surplus after these natural increases. And you've going to have people who have philosophical differences. There are those who believe we should not spend anymore money. In fact, we should cut the budget. You're going to have those that believe we have one time needs. And we have those that believe that we should increase some of the operational spending especially in K through 12. And those are small little factions within every single caucus.

And then overlaying that you have regional needs. We always have. As long as we have honey buckets in rural Alaska we have needs in rural Alaska there's just no question about it in my mind. We also have needs in the Mat-Su. It's growing at a tremendous rate. The courthouse isn't big enough. The facilities aren't big enough. You know, your road to resources. you have all of that going on. And in addition, you're going to have the Governor and whatever he decides to put in his budget and what his capital wants are. And really that's where the pressure is going to come down to is the pressure of those different factions within caucus on how they think the future should go.

Regarding a fiscal plan, it is interesting because I sit in a body where there's a good number of people that don't believe we have a fiscal problem. There's a few of us who still discuss it, but there's not many. And so I'm not sure how to respond now that I'm in the Senate to the fiscal plan just because you have to I think recognize you have a problem or least it might be a good idea before you can solve it.

But we actually do have a fiscal mechanism right now. And it's the CBR. It might not be perfect and it's kind of clunky, but oil prices go down, we take money out. Oil prices go up we're supposed to put money back in. It's actually fairly simple. And I would agree with the people who have spoken before me that we should save the money. I think that's the fiscally responsible thing to do.

And I told Norm, he warned me that he was going to bring up the three-quarter vote, so I warned him about what my response was going to be which is this, you can get rid of it. As a Democratic I'm tired of being blamed for the Republican over-spending. That's my personal opinion of what goes on with the negotiations. And I also think as far as a fiscal means, I think the Representative is right that it stops us from saving money. It stops us from doing the responsible thing which is taking the surplus, putting it back in the CBR so when oil prices go down we have that cushion. So I do agree with him on that.

The one caveat to a fiscal plan that I think may be in play or may be part of the discussion is something about the communities. This disconnect of the state having some much surplus yet the communities struggling to provide services I think is getting more attention and I think maybe going back to Marc's comment, I think maybe the step if they want -- if the Legislature wants to go that way is how do we make the wealth of the state be part of the entire state, individuals, the state, but we're missing the community part of it. And if there's any opening for any type of fiscal planning I think it actually may be there more than anywhere else. Thank you.

MS. LEASK: Thanks, Gretchen. So, Marc, you've seen what we've done as far as the past history of the state in trying to put together a fiscal plan. You see an opportunity for anticipated surplus to maybe try it again. So I'd like for you to just to talk about what the difference between looking at this from a short term versus a long term perspective. What opportunities do we have? What are the potential consequences of each. So, if you could come back up and give it the good old college try again.

MR. LANGLAND: Well, I think you're right in the sense of the college try. I don't think we can give up. Obviously we don't have that as an option. The needs are certainly there as we've just heard and we have a growing state, you know, how do we have an increased economy here. How do we have new jobs, good jobs in our state. And that takes investment. It takes capital investment and it takes operating investments.

And it's interesting, we've all been talking here in the last few minutes about oil $45, may be the minimum number we talked about here. You know, just a few months ago we were looking at 20 and $30 oil. What if we get back to $20 oil again? Where are the numbers versus the needs?

It gets to the point of how are we going to plan this out so we don't have this herky jerky needs, revenue, change in such a dramatic fashion as we've all experienced? It's insane. It's not doing justice to any of us whether we're in rural or urban Alaska, whether we're rich or poor, or in between. It doesn't make sense. It's not that difficult. We have the assets as I think we've discussed here today. It's how do you use those assets like we all do, how do we plan those out so we have a level process of dealing with the needs of the state and how we use the different sources of revenue.

We have a tax base we could use. This state is not big enough if you tax to fill the gap only. It has to come from permanent fund earnings and/or our savings that we're using up when we have low oil prices. And what happens if we don't plan when we get the gas line? And we've got a billion, maybe a billion and a half or two billion annually coming on top of, let's say we have high oil prices to boot. What are we going to do with that? Are we going to blow it? Are we going to over-spend and over-heat the economy and we have another major recession like we did in the '80s. Well, that's kind of stupid when we all know better than that.

So what are the opportunities? Well, we've got the assets. We've got eight years probably between now and when we potentially have gas revenues. And we have to deal with those issues that are out in the front of us. We've got the time. We've got the assets. All we have to do is have the political will that we all create to make the politicians come up with a plan that we can live with so we can all plan. So we can plan as business people to make investments in this state. As nonprofits can plan to take care of the needs that we have as a society.

Those are common sense issues. And I just -- it's just -- drives you crazy to think that we can't take some major steps forward to address those issues that are so much out in front of us and the knowledge and the opportunities, the different scenarios that we've all worked through and all of them are pretty damn good. Some of them better than others. Some of them are more liberal. Some are more conservative. But those are political issues we can work with. We can come to grips with that. We have a system that works through those in debate, but let us debate those issues. Let us have full use of those revenues that we have either in hand or coming. So that's what I see as the opportunity.

I think that we're going to see the best 15, 20 years of Alaska once we can get through this, say, next five or six years that we've ever seen if we do this right. And right isn't too difficult to do. Thank you.