MORTON PLUMB: we have some very interesting and probing questions for our speakers. I must admit though some folks do have a little bit of levity and I want to thank those for the comic relief that sent some of these notes up. Several of the questions talk about the surplus. And what I'd like to do is sort of combine some of these. We have a question of what do we propose to do with the surplus and what's the mechanism? And then we have several suggestions on what the surplus may be used for. So we'll let our speakers enjoy their seats here and trade off. And so continuing there with the surplus, people are interested in how we plan to spend it. And then we have some ideas that maybe we should pay down the bond indebtedness rather than deposit it into the Permanent Fund, and they feel that's a pretty good idea. And also how about using the excess funds to buy an equity position in the gas pipe line So to sort of restate that with the surplus, would we consider possibly getting a position in the gas pipe line and -- or would we consider paying down some of our bonds? And whoever wants to take it first.

REPRESENTATIVE JOHN HARRIS: Well, I addressed some of it. You know, we have very low bond indebtedness in this state. Maybe one of the lowest in the nation. And -- will I be quoted tonight? And we do that every year through our budget process, we pay down our debt. We could eliminate it entirely. But we have such a huge back up of deferred maintenance and needs for the state that aren't -- they're not crazy things, they're very important. They're roads, they're schools, they're airports, other infrastructure like that and so our needs are so great that I think just paying down our debt, that we have a good structured debt and I don't think it's a problem. We can pay that down over time. But we do have huge needs and that's the way I would rather spend some of this money. Don't want to spend it all at one time, but I'd like to spend -- and we -- Senator Stevens and I worked on that last year with the schools and we will finish that list this year. And then there are plenty of other needs. So that would be my priority.

SENATOR BEN STEVENS: Thank you. You know, I agree with Speaker Harris. Our bond indebtedness is relatively low. Actually the majority of it comes from the reimbursement from local school bonds where local political subdivisions vote in the expenditure and then the state reimburses those school districts based on the formula. And so we actually haven't really incurred it with the legislature. We just agreed to help pay back the debt that the local school districts encumbered to improve their facilities. So it's really not that big of a draw on the annual budget.

In terms of participation as an equity participant in the gas line, you know, we all know that the governor has -- it's going to be a part of his proposal we believe, and when he brings it forward to us we're going to take a look at it and do the diligence and make the determination of whether that's a prudent investment for the state to do or not. I don't know the answer to that right now. Personally I think that, you know, typically the government is the investor of last resort, not the investor of first resort, but if there's an opportunity for the state to get into an investment stream in a project that's managed by the Federal Energy Regulatory Commission and there's a guaranteed rate of return of the north side of 12 percent it might not be a bad idea to make that investment. But again, we'll have to take a look at it and see how much the project requires in terms of capital and whether we do it all in cash or we do some in cash and some in indebtedness. I don't know the answer to that one in terms of the actual structure of it.

I can't remember the third question. What was the third part of it?

MR. PLUMB: We had bond indebtedness.....

MR. STEVENS: Bond indebtedness, equity position and.....

MR. PLUMB: That was it. That was it. Yeah.

REPRESENTATIVE HARRIS: You covered all three with two. How'd you do that?

MR. STEVENS: I might have throw something else in there too, you never know.

MR. PLUMB: Okay. Well, we can always come back to that. There are several questions that talk about the community dividend. We had some folks that have asked for Senator Stevens as well as Speaker of the House Harris to comment on what was originally proposed by Governor Hickel of the community dividend, and then last week talked about by Governor Murkowski. And would we consider this a way of revenue sharing, using the community dividend?

MR. STEVENS: Well, first of all, you know, I think that the state participates in community revenue sharing just about in every expenditure that we do. Public health, public education, public transportation. So the concept that the state doesn't participate in supporting local communities is a fallacy. Many areas across the state, it's the legislature that fully funds education, that fully funds public health, and so the question is, would a community dividend bean increase in that operating budget or would it supplement some of the already incurred costs that the legislature funds? So if the concept is that we're going to take a pool of money and do a distribution on an annual basis on to a formula, is that going to be accredited against the expenses that the state already picks up for those communities? I can tell you I'm opposed to the concept of doing a distribution on top of the funds that the state already provides for those regions. And I think that if it's under agreement with the municipalities that they'll take that money to offset costs so that they'll come in and they'll say okay, so we need less money for education, we need less money for public health, less money for the transportation costs, then we can look at it in terms of a sustainable source of money. But we went through that battle before with the POMV, percent of market value access to the earnings reserve, they was actually going to increase the government expenditures just to be able to utilize the money. I think we need to look at it diligently and say is this going to be an increase in spending or is it going to be an offset in spending. If we do that, there might be traction. The Senate has an aversion against the community dividend. It has for a number of years and I think it's because of that belief that I just mentioned that the dividend will increase spending and we don't think that's the thing to do.

REPRESENTATIVE HARRIS: Well, we may disagree just a little on this issue. The House, I think the majority, the minority of the House at least, we think we have to try to do something to give some monies out, especially out into our rural communities that are basically going broke and can't afford to exist. Now there's obviously a difference of opinion in Alaska about whether or not they should even exist or not. But the pure fact is that we have residents of the state of Alaska living in villages and smaller areas of the state who will continue to live there no matter what. And we have some obligation to try and make them -- if we want a government to exist, we don't want to get into the village tribal status which we fought against, quite frankly. We don't want that to gain more traction. Then we have to help a little bit to be able to allow those government entities to exist. Otherwise, they will have to go to a tribal status or something of that nature. Which gets back into a judiciary question, I suppose. A legal question for the state.

But the House Majority would like to focus on revenue sharing if it goes to large communities to be used for tax reduction. Property tax reduction. We know it's a transfer of funds, of course, but that would be the focus that we would like to see happen. And in the rural areas probably for heating, electricity reduction costs, that sort of thing. We know we can't mandate that but we'd certainly like that to be the intent. And so, you know, there are two major differences in needs here in the state. There's no question about that. And I think I agree with Senator Stevens on this part, (indiscernible) That's probably not the intent of what we try to do with either safe cities or municipal revenue sharing increases, but we do support this.

MR. PLUMB: As a follow up, and somewhat related, we have several questions that talk about revenue sharing. See if I can sort of put these together. Do you expect a sizeable municipal revenue sharing proposal to pass and do you expect any consideration by the legislature in its role as an assembly for the unorganized borough requiring local tax contribution even for areas without boroughs?

REPRESENTATIVE HARRIS: Let me take that first because I represent some areas that aren't organized and who don't pay property tax or they don't contribute to their school money, which is really the big issue here. Whether or not you can keep your schools. I think there will be -- I don't know if sizeable is the right answer. It depends on what you call sizeable, I suppose. If it's past $1 million it's pretty sizeable to most of us. But I would venture to say that there will be somewhere, 30 million or maybe a little more, but around $30 million maybe looked at as a possible revenue sharing type program. Who knows, it may be zero, but I think it'll be something around $30 million.

I am very supportive of trying to get the unorganized areas of the state to organize if they can so they can be supportive. Delta Junction and Glennallen, both of which are unorganized, which both those communities have the ability of being organized. And of course, as an elected official you have to be careful you don't totally alienate your constituency. But I have argued with them and will continue to press them that they need to try to do something, to develop their organization. I think it's a good thing to do. But I'm not going to try to force it down their throats.

MR. STEVENS: You know, the concept of revenue sharing I think -- at least we've had some discussion from the Senate Finance Committee on what are the expenses that are going to be included for the revenue sharing. If it's just a revenue sharing and the concept is it's just sort of a cash distribution to offset expenditures as the local governing entity sees fit, I don't think you'll see a lot of support for a sizeable amount. If it's a revenue sharing plan to help offset unanticipated costs such as fuel adjustment costs or some other expenses that the regions have incurred, I think you'll see some support for that. But, you know, again, the Senate has an aversion to supporting local governments on their annual operating budgets and to pay for annual operating expenditures. But, you know, again, it's a time of surplus and it's a time to help regions to pay off those unanticipated expenses and I think you'll see support for that. I think the number that -- you know, John is in the ball park I think in terms of 25 to 35 million. I think as long as it's used for fuel cost adjustments and unanticipated expenditures, but not to supplant the annual operating budget of that entity.

And in terms of the borough tax, again, you know, we talked about that a little bit earlier in my presentation. There is a strong effort in certain elements in the Senate to try to get those unincorporated areas to participate in supporting the public services that they receive in those areas. And I think that will be a continued debate and how it falls out -- if it's resolved this year or not, we'll have to wait and see. So I thank you, Mort.

MR. PLUMB: Well, we have one here for Senator Stevens. He talked about sustainability. What is the sustainable level of spending without adding new taxes, Senator?

SENATOR STEVENS: Well, that's a loaded question. The sustainable level of spending is the sustainable level of revenue. You know, our level of revenue in the state, 87 percent comes from four taxes. You know, the royalty, severance tax on the other production, property tax on oil services and the income tax from the oil industries. So, you know, what's sustainable? So the sustainable is our oil industry because that's where our money comes from. So the concept of sustainable -- and if we want -- I'll tell you one thing I don't think is sustainable is the burden to try to get the income for the state from our individual citizens. It's been that discussion since prior statehood, and the discussions in statehood, and Governor Hickel knows this, that the state can never generate enough money from its citizens to provide the services its citizens are going to demand. So our sustainability is the continued development and utilization of our renewable and non-renewable resources. So as far as I'm concerned sustainability is a gas line, it's increase production on the North Slope. And we just have to modify our government expenditures in line with the revenue that's generated from those activities.

MR. PLUMB: Thank you. Well, it was only to you. Do you want to comment, Speaker Harris?

REPRESENTATIVE HARRIS: You know, it's a huge issue and Senator Stevens is absolutely right. We cannot generate enough revenue off of the other three -- unless we want to do away with the dividend, but the other three sources of revenue that can be considered. One is an income tax, a statewide sales tax, and one is use the earnings of the Permanent Fund. In addition, you know, we have tried to get what we called a percent of market value or POMV approach to the Permanent Fund for a number of years and it's always had difficulty with some place along the line. And it would generate some revenue for the state of Alaska, or for the legislature to use. But, you know, the public fairly overwhelmingly seemingly does not want the dividend to be addressed. And we talked a little bit about Governor Hickel's proposal for a municipal dividend using some of the earnings of the Permanent Fund, which I think is a fine situation. And I voted for POMV every time it came up, but it still doesn't have that kind of support yet. And that's one revenue source. You have, you know, a large income tax is not sustainable in this state. It will drive people out of here who just can't afford it. And the sale tax, you have the argument coming from municipalities all over the state that that's their option, even though the two largest municipalities in the state have turned down a sales tax a number of different times and that's their option, it's not the state's option. Well, it is the state's option if it chooses to use it. But that's another source.

And all of those, other than the development of our natural resources, quite frankly, take money out of people's pockets. Take spendable money from people and that hurts the economy. Goes to the government. Sure, the government will return it back to the public in one way, shape or form, but, you know, I would rather have people have as much of their own money to spend, they don't have to pay taxes on, if at all possible and spend it in the economy and help it grow.

So again, Senator Stevens is absolutely right. The amount of sustainability is the amount of money that we can generate from the economy and the economy will support. And it won't support a whole heck of lot from all those other sources. And so we need to continue to drive to get our natural resources to market and to try and change those natural resources as much as we can in the state. I think that's been a huge problem the state has faced over the years, and continues to face, is that we export so much of our natural resource out of the state without ever changing it, and I know it's probably more expensive to probably do it in Alaska, but boy, we should push harder with that in my opinion to create more jobs as we change the status or the natural way that the natural resources of the state to a different form.

MR. PLUMB: Thank you. We have time for two more questions and we have several that are talking about the relationships of the legislature and the oil companies. And the gist of what's asked here is how can the leadership in the legislature assure the Alaskans that they're not guided by the oil industry, especially when it comes to a gas line contract?

SENATOR STEVENS: Well, I guess the answer to that is the individuals that vote for the legislature. You know, the concept that legislators are guided by the oil industry is new to me. You know, the oil industry is a major participant in this state. As I mentioned earlier, they provide 87 percent of the revenue. And if anybody thinks we're giving the oil companies a good deal, all you got to do is go look at the amount of money that's in our government accounts. It all came from the oil industry. The oil industry participates and pays taxes, and I just -- I mean I don't have an answer to that other than if you think that the people in Juneau aren't doing a good job and the oil is in the pockets of the legislature, all you got to do is go look at the APOC statement. The oil industry doesn't even contribute any more hardly to political candidates. So I don't know the answer to that. Our job in Juneau is to look out for the best interests of all participants in the state of which the oil industry is a participant in the state. Our residents in the state receive the benefits from the revenues generated from their activities and we have the balance of trying to increase production, increase revenue into the state, and at the same time not driving them away from making it not a friendly place to do business. We compete on the global market in terms of areas of opportunity for those companies and we do lots of diligence in terms of evaluating our tax structure compared to other tax structures around the country and around the world. And we continue to try to be competitive but at the same time we continue to try to extract the most from our natural resources to the benefit of our citizens. And I think that's what we do and that's what we'll always do.

REPRESENTATIVE HARRIS: I think Senator Stevens touched on most of it. But I'll elaborate just a little bit more. I guess many people judge the actions of the legislature, from all the legislators based upon their APOC forms that are filed. You know, I wish that more of the ordinary every day citizens would contribute to campaigns and to candidates. They tend not to. It tends to be that individuals within various corporations, or whatever, contribute. And that's fine. I think they have every right to do so and I won't take that as a (indiscernible - background noise). But they tend to come forward and by their names being on the APOC form then people think that, you know, the legislators are in the pocket of certain people. Well, most people that know me know that 'm not in the pocket of anybody. And I don't really believe that any other legislators are either. There may be a few instances where there's a special interest and maybe a legislator used a special interest to them as well. And they vote that way. But overall in the eight years I've been in the legislature I think most legislators vote the issue and the constituent issues they have to deal with, other types of issues that come up, and they vote that way. And they're human beings. I would just encourage more of the average ordinary citizen to contribute their 50 or $100, or whatever they can afford, to a candidate to help show their support and that would go a long way I think in maybe changing the focus of how some people are perceived in the legislature.

But, you know, as I mentioned in my remarks, we have a responsibility. The biggest issue that we're going to face as far as (indiscernible) outside of the budget could be and probably will be the natural gas pipe line. We have a responsibility, not to the oil industry or the gas industry, but to the people of the state of Alaska to represent them. That's who we're elected by. But we also have a responsibility to the businesses that operate in this state. You know, they pay taxes, they do other things. They participate in a lot of social functions and a lot of other things and the people of the state of Alaska enjoy those as well. So I don't want to ask them on the one hand for contributions and donations and things of a sort for our social things and then say well, on the other hand we're going to tax you a lot. We don't want you to make any money in this state. We have an obligation to be fair about it as well. So there has to be a balance. And there's a lot more to balancing a legislature than a lot of people realize. And, you know, I encourage you to get more involved in coming to Juneau or participating wherever. Because there are lot of issues and they are hard for a lot of people to deal with and it's hard to get people to run for office. So it's more complicated than you think.

MR. PLUMB: Thank you. Before closing I'd like to give both Senator and Representative a change to address the group here and cover anything that they didn't think of before, or add to any of the questions that were asked. First, Senator Stevens, anything you'd like to say?

SENATOR STEVENS: The Great Alaska Shoot-Out's coming up. Don't forget to go.

MR. PLUMB: All right. Representative Harris?

REPRESENTATIVE HARRIS: I just appreciate the opportunity to be here. Senator Stevens and I sort of have this road show going on, having three or four different functions together and I think our speeches mirror along the line -- one probably falls asleep while the other person is giving theirs, but I appreciate it. I look across the room here at a lot of people I know and we've dealt with over the years in the legislature and some have dealt with in local politics in Valdez over the years. But I appreciate the opportunity to interact with you and I really believe that the people of the state of Alaska have to take control of their own destiny, and have to work hard for that and always looking forward to working with you.

MR. PLUMB: Thank you. Could we have a warm Commonwealth applause for our speakers. I thank both of you. Quickly I'd like to mention we'll have an event in December. A panel will discuss the findings and implications of the Institute of the North's Sixth Annual Talkeetna dialogue. Their topic is getting ready for the next boom. We'll have a very special December forum and we'll be the continuation of our series on budgets. Govern Murkowski will unveil is 2006-07 budget to Commonwealth North membership Thursday noon, December 15th. If you a guest joining us here today, welcome. We hope you'll consider becoming a member of Commonwealth North. Information about the organization and what we've accomplished over the years is by the door. I hope everyone will have a safe and happy Thanksgiving. And we stand adjourned.

(END OF PROCEEDINGS)