April 15 may take on more meaning in Alaska

Has the day of reckoning come for "the Saudi Arabia of the North?"

Alaska has no personal income tax, no state sales tax, and a gasoline tax that has been unchanged since 1961. A $25 billion state trust fund pays annual dividends - $1,540 last year - to every person in the state. Residents 65 and older, regardless of income, receive monthly "longevity bonuses."

But all this largess has been courtesy of oil. Today, with oil prices slumping and North Slope production half what it was at its 1988 peak, Alaska faces a shortfall of more than $1 billion - almost half the budget for the coming fiscal year.

Alaska has reached its fiscal "day of reckoning," Gov. Tony Knowles has said. If he has his way, on some not-too-distant April 15, Alaskans may have to file state income taxes for the first time since 1980.

Governor Knowles is also proposing transferring $4 billion from the cherished Alaska Permanent Fund, the $25 billion dividend-paying account, into another savings account from which investment earnings can be used for government operations.

In addition, Knowles has proposed hiking the state's 8-cent-per-gallon gasoline tax by 9 cents, and he wants to limit longevity bonus payments to elderly residents with individual annual incomes of no more than $60,000.

"The media politely described this as political suicide. Thanks for telling me now," Knowles, a Democrat fresh off an easy 1998 reelection, quipped at a business conference where he detailed his plan.

Indeed, his plan, especially the income-tax proposal, has been met with a chorus of boos from the Republican-controlled legislature and much of the populace.

Several legislators have condemned his tax plan as "regressive," even though it would fall heaviest on those with high incomes and would not be levied on low-income families. One Republican state senator complained that Knowles's proposal would subsidize Democrats, whose incomes are low, at the expense of wealthier Republicans.

And the general public is also none too pleased at the prospect. "There's other places where I can be cold and not pay taxes," grumbled a customer in an Anchorage restaurant.

In truth, even the residents of "Live Free or Die" New Hampshire pay more in taxes than do Alaskans. And in no other state are residents granted such generous government benefits, a pattern with a long history.

Despite their frequent antigovernment harangues, Alaskans have always relied on government subsidies and payments, says Steve Haycox, a historian at the University of Alaska in Anchorage.

Mythic frontier

The image of the independent sourdough has always been more myth than truth, Mr. Haycox says. These days, three-quarters of Alaskans live in urban areas like Anchorage, a onetime railroad camp that now boasts national chain stores and other amenities found in any US city.

"People in Alaska have very little connection with mythic Alaska. But they continue to embrace the notion of mythic Alaska," Haycox says. "You cannot argue that this is really a frontier. But the rhetoric is really beguiling."

The rhetoric echoes in the legislative halls, where lawmakers say they would prefer tapping the state's savings accounts and cutting entire programs to imposing new taxes. The pending budget would all but eliminate the state's worker-safety division, for example, even though Alaskans have an on-the-job death rate that is five times the national average.

"All this talk about taxes before we've made more budget reductions is ridiculous," says state Sen. Dave Donley, an Anchorage Republican.

Alaskans are more willing to sacrifice some of their annual dividend than to pay taxes, says Dave Dittman, an Anchorage-based pollster. The dividend, Dittman says, is "kind of like free money, in a sense. It's not like earned money."

Any consideration of using the Permanent Fund represents a shift in thinking for Alaskans. "It used to be that the Permanent Fund was absolutely untouchable," he says.

Concerns about an Alaska budget gap are nothing new. As early as 1989, University of Alaska economist Scott Goldsmith was warning that oil production had peaked and the tax-free lifestyle could not be sustained.

Budget gap a decade in the making

The state has faced budget woes in the past, but some temporary spurt in oil prices or other event has postponed the reckoning. Now, with oil production so low and still falling, prices would have to shoot from about $14 to $28 a barrel to erase the $1 billion gap, says Mr. Goldsmith.

But much of the public still does not take budget problem seriously. "There continues to be a bit of disbelief in the public that there is a problem, and the problem will not go away, as it has in the past," he says.

Many of the e-mailed messages posted on the governor's Web page - some of which include alternative revenue-raising plans, such as legalization and taxation of marijuana, hiked alcohol taxes, and a state lottery - expressed such skepticism.

"When oil prices go back up next year, will we get our tax money returned to us? We don't think so!" read one message. "Are you purposely trying to make us sale [sic] our house and move out of state?"