State of the State: Gov. Frank Murkowski delivers his State of the State speech to a joint session of the Alaska State Legislature on Jan. 13. Sitting behind the governor are Senate President Gene Therriault, left, and Speaker of the House Pete Kott. BRIAN WALLACE/ THE JUNEAU EMPIRE

The state has tapped the $1.8 billion Constitutional Budget Reserve for 11 of the last 13 years to balance the budget. State economists project that further withdrawals from the savings account will cause it to drop below $1 billion by 2006 and bottom out soon after.

Cruise ship taxes, tourism and hotel lodging taxes, cigarette taxes, budget cuts and expanded gambling are some of the short-term solutions. But the state still needs long-term solutions, such as a broad-based tax or use of the $27 billion Alaska Permanent Fund.

A plan laid out by Gov. Frank Murkowski during the first week of the Legislature could result in the state using some of the earnings of the permanent fund.

During his State of the State address to a joint meeting of the Legislature on Jan. 13, Murkowski called for a conference to make recommendations on whether the state should adopt a new method for managing the permanent fund and whether or not to use some the income to help pay for government.

The so-called Percent of Market Value plan would inflation-proof the entire fund and cap spending at 5 percent. It does not, however, recommend how to use the 5 percent. Members of the Alaska Permanent Fund board of trustees have said that the POMV model would stabilize dividend payments to every eligible man, woman and child in the state. But some lawmakers advocate using half of that 5 percent to help fill the gap.

That would raise about $650 million this year and in future years, according to the state.

Murkowski appointed the leadership members of the state House and Senate, a chairman and six convenors who will pick another 44 participants to attend the conference to be held in Fairbanks in February.

In March, the Legislature will hold a special session to consider the recommendations of the conference. If lawmakers pass the POMV proposal, which would take a two-thirds majority in the House and Senate, the question then would be posed to voters in the November general election. Democratic minority leaders Rep. Ethan Berkowitz and Sen. Johnny Ellis of Anchorage said they are adopting a "wait-and-see attitude" toward the conference and special session.

"This is not the way Democratic legislators would have done it," Ellis said. "We would not have gone after your permanent fund first."

In December, Murkowski laid out his 2005 budget, calling for new taxes on tourism, smoking and pulltabs, and the elimination of 402 state jobs. He said he will not support a broad-based income tax or sales tax.

"A state budget is not just about managing state finances," Murkowski said in a prepared statement. "It is a plan for responding to the needs and hopes of all our people. It's about our education system, the needs of our citizens, our communities and the protection of our people."

The budget calls for the elimination of 263 full-time, 102 part-time and 37 non-permanent state positions.

A so-called transient accommodation tax would institute a $5-per-night bed tax on cruise ship passengers and a 5 percent tax for independent travelers staying at a hotel or bed-and-breakfast. The plan would raise $17 million from cruise ship travelers and $15 million a year from independent travelers, according to state Budget Director Cheryl Frasca.

But that's not the only fee cruise ship passengers will pay under the Murkowski plan. They'll also pay a $1 gambling tax on ships equipped with casinos, raising about $2 million a year.

Smokers will be expected to cough up another $1 per pack for cigarettes, raising about $36 million a year and constituting the largest revenue proposal in the 2005 budget. Department of Health and Social Services Commissioner Joel Gilbertson said the tax would give Alaska one of the highest tobacco taxes in the nation at $2 a pack.

Both Speaker of the House Pete Kott, of Eagle River, and Senate President Gene Therriault, of North Pole, expressed concerns over the legality of the cruise ship tax proposals.

"I personally think there are still some legal concerns there that might not be surmountable," Therriault said. "So if that's true, I'd rather not go down a path knowing that it just leads us into litigation that we're likely not going to win."

Kott said some of the tax bills have a shot in the Legislature but added that he would not support an increase in the cigarette tax.

"I'm not willing to go through that fight again," he said. "I fought it seven or eight years ago, and we already raised the price of cigarettes to a buck a pack and we were No. 1 in the nation, and I'm not going to go back there."

Tourists and nature lovers would pay a 5 percent tax on guided tours under Murkowski's budget proposal. This plan would raise about $5 million a year, according to the state.

Frasca said the budget proposal also would raise about $4.8 million through state land sales, $100,000 in park fees and $1.5 million in increased traffic violations. The state also plans to capture $40 million by selling state property to the Alaska Housing Finance Corp.

The state must absorb $145 million in increased costs this year, including $34 million in employer costs such as retirement benefits, $7 million in merit increases for state employees, $62 million in formula programs such as Medicaid and $42 million in school debt and general obligation bonds, Frasca said.

If passed by the Legislature as proposed, the new taxes would raise about $78 million.

• Timothy Inklebarger can be reached at timothyi@juneauempire.com.