AJOC EDITORIAL: Final week cramming won’t produce sustainable solutions

As legislators attempt to cram their final week with major changes to how the state pays oil credits and uses its Permanent Fund earnings while filling the budget deficit with savings accounts, they may be tempted to go home to seek reelection feeling like they did their jobs.

Public polling conducted by Dittman Research for the Alaska Chamber in the last week of March suggests they won’t face a lot of citizens who’d agree.

When asked whether they had a favorable opinion of various state industries including oil and gas, tourism, mining and timber, the only segment of the economy to receive a negative rating was state government with just 42 percent having a “very” or “somewhat” favorable opinion.

The Legislature fared even worse, with only 33 percent having a favorable opinion.

That may not make the difference in the makeup of the body next year in Juneau, as voters in Alaska aren’t much different than those around the country that routinely give Congress a sub-20 percent approval rating yet more than 85 percent of incumbents are typically reelected.

“Everybody else is an idiot, but my (fill in the blank) is OK,” seems to be the sentiment, which calls to mind an expression by Alaska pioneer Clem Tillion that goes along the lines of, “Nothing will make you think worse of your neighbors than seeing who they elect to represent them.”

What Alaska’s fiscal crisis has exposed is how poorly so many state government functions and programs perform. In fat budget times not many in Juneau were overly concerned with throwing money at capital projects, prisons, education and oil tax incentives.

Now that they have been forced to examine all spending — and as their constituents who’ve gotten hooked on it lobby to preserve the status quo — it’s clear that oversight and accountability have been sorely lacking.

 Starting with oil credits, the Legislature is missing a huge opportunity to fix the program beyond simply reducing outlays.

While some tweaks to credits at low prices are not unreasonable, it is indisputable that oil companies have responded to Senate Bill 21 passed in 2013 and upheld by referendum in 2014.

Daily production for this fiscal year is now forecast to be about 520,000 barrels per day compared to 500,000 barrels per day last fiscal year. That’s a real number that can’t be disputed by those legislators who criticize SB 21 to this day with the same tired talking points they’ve belched out for the last three years.

Even next year, knowing BP plans to shut down some rigs at Prudhoe, the forecast is for 507,000 barrels per day. In the fall 2012 Revenue Department forecast, production in fiscal year 2017 was supposed to be only 484,000 barrels per day.

The 2012 forecast was for just 8,300 barrels per day in Cook Inlet. We’re now nearly 10,000 barrels per day greater than that.

One Hilcorp platform that was producing just 600 barrels per day when the company took it over is now paying $6 million per year in royalties to the state and as a producer of more than 50,000 barrels per day it is no longer eligible for many of the credits it is advocating to preserve.

The Cook Inlet Recovery Act and SB 21 worked to reverse declines on both the Slope and the Inlet. They aren’t perfect, but looking at the bottom line of production, SB 21 has far outperformed ACES, which had its own issues with declining output and ballooning credit payments that were on pace to top $1 billion per year before the overly generous 20 percent capital expenditure credit was repealed under SB 21 and replaced with credits tied to barrels produced and not merely money spent.

That ACES cap-ex credit would have put the state on the hook for $800 million at Point Thomson alone, which is greater than the entire proposed fiscal year 2017 appropriation for tax credits and incentives.

Transparency measures have been stripped out of the current oil tax credit bills, and that’s a shame. Keeping confidential credits related to actual tax liability and production is understandable.

Keeping confidential the rebates paid out to companies exploring that have no tax liability is not.

A simple fix would be to set an annual appropriation amount the state is willing to invest in exploration projects. Companies would have to seek pre-approval for projects, and therefore know what they can expect in rebates, and the state would know what its outlays will be and whether a prospect is worth exploring based on input from the Natural Resources and Revenue departments.

Companies have been quite willing to disclose what they expect from state rebates to secure private investor funding, so if they want the state’s help they should have to do it on the state’s terms.

That should mean the public knows the projects the state is investing in. It’s impossible to defend a program you can’t explain, and House Speaker Mike Chenault couldn’t be more wrong when he says the average Alaskan doesn’t care where the money is going.

The state needs companies investing and exploring at times of low prices so that when the inevitable price rebound occurs the state will be positioned to benefit. But instead it once again appears poised to chase out companies with its never-ending quest to find a “heads we win, tails you lose” tax policy that jacks up taxes at times of both high and low prices.

The education lobby wants funding preserved for K-12 and the university system, but there has been precious little examination of what the state is getting for its money despite spending more per pupil than every state other than New York.

The idea of defunding the Alaska Performance Scholarships in order to pay for retired teacher pensions appears backward on its face — cutting spending on the future in order to pay for promises of the past — but it has shone a light on the shortcomings of the state education system.

A full 50 percent of students enrolling in the University of Alaska system need remedial education, including 20 percent of the students who receive scholarships, and three out of four students who enroll at the UA won’t graduate within six years.

Neither of those numbers are acceptable, yet nothing that’s happening in Juneau is addressing the chronic problem of poor results at every level of education. Critics are harping on subsidies for the oil industry that pays the freight for virtually everything in Alaska (and is once again being called to pay more), yet few have questioned the wisdom of subsidizing unqualified students and therefore the tuition rolls of the University system.

On Medicaid reform, a great irony of the bill headed for passage is that most of the savings come from more federal dollars for Tribal care. The Legislature is also quietly funding the expanded class of Medicaid recipients the majorities are currently suing the governor to overturn.

For the most part, legislators are papering over problems with the apparent main goal of preserving the PFD at $1,000, an amount greater than the 2012 and 2013 payouts, which were $876 and $900, respectively, in the hopes they can return to Juneau next year.

A better example of election year politics is hard to imagine than setting a minimum PFD that is actually larger than recent year payouts at a time of multi-billion-dollar deficits.

If lack of leadership creates a vacuum, Stephen Hawking should be studying Juneau for its resemblance to a black hole.

Andrew Jensen can be reached at andrew.jensen@alaskajournal.com.

Updated: 
04/13/2016 - 3:31pm

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