AJOC EDITORIAL: Budget reflects Dems’ worst nightmare: reality


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State Democrats should be thanking Gov. Sean Parnell after he released his proposal for the fiscal year 2015 budget.

If they didn’t have Senate Bill 21 to kick around as a convenient cover for falling oil prices and production, they might have to explain why Alaska is not only nearing a financial day of reckoning under the tax regime known as ACES they hold near and dear, but why they didn’t do anything about it.

Instead, they get to do what they do best: put out hysterical press releases claiming that Parnell’s push to stem the production decline through lowering taxes hasn’t worked, never minding that it hasn’t even gone into effect yet.

The state rakes in cash when prices are high even as production declines, but that same progressivity formula in ACES that escalates the take bites the state in the rear as prices drop and increasing capital expenditures reduce the taxable net income.

The Democrats love to have it both ways when it comes to those capital expenses on the North Slope. On one hand, they claim that Slope spending is at an all-time high under ACES as proof that the regime works.

But when it’s time to pay the piper through reduced tax revenue because those capital expenditures come at a cost to the state, suddenly Democrats don’t trust the numbers and suggest that companies are overinflating them to reduce their tax liabilities.

It’s the height of either hypocrisy or cognitive dissonance to claim ACES has resulted in increased spending while also claiming that the numbers from the producers are being fudged depending on what day it is. That’s a feature of ACES, not a bug, and it’s a well-documented result of highly progressive tax systems.

Another popular argument among the Democrats against SB 21 is that the projects now being touted by the Parnell Administration were underway before tax reform was passed and would have happened anyway.

It is certainly true that ConocoPhillips’ Colville Delta project, CD-5, in the National Petroleum Reserve-Alaska predates SB 21 by several years. It’s also true that CP has plenty of other options worldwide to spend its capital.

As a company’s board of directors decides where to spend its cash in an upcoming year, it doesn’t hurt that the party that sounds like South American Socialists is no longer running the show in Juneau.

The revenue picture is not great at the moment for Alaska, but it is also true that private spending funding Alaska jobs is poised to fill the gap of less public spending in the capital budget.

CD-5, Point Thomson now in a second construction season, additional investment from BP on the way and ongoing exploration and development by Repsol and Brooks Range will total billions of dollars and hundreds if not thousands of jobs for the future.

South to Cook Inlet, ConocoPhillips is seeking to restart LNG exports, Agrium has begun the process of resuming business at its Peninsula fertilizer plant and Furie Operating Alaska is planning to build the first Inlet production platform in nearly 30 years thanks to past state investments that are now paying off with an improved gas supply picture.

While only the producing companies’ bottom lines stand to benefit directly from tax reform — and the recent Revenue forecast suggests it’s a wash at current prices under either formula — there is a reason that every business organization in the state along with Alaska Native corporations are backing Parnell on SB 21.

They know doing nothing has a cost, and that talk isn’t always cheap. They also know making money is a lot harder than spending money, and that’s a reality Alaska Democrats still can’t come to grips with.

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

Reader Comments:
Dec 23, 2013 09:38 pm
 Posted by  gatherin` signatures....

"They know doing nothing has a cost, and that talk isn’t always cheap. They also know making money is a lot harder than ....spending money "and that’s a reality Alaska Democrats still can’t come to grips with".

So the author, and Senator Meyer and the rest of the "CRAPSHOOTERS", so-called "conservatives" ( like Hawker and Stolz, Sullivan and Holmes,) with fiduciary responsibility for the public purse, support this SB21 two billion-a-year travesty, based on lies and misleading representations, of increasing production RATES for an overall return fiscally for Alaska if we only passed HB110, then SB21????
Well you rammed SB21 through, with the help of illegally gerrymandered voting districts, ethically conflicted votes, unvetted graphs, and spurious statements by oil industry "consultants".. who are generally paid well by ..oil company interests.
Thankfully we have the successful effort by 51,000 Alaskan voters to get the repeal of this sad and unvetted giveaway legislation on the ballot next August. I have no doubt it will be repealed no matter how much they spend on media sound bites and propaganda and misleading claims. ELF fooled us once, it won`t work again.

Dec 29, 2013 02:23 pm
 Posted by  Ray Metcalfe

Three reasons Parnell's plan won't put more oil in the pipeline. (Reason 1.) Prudhoe and Kuparuk are experiencing the same irreversible declines that all aging oilfields experience. When legislators pressed for answers, not one Prudhoe or Kuparuk producer was willing to support Parnell's claim that production would increase if taxes were cut. (Reason 2.) Shortly after BP persuaded congress to let them export Alaskan crude BP jumped on the opportunity to buy ARCO's West Coast refineries and retail gas stations. ARCO's refineries were built specifically for North Slope crude. BP's purchase of ARCO enabled BP to pursue the much more profitable business of refining its North Slope crude into products to retail in what were ARCO's gas stations. Years later BP demonstrated how attached it is to its North Slope crude supply. When BP's North Slope production exceeded BP's ability to refine and retail on the West Coast and BP's West Coast storage tanks nearly ran over, BP chose to save the crude it could not offload in its tankers, letting them return to Alaska with half their load still in their hull. Controlling Alaskan Crude from the wellhead to the gas pump is very likely the most profitable cash-cow BP has. Producing more North Slope oil than BP's West Coast market share for refined products can absorb would shorten the life of BP's Alaskan cash-cow. (Reason 3.) As Prudhoe and Kuparuk decline more and more water is injected to bring the oil up and more and more gas is reinjected. Over time, more and more gas and water comes up with the crude. Water and gas must be separated from the crude and reinjected again. The facilities on the slope for separating and reinjecting water and gas are running at or near capacity. More production would require new separation and reinjection facilities; new construction that is unlikely without the mutual agreement of all three major producers. So ask yourself; even if we gave them the oil for free, why would BP cooperate in an expensive investment that would effectively shorten the life of its extraordinarily profitable Alaskan wellhead to gas pump cash-cow?

Dec 29, 2013 03:32 pm
 Posted by  Ray Metcalfe

Four facts most of Alaska's major news outlets won't tell you how profitable Alaska's oil has been for Alaska's three major oil producers for fear of losing advertising revenue from BP and ConocoPhillips.
1. FACT: BP makes less than $2 net profit for producing an Iraqi barrel of oil. Bloomberg Business & Financial News, April 28, 2009. FACT: Under ACES, BP was making a net profit of more than $28 per barrel from Alaska's oil. Petroleum News 3/14/2010 (Alaska profits divided by Alaska production.) ConocoPhillips' annual reports demonstrated $28 to $30 per barrel net profit from Alaskan oil under ACES; many times their international average earnings per barrel.

2. FACT: Gaffney and Cline, Alaska's primary oil consulting company, told Alaska's legislators BP’s return on North Slope investment approximated 123% under ACES. BP's Chief FACT: Executive Officer Tony Hayward, on July 28, 2009, told Bloomberg Financial News, its $2 per barrel return on Iraqi investments was "compatible with returns we earn across the rest of our portfolio." According to Bloomberg Financial News, BP worldwide portfolio earns an 18% annual average return on capital.

3. FACT: BP brags Parnell's two billion dollar tax cut will create 200 new Slope jobs. Newsminer 10/3/13. FACT: Two billion dollars is enough for the state to put 20,000 Alaskan residents to work at $100,000 per year.

4. FACT: Frank Murkowski brags Parnell's tax cuts are nearly identical to those he pushed through the Legislature in 2006. Anchorage Daily News 4/11/2013. FACT: Six legislators were caught and most went to jail for taking bribes in exchange for their yes vote on Murkowski's 2006 tax giveaway plan.

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