Andrew Jensen

AJOC EDITORIAL: Congress turns to Trump to bail out Obamacare

Senate Republicans have set the bar pretty high for achievements in failure. By bungling their attempt to repeal or replace Obamacare, they accomplished the impossible: they now own a law that none of them voted for in the first place and in fact campaigned for seven years to scrap. Of course there is a sound argument to be made that Sens. Lisa Murkowski, Susan Collins and John McCain have indeed voted for Obamacare by casting the decisive votes to kill the “skinny repeal” bill and derailing a conference committee process to reconcile with the bill passed earlier this year by the House of Representatives. Bizarrely, some Republican members of the Senate are now asking President Donald Trump to continue bailing out the disastrous legislation by maintaining the payments to insurance companies that were ruled unconstitutional by a federal judge in May 2016. In an unprecedented case, the U.S. House successfully sued the Obama administration for making the billions worth of payments annually despite the fact there was no congressional appropriation to do so. Expecting an appeal, the judge who found in favor of the House argument stayed her order pending resolution of the case, which allowed President Barack Obama to continue sending the unauthorized cash to insurance companies in cost-sharing reimbursements, or CSRs. Trump has held off on the appeal and kept up the CSRs despite their dubious legal status since he took office while giving Congress a chance to deliver on the promises made since voters handed them the majority in the House in 2010, the Senate in 2014 and the White House in 2016. But now he is threatening to stop the payments and let one of the greatest flaws in the law take effect instead of papering over the problem by shoveling billions more in taxpayer and borrowed dollars out the door. Ever since Obamacare passed in March 2010 there have been multiple waivers and delays of its worst features to cover up just how bad it is. The GOP was even complicit in this in 2015 when the party voted to delay implementation of the so-called “Cadillac tax” on expensive health insurance policies that would sweep up virtually every union plan in the country and is vehemently opposed by labor groups. All of the “popular” parts of Obamacare — Medicaid expansion, coverage of preexisting conditions, staying on a parent’s policy until age 26 — were allowed to take effect immediately while the worst parts were put off as states got hooked on the federal sugar. Having fallen on their faces trying to repeal or replace Obamacare and lacking the political will to actually appropriate funds for the CSRs, Trump is being set up as the fall guy by his party if he doesn’t keep up the payments that very same party successfully sued to stop. The other threat Trump has made is to reverse Obama’s decision through the Office of Personnel Management to classify Congress as a “small business” despite its 20,000 employees. That OPM action allowed the federal government to keep contributing 72 percent of congressional employee premiums despite the fact individuals on the exchanges are otherwise not allowed to receive such benefits. Obamacare has been held together through a patchwork of carveouts, bailouts and handouts, executive orders and illegal payments all designed to mislead the public about its costs and negative impacts. If the only way to spur Congress to act is to allow those negative impacts to take place then so be it, and sooner rather than later. ^ Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: The deadbeat, do-nothing Legislature

Alaska has less oil production than California and a credit rating just better than Illinois and New Jersey, yet 51 incumbents will run for reelection next year with at least one of them seeking a promotion. A day after this column goes to press, the Legislature will meet for a day in Juneau to pass the capital budget that — like everything else its members did or didn’t do this session — should have been finished three months ago. The self-congratulatory back-patting is nauseating. Instead of passing a bill both sides agreed upon to use Permanent Fund earnings in a sustainable fashion to cover part of the budget, the Legislature burned through another $2.5 billion from the Constitutional Budget Reserve. Instead of passing an increase in the motor fuels tax to fund transportation projects and address a growing backlog of deferred maintenance — again, that both sides agreed to — they did nothing and pulled the money from the general fund. Instead of beginning to settle the hundreds of millions in unpaid liabilities owed to small oil companies that already spent the money in good faith, the Legislature ended the program and will stiff those companies for a third straight year after Gov. Bill Walker vetoed $630 million in payments in 2015 and 2016. Deadbeat and do-nothing barely begins to cover it. While much of the blame lies with the Democrat-led House Majority for dragging out the process for months in their insistence to institute a $700 million income tax on an economy in recession and double or triple oil production taxes as the industry sheds thousands of jobs, the Senate Majority and Walker can shoulder some responsibility for hanging the state’s breadwinning business out to dry. Sure, the Senate tried to pay off about half the outstanding credit bills in its version of the capital budget but its negotiators folded like linen and are taking less than a tenth of what they proposed in the “compromise” budget set to pass July 27. The biggest crock coming from everyone in Juneau is that the state can’t afford to pay off the tax credits. Between the Permanent Fund Earnings Reserve and what’s left in the Constitutional and Statutory budget reserves, the state has about $15 billion. For less than 5 percent of that balance the state could pay what it owes, put this debacle behind us and restore some semblance of credibility to its self-proclaimed “partner” status with the oil business. Some partners. If the state and the oil business were partners, there would be one who does all the work and generates the company revenue while the other lazes around the office spending the money, giving itself annual raises, letting invoices pile up and demanding an ever-increasing share of the profits. The Senate Majority can talk a good game about wanting to pay the bills, but every one of its members were fine with skipping out on the Downtown Anchorage office building they commissioned and leaving its owners on the hook for a $28 million loan and losing their $9 million cash position. There is no squaring the circle of arguing the damage caused to small companies by holding out on tax credits owed while ignoring the financial ruin put on a pair of Anchorage real estate developers who made the mistake of relying on the signed commitments of the Legislature. Some have and will counter that both the oil companies and the developers knew what they were getting into and should have no recourse, which is akin to the parable of the woman and the snake. After nursing the injured snake back to health, the snake eventually bites the woman and as she’s dying of the poison she asks, “Why? I was your friend.” “Lady, you knew I was a snake when you picked me up.” That won’t be anyone’s campaign slogan next year, but at least it would be an honest one. Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: McConnell, GOP should have listened to Murkowski

The only conclusion that can be drawn from watching D.C. Republicans vomit all over themselves in their pathetic efforts to repeal and replace Obamacare is that they were just as surprised as Democrats when Donald Trump defeated Hillary Clinton. After spending the past seven years campaigning and fundraising on promises to scrap the widely unpopular law — and being rewarded with total control of all three branches of government — the GOP has found out what it’s like to be the dog that catches the car. The destructive fallout from Obamacare isn’t the only thing that can be traced back to 2010. Just as the law laid the foundation for the Democrats’ decimation from the local to the national level over the next two midterm cycles, another event that year set the stage for the Republicans’ embarrassing self-inflicted defeat this past week in Congress. After Joe Miller’s stunning upset of Sen. Lisa Murkowski in the Alaska Republican primary, she decided to run as a write-in candidate and eventually triumphed to seal her status in the state’s political history alongside Rep. Don Young and the late Sen. Ted Stevens as virtually untouchable. Before refusing to support the Republican nominee, Murkowski was one of Senate Majority Leader Mitch McConnell’s favored lieutenants in his so-called “kitchen cabinet.” Once she decided to go it alone without the party’s support, McConnell was forced to remove her from that inner circle status, although he allowed her to keep her committee seniority in a move that has paid dividends since the GOP took over the Senate in 2014 and landed her the chairmanship of Energy and Natural Resources. Now it is clear that McConnell would have benefitted from having Murkowski’s advice, not just on the flawed process on repealing and replacing Obamacare, but general best political practices. When the GOP took over the Senate in 2014, helped by Sen. Dan Sullivan’s defeat of Mark Begich in Alaska, Murkowski tempered her literal chair-wielding enthusiasm with the best way forward. “If Republicans fail to govern, if we say our responsibility is just to win the next cycle, we won’t win,” she said at Sullivan’s victory party. “We will not be in charge. We will not be setting the agenda. We will not be legislating. “We have our chance now. This is our time and if the American public doesn’t see us doing the hard work, then we’re going to be shown the exit just as the Democrats have been this cycle.” As the unbelievable news was sinking in this past November with Trump winning and the GOP holding the Senate, barely, Murkowski echoed her 2014 comments. “This isn’t Christmas,” she said. “We still have to govern.” She warned early on in the repeal-and-replace process that closed-door meetings would not produce a victory, and she was proven right yet again. Murkowski’s bipartisanship and care to craft sound policy are so rare in D.C. that she probably qualifies for an Endangered Species Act listing. The GOP could start listening to her for a change, or the entire party is going to be on a milk carton come 2018. Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: House gambit a waste of everyone’s time

If the House Democrats keep up these futile political gestures, someday they may grow up to be Congressional Republicans. The latest last-second nonsense from the Democrats managed to top their ridiculous vote in June when they introduced — and approved with the help of half the Republican caucus — a $2,200 PFD as they stuffed the operating budget into the capital budget bill before adjourning the first special session called by Gov. Bill Walker. Now with three days to go in the current second special session, House Democrats introduced another non-starter July 12 with their proposal to simply end net operating loss deductions for oil companies in a hopeless gambit to force the Senate to the table to rewrite the entire oil tax structure. Once again the House Democrats look clueless about the amount of leverage they hold and reveal their claimed concern for stability in the oil industry means jack and squat. Walker, rather than hold another press conference that says and does nothing, could put a quick end to the Democrats’ games by declaring what kind of bill he will sign. He could simply say, “I will not sign a bill that raises taxes or cuts deductions, so don’t bother sending me one.” There’s no chance the Senate would ever approve such a bill, but such a statement from Walker would send a strong message to the House to stop jerking around. A couple statements at the Wednesday hearing from the House Resources co-chairs Andy Josephson and Geran Tarr were laughable. Tarr repeatedly said that the Constitutional Budget Reserve is empty because it will be drawn down to about $2 billion after covering the deficit for the 2018 fiscal year. Setting aside her definition of “empty” regarding the state’s cash flow, what she never mentioned is that the $2.5 billion CBR draw wouldn’t have happened if the House had agreed to pass a bill to use the Permanent Fund earnings to help fund the budget. Instead, just like ending the cashable oil credits, the House demanded a $700 million income tax and killed a necessary fiscal reform on which both sides agree in their quixotic quest for new and higher taxes. As an argument for ending the net operating loss deductions with a deadline to compel action for a replacement system, Josephson said the Legislature does its Christmas shopping on Christmas Eve. In case he hasn’t noticed, the Legislature is currently doing its Christmas shopping in March because the House has sabotaged the areas where there is agreement by making demands where there is none. If House Democrats truly believe the public is on their side when it comes to instituting an income tax and raising taxes on oil, by all means run 51 state races next year on that platform and see how that goes. The Democrats have a twisted idea of what compromise means. To them it means “give us everything we want or we’ll kill the deal.” An actual compromise would be both sides setting aside what they can’t get and taking what they both want. For the state budget situation, a sustainable draw on the Permanent Fund earnings and an end to cashable credits are both huge accomplishments for which both sides could take credit. But the Democrats would apparently rather keep accruing cash liabilities of $1 million per day in their attempt to squeeze $50 million out of the oil industry, and use the CBR instead of the Fund earnings because they can’t have an income tax. The Democrats’ tax proposals would make the current recession worse, and their refusal to act on the areas of agreement are doing the same to the state budget. Senate Republicans can run circles around the House Majority all day. It’s time for Walker to step up and tell the Democrats to stop wasting everyone’s time and money. Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: 75 million reasons SB 21 is working

What’s been obvious for several months became official on June 30. The 2017 fiscal year ended with a final average of 528,484 barrels per day of production on the North Slope. That is a 2.6 percent increase versus the 514,900 barrels per day last fiscal year, or virtually identical to the 2016 increase in production from 501,500 barrels per day in 2015. To put this in perspective, the last time the state saw consecutive years of production increases was in 1987-88 when North Slope production peaked at more than 2.1 million barrels per day. This would be a remarkable story in any circumstance given the number of early obituaries that have been written for North Slope production and the Trans-Alaska Pipeline System, but it is even more so considering the price environment and the ongoing attacks on the industry from Democrats in Juneau. North Slope crude averaged barely more than the breakeven point at less than $50 per barrel for the fiscal year and the House Majority continues to demand tax increases on production despite the proof of the current policy’s success staring them in the face from the Department of Revenue’s daily reports. The House Democrats want to double the effective tax rate at the current price, triple it should prices reach $70 per barrel, reduce deductions and eliminate the proven per-barrel incentive. The per-barrel production incentive is the only explanation why companies have continued to invest billions on the North Slope even after prices started to free fall not long after Senate Bill 21 took effect. They have certainly not seen the upside from the reduction in progressivity at high prices under SB 21; to the contrary they have paid far more in taxes than they would have had ACES remained in place. Under ACES they wouldn’t be paying any production taxes at the current price. In fact, they wouldn’t be paying production taxes until prices went past $63 per barrel. Because SB 21 taxes oil at a higher rate than ACES at low prices, the companies have taken the only tool at their disposal to reduce the effective tax rate: more production. Every additional barrel brings down the effective tax rate. It’s that simple, and it is a win-win for the producers and the state, which collects both the tax revenue and the additional royalty share. But never let a good fact get in the way of a Democrat argument. SB 21, which took effect Jan. 1, 2014, has now been in place for three full fiscal years. Since fiscal year 2013, the last full year of ACES, production has declined by a barely-measurable 0.6 percent overall (531,600 barrels per day to 528,400). That is an average annual decline rate of just 0.2 percent. The average annual decline rate during six years of ACES was 5 percent, or 2,500 percent greater than under SB 21. Math — the Democrats’ kryptonite — tells a staggering story when comparing where we’d be under the ACES decline rate versus SB 21. Had the 5 percent annual decline rate continued, fiscal year 2017 production would be 433,000 barrels per day, or about 95,500 fewer barrels per day than what we saw under SB 21. Adding up the actual production compared to the ACES decline rate over the past four years, the state has collected tax and royalty income from an additional 75.3 million barrels; the 2017 production versus ACES decline alone is an extra 34.8 million barrels. Democrats’ oil tax policies aren’t just bad. They are proven failures. Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: Crocodile tears for White House press corps

The liberals with bylines in the White House press corps are in a snit about receiving their overdue comeuppance from an administration that has decided to fight back. At the top of the latest outrage list from the press is the decision to prohibit video cameras at a few of the daily presidential briefings, which led to the priceless audio of CNN’s Jim Acosta channeling his inner Mortimer Duke from the end of the movie “Trading Places” by yelling at Press Secretary Sean Spicer to turn the machines back on. After all, what would America do without daily footage of grandstanding reporters pushing the Russia story that a CNN producer called “mostly bullsh*t” and one of the channel’s top contributors Van Jones called “a big nothingburger” in new undercover videos from James O’Keefe? CNN just had to retract a story from its bogus Russia coverage, apologize to its target and accept the resignations of three top staffers responsible for it. Now comes news that former Alaska Gov. Sarah Palin is suing the New York Times over its despicable June 14 editorial about the attempted assassination of GOP legislators by a Bernie Sanders supporter that resurrected the debunked narrative that she was responsible for inspiring the man who shot 19 and killed six at an event hosted by Rep. Gabrielle Giffords in 2011. It is extremely difficult for a public figure such as Palin to win a libel lawsuit, but the two high hurdles are within reach: malice and reckless disregard for the truth. Palin also hired the same legal team that represented Hulk Hogan in his successful lawsuit against Gawker that forced the company into bankruptcy. We are far past the time when the industry that is supposed to hold the powerful to account is held responsible for its own destructive actions and thumb-scaling the news. The press will claim that it will acknowledge its mistakes and falsehoods, but that the infamously tweeting President Donald Trump never apologizes for his. That would have more credibility if they didn’t let the last president skate for an unending stream of dishonesty and major scandals that make the nonsense about Russia cooked up as an excuse for Hillary Clinton’s loss pale in comparison. Former President Barack Obama lied repeatedly about the Affordable Care Act when he claimed premiums would go down (they’ve gone up by 105 percent) and that “if you like your doctor you can keep your doctor” (you can’t). His administration lied about Benghazi, the IRS targeting conservative groups, Fast and Furious, and the Iran deal, and even when the press bothered to cover those stories it was always from the angle that they were just Republican sideshows. Another perfect example is Afghanistan, where the press has suddenly discovered our troops still are after eight years of Obama. Body counts and daily coverage disappeared under Obama even as casualties more than tripled with nothing to show for it. The media whines they are being bullied, Acosta claims CNN is being blackballed from asking questions at daily briefings, and somewhere the world’s tiniest violin is playing for them. Obama’s administration monitored Associated Press phone records and the phones of Fox News reporter James Rosen’s parents, and prosecuted more people under the Espionage Act than every other president in the last 100 years combined, yet Trump turning off cameras in the press room is the greatest attack on the First Amendment ever. The whining, insufferable White House press corps owes everyone a Kit Kat. Give me a break.

AJOC EDITORIAL: Democrats destroying the village to save it

Democrats in Juneau deserve credit for at least one thing: what they lack in good ideas they more than make up for in chutzpah. Now 10 days from a government shutdown at the time of this writing, the legislative session has become a monkey fight inside a clown car driving into a dumpster fire. The House Majority threw a tantrum last week after Gov. Bill Walker took away their income tax woobie in his proposed compromise to end the standoff with the Senate by passing an 11th hour budget funded entirely with the Permanent Fund Earnings Reserve including a $2,200 dividend check that will cost the state more than $1.3 billion on top of its $2.7 billion deficit. Like a child who cleans their room by stuffing all the toys and dirty laundry into a closet, House Majority leaders then proceeded to claim that they had done their job by passing a budget and asked for a cookie. House Republicans aren’t completely blameless in this mess, either. Half their caucus, including their leader Charisse Millett, voted for the budget-busting PFD. Perhaps she could better spend her time trying to figure out what her principles are rather than combing Gavel to Gavel footage looking for reporters goofing off in the gallery while her members make ridiculous analogies to Pearl Harbor, Ho Chi Minh and Vladimir Putin. Some soul-searching is probably required when you’re on the wrong side of a vote by Les Gara. But what the House Majority argument boils down to is this: they are willing to drive with the pedal down over the fiscal cliff if they can’t skim $700 million from Alaskans’ paychecks and double the tax rates on the beleaguered oil industry. They must destroy the village in order to save it. And here comes the chutzpah. On June 20, S&P Global Ratings put the State of Alaska back on credit watch negative as a result of the impasse. House Democrats immediately put out a statement claiming the notice vindicated their plan. Never mind that the state would be lucky to end up with junk bond status from the ratings agencies if the Senate approved their budget and Walker signed it. Democrats keep tweeting about Kansas, where a Republican Legislature rolled back previous tax cuts to boost state services. They fail to note that the tax increases in Kansas are projected to raise about $600 million from a population of nearly 3 million to fill a budget deficit of about $350 million. House Democrats want to raise taxes by more than that during a recession on a population a quarter the size in a state with some $17 billion in accessible savings accounts. The comparison isn’t even apples and oranges. It’s apples and ham hocks. Under the Democrats’ plan, middle class earners would get hammered while their favored constituencies of state employees and the failing education system are held harmless. As an aside, when are Democrats ever going to be held accountable for the results of an education system they own and operate that consistently delivers some of the worst outcomes in the nation? More than half of our high school graduates need remedial English and math education at the university level. Herb Schroeder, the founder of an actual education success story with the Alaska Native Science and Engineering Program, calculated that it costs the state and students $42 million per year trying to make up the ground lost in a K-12 system that spends more per capita than almost any other state. That we find ourselves standing on the brink of a state government shutdown is truly inexcusable. Both the Senate and House agreed on some major fiscal reforms at the beginning of the session: using the Permanent Fund earnings, guaranteeing a dividend of $1,000 or $1,250, and eliminating cashable oil tax credits for small developers. Passing the agreed-upon measures would have set the state on a sounder fiscal path and could have been done months ago, but the Democrats can’t and won’t change their tax-and-spend stripes. They cannot accept the fact that the state does not yet need an income tax, and refuse to recognize that there is not a bottomless pool of money to drain from the oil industry that has seen thousands of layoffs and now prices slipping back toward the breakeven point on the North Slope. They keep calling a restructured Permanent Fund and smaller dividend an income tax on all Alaskans in a tortured bending of the language. The IRS certainly treats the PFD as income, but in no way is merely existing within the borders of the 49th State the same as working for a paycheck. Then again, not knowing the difference between what is earned and what is given is what makes them Democrats. Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: House Majority has lost. They just don’t know it yet.

Here’s hoping House Speaker Bryce Edgmon hasn’t gotten too attached to his gavel. The once high-riding Democrat-led Majority in the House had a stake driven through its heart on June 5 when it was abandoned by Gov. Bill Walker, its one-time ally on raising oil taxes and bringing back a state income tax. By immediately rejecting Walker’s compromise package that did not include an income tax, increased oil taxes or their preferred amount for the Permanent Fund Dividend, the rookie leaders of the House have set themselves up as the fall guys if the government shuts down with no budget by July 1. It may be just posturing, as Senate President Pete Kelly mused while his caucus took a more measured and conciliatory attitude toward Walker’s proposed compromise that came down heavily in favor of its position. Are the House Democrats really so wedded to their demand for an income tax that they are willing to push the state to the brink of a shutdown? So far, they sound like it. Not that it was ever a great idea to hitch their policy wagon to raising taxes on an economy in recession, but House Democrats are quickly becoming Ahab to the white whale of taxes. With the governor now essentially aligned with the Senate on the greatest issues facing the Legislature — including its plan to pay off nearly $300 million in old oil tax credits using the Statutory Budget Reserve — the House has set itself up as the odd man out. No doubt it must be a bitter pill to swallow considering it was just seven months ago the new Majority held a celebratory press conference following the November election as Democrats took the reins of power in the House for the first time in more than a decade. However, the Democrats have no one to blame but themselves for their current predicament. They overreached by ratcheting up their usual attacks on the oil industry with a bill to double and triple effective tax rates between $50 and $75 per barrel, refused to cut the budget by any measure, set up an overly generous PFD and attempted to pay for it by extracting $700 million per year from Alaskans’ paychecks. The House proposals would be disastrous for the economy and it appears clear that the Senate Majority won over the governor when we heard Revenue Commissioner Randall Hoffbeck essentially repeat the Senate talking point that the House income tax proposal could end up overfunding government and therefore remove incentives to spending restraint. Who knows what ultimately won over the governor on oil taxes and credits, but two events in the prior week may have played a part. First there was Interior Secretary Ryan Zinke doing more for Arctic oil development with a stroke of a pen than Walker has accomplished halfway through his third year in office. Then there was the announcement by Caelus Energy that it was postponing its appraisal well at Smith Bay for this winter based partly on low oil prices and partly on the uncertainty about what the rules will be for tax incentives and the hundreds of millions in unpaid credits of which the company is owed at least $100 million. There has been plenty of fallout from the governor’s veto of $630 million worth of credit appropriations in the past two budgets, but this was a highly visible and hardly encouraging development. What we learned June 5 is that the governor has been listening, and that the House still has its ideological earplugs in. ^ Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: The right man for Alaska

In a room full of the state’s business leaders dressed in sport coats and summer dresses, the visiting guest of honor looked and sounded as Alaskan as any of them. Decked out in khaki pants and short sleeves, Interior Secretary Ryan Zinke, a retired Navy SEAL and former congressman for Montana, spoke passionately about President Donald Trump’s vision of American energy policy that goes beyond independence and into “dominance.” Trump is a tweeting, Tasmanian devil of a president who makes sensational headlines daily for either real or manufactured outrages that overwhelm the sound decisions he’s made with cabinet picks like Zinke. Alaska’s congressional delegation has not held back from criticizing Trump — its two senators officially withdrew their support for him last October after the infamous Access Hollywood tape was released — but they clearly recognize how greatly his presidency stands to benefit the state. It’s safe to say no one is missing Zinke’s predecessor Sally Jewell. “What a difference six months makes!” Sen. Dan Sullivan gushed at the Alaska Chamber reception for Zinke on May 30. Zinke is also a geologist, and noted that not long ago in the early 2000s the trendy energy consensus position was the looming “peak oil” when the world would reach maximum oil production and start a gradual decline. Boy, was that wrong. If anything we’ve reached “peak OPEC” where the oil cartel’s ability to control world prices at its whim has been eroded by the U.S. shale revolution that is undermining current production cuts of about 1.7 million barrels per day from its member nations and Russia. Now we have countries like Saudi Arabia nearly begging U.S. shale producers to cut back as prices have flattened out at about $50 per barrel and drillers are squeezing so many efficiencies out of their wells that some can make money at prices $34 or higher, according to Bloomberg. OPEC thought they could break the shale drillers. Boy, was that wrong, too. The U.S. has become the world’s No. 1 energy producer and we can tell OPEC to go pound the abundant sand of the Middle Eastern deserts. Zinke referenced his military career in the context of the goal of energy dominance. The United States’ deep involvement in the Middle East and in particular the Persian Gulf has always been about preserving the steady flow of oil that’s led us into wars and uncomfortable alliances with some of the worst governments on the planet. With the humility of one who has served, Zinke told the audience that he never wants to see anyone’s sons or daughters go to war and see the things he’s seen over access to oil. There is renewed hope to finally open the coastal plain of the Arctic National Wildlife Refuge to oil development, as was intended when the so-called “1002” area was set aside under the 1980 Alaska National Interest Lands Conservation Act. And before you hear the usual tropes about how ANWR production does nothing to change the U.S. energy picture — “drop in the bucket” often springs forth from the anti-development groups — it is worth realizing just how much that estimated million barrels per day figures under current domestic production levels. Not only would that amount triple the current throughput for the Trans-Alaska Pipeline System, it represents 20 percent of our 2016 net imports of oil. A million barrels per day is nearly the 1.1 million in imports from Saudi Arabia and would completely erase the 800,000 barrels per day from the deteriorating socialist wasteland of Venezuela. All in all, since the lifting of the ban on crude oil exports last year championed by Sen. Lisa Murkowski, the United States has net imports of less than 5 million barrels per day with almost 60 percent of that total from our neighbors in Canada. Energy independence is within reach. So, too, is energy dominance. Trump truly found the right champion for that cause in Zinke and Alaska will be nothing but better for it. Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: The ‘What, me worry?’ Legislature

By the time House and Senate members return to Juneau after Memorial Day weekend, they will have burned through 14 days of a 30-day special session without much, if anything, to show for it. Two days later, pink slips will go out to virtually every state worker with the possible exception of troopers, corrections officers and Pioneer Home employees. If only they could be sent to the 60 legislators as well. Both bodies have passed operating budgets as well as bills to use Permanent Fund earnings and end the state’s cashable oil tax credit program. That should be a plenty good starting point, but conference committees haven’t met on the budget or Permanent Fund bills, and the Senate hasn’t even named conferees to the oil tax credit bill. Alfred E. Neuman would be proud. What, me worry? Both sides are blaming the other, and both sides are right for a change. The Senate did indeed pass its budget and Permanent Fund bills with time to spare while the House took the full 90 original days to pass an income tax that had no shot in the Senate and was rightly shot down on May 12. The House also took the full 90 days to send the Senate a bill ending the cashable oil tax credit program for which the state liability will top $1 billion by the end of the 2018 fiscal year. Income and oil taxes are the obsession of the House this year despite the fact the economy is in recession and bleeding thousands of taxpayers annually, largely from the beleaguered oil sector that has led the job losses numbering in the thousands. Members of the House have far exceeded their mandate on oil tax policy by not only ending the credit program, but getting way over their skis by proposing to double and triple production tax rates at prices between $55 and $75. The House proposals are nonstarters for the Senate; likewise the House leaders say it is a nonstarter for them to pass a budget that doesn’t raises taxes on “the wealthy” and “the biggest corporations in the world” despite the fact that middle class earners will be bearing the brunt of the cost through either less takehome pay or no takehome pay. There’s been plenty of press conferences staking out these positions, but rhetoric isn’t work and it won’t get the job done. If the Senate really wanted to put pressure on the House it would be demanding conference committee meetings daily. Show up to a committee room and sit there without them if you have to make the point, but adjourning for two weeks without even naming conference committee members to the oil credit bill shreds the Senate leaders’ credibility on the issue of time management. Room for compromise can be found if the Senate will ease up on a few of its deeper budget cuts and the size of the Permanent Fund Dividend and if the House would drop its ridiculous attempts to tax everything that moves when the economy is hurting. A good place to start would be splitting the baby on the $288 million in the Statutory Budget Reserve that the Senate has allocated to start paying down oil tax credits that Gov. Bill Walker has been allowing to pile up for the last two years by vetoing $630 million worth. Take half of that and restore some education funding for the House Democrats and it would go a long way toward meeting the differences in the operating budgets. The Senate likely has a winning hand with the public by standing firm on refusing to pass an income tax but they can’t believe they will win the argument on nearly $300 million in oil tax credits while cutting the PFD and education funding. All of this could have been done in the first two weeks of the special session, or at least a healthy start before leaving for the holiday weekend that nobody in Juneau has rightfully earned. Now we are likely headed toward another special session that could cross the end of the fiscal year and put the state in a place where no one wants to be. Yet the Legislature whistles along past the graveyard. What, me worry? Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: Real jobs beat theoretical jobs

It wasn’t a surprise that last week’s column drew a response from self-appointed PFD guru Brad Keithley. Nor was it that he would go back to the well of the Institute of Social and Economic Research study that purports to show the most negative impact on jobs out of the current budget deficit-filling proposals is the one that relies on using Permanent Fund earnings rather than an income tax. Resorting to the internet version of shouting by going to the all-cap font, Keithley repeated four times that ISER believes using Fund earnings costs more jobs than an income tax. The oft-cited ISER study ties not a single direct job in the state to the payment of PFDs. Rather it relies on the economic multiplier effect for measuring impacts of using Fund earnings or collecting an income tax. The only scenario in which it can estimate job losses directly is from budget cuts to the state government. Everything else is theory, although it would be nice to know how many small business owners will be hit by the income tax and how that will affect their ability to hire and grow in the name of preserving an artificial PFD level. Where the ISER conclusion about jobs and reduced PFD payouts falls short is that it doesn’t match what we’ve actually seen. In the two years after Alaska has paid out a dividend of $2,000 or more (2008 and 2015), the state lost a combined 12,500 jobs in 2009 and 2016. ISER has estimated thousands of job losses will result from a reduction of $600 million to $700 million in the PFD payout, again, based on an economic multiplier effect and not on actual, direct jobs tied to dividend spending. Yet were this actually the case, we should have seen it happen from 2009 to 2010. The dividend payout shrunk by $450 million from 2008 to 2009. According to ISER, that $450 million reduction should have cost the state 2,500 to 4,000 jobs, but in the 12 months following that reduction the state gained 7,400 jobs. That’s 10,000 jobs better than the low end of the ISER estimate. By 2013, the PFD was $900 and the total payout was down another $280 million from its 2008 high. There was no corresponding job loss. Jobs were down by a rounding error of 500 a year later, and still up 17,000 overall from the 37 percent cut in the PFD payout from 2008 to 2009. ISER acknowledges the point that actual job data compared to the size of the PFD doesn’t reflect its conclusions. “The answer is that we likely would have seen the economy expand (under larger PFDs), if other changes — including significant losses in federal spending and losses in the oil industry — hadn’t been costing the state jobs. At any given time, many factors are affecting the state economy. Positive effects of one factor may be offsetting negative effects of others. That makes it hard to see the effects of both kinds of factors — but it doesn’t mean they aren’t happening.” In other words, the PFD is not the be-all, end-all of the Alaska economy and it shouldn’t be treated as such. Yet Keithley keeps using large letters and the ISER study to prop up his argument because the real world results don’t. Citing Permanent Fund Corp. projections, he asserts the PFD should grow by $1,000 per person over the next 10 years, from an estimated $2,373 this September to $3,338 in 2026. That would have the state paying out more than $2 billion in dividends annually. It’s baffling that an economist can really believe the PFD will grow unchecked for a decade when we have recent history that tells an opposite story. The dot-com and housing crashes cratered Fund earnings and impacted dividends for years; just last fiscal year the Fund returned less than 1 percent even while markets did relatively well. We’ve seen all-time highs in the markets once again, partly fueled by the cheap money policy of the Federal Reserve since the last financial crisis that is only now being tightened. A correction is inevitable, and the Fund and the PFD will be affected. Claiming otherwise is the sort of irrational exuberance that creates bubbles as well as bad policy. Policymakers can go with theory, or they can go with reality. The data show that the state jobs picture over the last 15 years moves independently — and in fact nearly inversely — from the size of the PFD. No amount of capital letters changes that. Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: Jobs drive the economy, not the PFD

The PFD is not a suicide pact. The Alaska House and Senate are now engaged in a high-stakes game of chicken as the session has gone into overtime with less than 30 days to go before the mandated adjournment. On one side is the Senate arguing it is protecting pocketbooks the most, while the House has taken the position of picking the most pockets. At the center of it all is the Permanent Fund dividend. The Senate would cap it at $1,000 for three years; the House at $1,250 for two. The Senate Majority is adamant that it will not institute an income tax or raise oil taxes while the state is in a recession, and it does not favor the more generous amount of the PFD proposed by the House. The House is equally adamant that using Permanent Fund earnings to fill the budget gap and reducing the amount available for dividends means they have to hit Alaskan workers with an income tax in the name of fairness and continue their neverending quest to keep plucking the state’s golden goose in the form of raising the burden on the oil industry. Protectors of the PFD at all costs, which include the generally ideological opposites in Sens. Mike Dunleavy and Bill Wielechowski and statehood pioneers such as Clem Tillion, believe that the state’s top spending priority is the annual check in spite of ongoing deficits between $2 billion and $3 billion. Nearly all rely on University of Alaska Institute of Social and Economic Research studies that count the PFD reduction as the costliest option to low-income Alaskan families. Indeed the numbers bear that out, but the problem with the ISER study is that it uses a $2,000 PFD as the baseline for evaluating the impact of either the Senate or House plans. Using a $2,000 PFD as a baseline unnaturally skews the numbers, however. Since the first PFD of $1,000 was paid in 1982, only twice — in 2008 and 2015 — has the PFD been $2,000 or greater. It would have been larger than that in 2016 as well, but Gov. Bill Walker vetoed half of the appropriation from $1.3 billion to $665 million to result in a PFD of $1,022. We’ve heard time and again that the PFD is the best way for the state to spend money because it puts the decisions in the hands of the people rather than the government. However, looking at the years following the largest PFDs in the state history shows big checks didn’t make a big impact on the Alaska economy. In 2008, the PFD was $2,069. The state lost 3,300 jobs from September 2008, the month before the checks were issued, until September 2009. The unemployment rate went from 6.8 percent to 8 percent. In 2015, the PFD set a new high of $2,072. This time the state lost 9,200 jobs in the following 12 months. So much for propping up the economy. In looking at the intervening years, the best thing for the Alaska economy is jobs, not the size of the PFD. After the 2008 peak PFD, the size of the check declined every year for the next five (the 2012 and 2013 dividends were roughly equal at $876 and $900, respectively). Over those same years, from 2009-2013, the state saw its population increase by 53,000, added 15,000 jobs, and the state gross domestic product grew by 20 percent from $50 billion to $60 billion. Conversely, from 2014-15 as oil prices have crashed, the state paid out about $2.5 billion in PFDs with no corresponding uptick in economic activity and certainly not enough to offset the loss of thousands of six-figure paying jobs in the private sector across oil and gas, construction, transportation and professional services such as engineers. Unlike an income tax, which reduces earned take-home pay, setting a dividend amount that is reasonable given the budget circumstances is the most prudent thing the government can do. Under the Senate plan the PFD would be roughly equal to the historic average — which would be a much better baseline to use and would in fact show the low income Alaskans are being held largely harmless under the plan — and it would be larger than four of the dividends paid since 2003. Under the House plan the PFD would be larger than half of the last 13 checks not counting 2016. When ConocoPhillips lost $4.4 billion in 2015, one of the major steps it took was to reduce its dividend by two-thirds from 75 cents per share to 25. That allowed it to keep investing while finding cost-cutting measures elsewhere. It’s about time the state learned a lesson from the private sector instead of trying to bleed it dry. Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: Democrats reach peak self-parody

It was Alaska House Majority Leader Chris Tuck for the win during a recent episode of “Democrats Say the Darndest Things.” Amid the debate on the House floor April 10 over the oil tax policy rewrite hastily introduced and passed within three days by a single vote, the Anchorage Democrat uttered the most fallacious argument among the many offered by his cohort. First the runners-up. There was Rep. Scott Kawasaki, D-Fairbanks, describing 2016 Alaska profits of $85 million by BP and $265 million by ConocoPhillips as “gigantic.” What’s gigantic is the ongoing ignorance about the oil industry displayed by House Majority members like Kawasaki. BP and ConocoPhillips Alaska profits totaled $350 million in 2016. Their combined payments to the state came in just shy of 10 figures at $959 million. That’s 27 percent for BP and ConocoPhillips and 73 percent for the state, but asking Democrats to do math is probably an unrealistic expectation at this point. Then there was Rep. Justin Parrish, D-Juneau, whose head seems best suited as the home for the Legislature’s best gathering of hair and little else, stating that a bill doubling and even tripling the effective tax rate at prices between $55 and $75 per barrel “doesn’t go nearly, nearly as far” as he’d like. Parrish wasn’t the only Democrat to say the bill didn’t extract enough new money from the industry, and several others including Resource Committee Co-chairs Andy Josephson and Garen Tarr actually claimed the bill is “modest” in its impact. The ghost of Jonathan Swift could sue for copyright infringement, if only the Democrats’ modest proposal was also a satire. Credit to Tarr for at least saying what Democrats believe, though, when she asserted that the companies aren’t going anywhere because Alaska has great geology. In other words, Democrats have carte blanche to pass any tax hikes they like and it won’t change production or investment at all. Nevemind we have recent history under the previous regime known as ACES to know that policy does matter no matter how great the North Slope rocks. But just when you thought Democrats were at peak self-parody, along came Tuck to plant the flag. In answer to repeated statements by Republicans that the current policy is working, as evidenced by an increase in production through the Trans-Alaska Pipeline System for the first time in 14 years, Tuck said we should be thanking ACES for spurring the growth. “Oil production is going up, but when you look at how long it takes to explore and develop, it takes seven to 10 years, so Senate Bill 21 isn’t playing a factor,” he said. “At this point it’s ACES that’s playing a factor in new production. Eventually some components of Senate Bill 21 might make that happen, but you can’t give credit to Senate Bill 21 when it’s only been in effect for about three years.” With that, Tuck proved why he’s the captain of the Democrat canoe. Tuck’s nonsense echoes the canard regularly uttered by Rep. Les Gara, D-Anchorage, that no increase in production on the North Slope can be attributed to the current policy passed in 2013 and upheld by voters in 2014. Their only evidence to support this is CD-5, which ConocoPhillips started working on way back in 2004, and the fact Repsol started exploring on the Slope in 2011. Just like their myopic focus on production taxes to the exclusion of all other sources of oil revenue, the Democrats are attempting to mislead the public about the current tax policy when they discount the growth in throughput and new projects. For starters, there is Greater Mooses Tooth-1 in the National Petroleum Reserve-Alaska. ConocoPhillips applied for those permits in July 2013, two months after former Gov. Sean Parnell signed the More Alaska Production Act into law. The company sanctioned the project in November 2015 and first production is expected next winter. Drillsite 2S was sanctioned in October 2014 by the Kuparuk River field owners ConocoPhillips, BP and ExxonMobil and was the first new drillsite in 12 years. ConocoPhillips, which operates the Kuparuk field, didn’t drill a single exploration well anywhere on the Slope from 2010 to 2012. The price of oil during those three years averaged $94 per barrel. Just to help out the Democrats again with the math, that’s about $40 more than the current price. Same rocks, nearly double the price, and the state’s biggest oil producer wasn’t even exploring. But sure, Rep. Tarr, tax policy doesn’t matter. The companies may not be going anywhere, but their capital certainly can and it has before. Back to Tuck’s comment about crediting ACES for production growth, which was so farcical it resembled internet trolling. That would be preferable to the reality that Democrats truly believe this. Tuck should take a look at the 2016 Prudhoe Bay Plan of Development, in particular the Division of Oil and Gas approval document issued last September: “In 2015, (BP) again conducted a high level of drilling and wellwork in the IPA (Initial Participating Area) with 8 grassroots wells and 52 sidetrack wells. BPXA also performed 413 rate adding jobs and ~1,400 non-rate adding jobs. Rig Workovers have continued to increase over the past four years with 27 RWOs in 2015. Drilling and wellwork in all categories has been increasing for the last four (Plan of Development) periods in the IPA.” Note the timeframe mentioned twice in that paragraph: the past four years. That would be from 2012, when Parnell first introduced a tax reform bill, to 2015. In 2012, BP performed 315 rate adding jobs at Prudhoe. That number increased to 485 by 2014. In the Analysis section, the Division of Oil and Gas puts it even clearer: “The activities conducted in the IPA over the last four years have seen record levels of drilling, RWOs, and rate adding jobs along with heavy investment in facility upgrades, pipeline replacements and inspections, and TARs (turnarounds). The IPA experienced an average daily production decline of only about 7,000 barrels of oil per day in 2015.” After noting that Prudhoe Bay has exceeded its original recovery estimate by 2.7 billion barrels, the division stated BP is “progressing and developing new reservoir projects.” Record levels of drilling. New reservoir projects. Rate adding jobs. Heavy investment. In. The. Past. Four. Years. The current policy was designed to encourage both new oil, which would take longer to develop, and “old oil” from the legacy fields that it was known would result in additional production sooner. And it worked. So here come the Democrats demanding to tax these profitable fields more and thinking this will somehow encourage new development elsewhere when it is those very profits that are reinvested for new projects like Mooses Tooth or new reservoirs within existing fields such as the Sag River work at Prudhoe. At $70 oil, the Democrats’ plan would increase taxes by about $2.5 million per day at current production levels. That’s about $900 million in a year, or about what it will cost ConocoPhillips to build Greater Mooses Tooth-1. What is most troubling about the House action is the message it sends to industry. The bill itself will die a rightful death in the more sane Senate, but by insisting this bill is moderate, or doesn’t go far enough, tells the industry that if the Democrats ever get ahold of the upper body again things will get a lot worse. Combine that with a governor perfectly willing to hike taxes on the industry while refusing to pay what the state already owes and you have the ingredients for chilling the Alaska investment climate once again. Andrew Jensen can be reached at [email protected]

Colorado firm buys GCI for $1.12 billion

It was a good day to be a shareholder in General Communication Inc. Shares of the Anchorage-based telecom leapt 62 percent, from $20.56 to close at $33.39, after a deal was announced April 4 to sell a controlling interest to Colorado-based Liberty Interactive Corp. for $1.12 billion that included a huge premium on existing shares. The deal will pay existing GCI shareholders $32.50 per share; the company’s stock has traded between $12 and $20 over the previous year. The new company will be dubbed GCI Liberty, but no major changes to existing service or management structure are planned. “We will continue to run the company with our focus on providing the best value for Alaska customers, offering opportunities for our employees and investing wisely in the Alaska market,” said GCI President and CEO Ron Duncan on April 4. GCI is the dominant cable and broadband provider in Alaska, and has a bit less than half of the wireless market share. It has 127,000 cable modem subscribers, roughly the same number of cable box subscribers and more than 222,000 wireless lines in service. Liberty Interactive Corp. operates and owns interests in a broad range of digital commerce businesses divided into the QVC Group and the Liberty Ventures Group. The QVC Group, named for the home shopping channel, includes QVC, an interest in the Home Shopping Network, or HSN, and zulily LLC. Liberty Ventures includes other assets such as FTD, Evite, Lending Tree and Charter Communications. The assets of Liberty Ventures are being contributed to GCI in exchange for the controlling interest, which will together be spun off into GCI Liberty Inc. in a tax-free transaction for the parent company. The last several years have brought about rapid change for GCI’s business. In 2013, GCI and Alaska Communications formed The Alaska Wireless Network, or AWN, by combining their infrastructure in a move designed to meet anticipated competition from the entry of Verizon that fall. Not much more than a year later, in December 2014, GCI agreed to buy out Alaska Communications’ share of the AWN and all of its wireless customers in a deal worth $300 million. The deal came with costs for GCI, which posted net income of $7.5 million, $9.4 million and $9.6 million from 2012-14. In 2015, GCI posted a loss of more than $26 million based on the costs of the Alaska Communications acquisition, and a loss of $3.6 million in 2016 caused by renegotiated roaming deals with Outside carriers as well as a $10 million decline in wireless revenue as it shed more than 5,000 wireless customers amid the state’s recession. It also saw a corresponding loss of 6,300 cable box subscribers last year. The company has neared completion of its TERRA network, which has been built in two phases, Southwest and Northwest, connecting dozens of rural Alaska communities to high-speed broadband using a combination of 2009 federal stimulus funds, New Market Tax Credits and its own capital. GCI, through its political spending and statements of executives such as Duncan, has been actively involved in the state budget debate and threatened grave consequences for his company if a fiscal solution isn’t found soon. The company recently followed through with its plans to cut its capital spending by 20 percent in 2017, which it said it would do last August after the Legislature finally adjourned with no budget plan, a deficit funded by savings and Gov. Bill Walker vetoing half of the Permanent Fund Dividend appropriation. Company officials announced capital spending in 2017 of $165 million, about 20 percent less than the $211 million in spent in 2016.

AJOC EDITORIAL: Gara strikes out over tax rates

After years of debate and endless hearings on the subject, it’s remarkable at this late date that Dan Seckers still had to teach a chapter out of “Tax Policy for Dummies” at the March 22 meeting of the House Finance Committee. The tax counsel for ExxonMobil actually had to explain the difference between a statutory tax rate and an effective tax rate to Finance Vice Chair Les Gara, D-Anchorage, in a lengthy exchange that descended into the surreal from the sheer remedial nature of it. After giving testimony more blunt than a two-by-four about the investment-killing implications of House Bill 111 that would raise oil taxes and slash deductions on losses, Gara took a pathetic swing at Seckers over the state’s base tax rate of 35 percent on net profits. “You do recognize that’s a price-sensitive tax rate,” Gara said, “that that is the tax rate at like $159 per barrel that the world has never seen … You never pay 35 percent of your profits at prices below $150 per barrel, right?” Strike one. “People need to understand the difference between a statutory tax rate and an effective tax rate,” Seckers said, probably wondering why he needed to spell this out to one of the longest-tenured members of the Legislature. “Corporations don’t pay 35 percent (federal) tax, nor do companies here pay 35 percent production tax because it’s on net. It has to be below that because it’s on net. If you want the statutory rate to equal the effective rate then you need a gross tax. That’s the only way that’s gonna work. “By its design a net tax can’t yield what you’re trying to imply. The effective tax rate will be lower, but we pay the tax. The calculation is based on 35 percent. If I have a $100 profit, my tax is $35 on that. It may get reduced by credits, absolutely, my effective tax rate may come down. But it’s calculated at 35 percent. That’s the function you have.” Gara stepped to the plate again. “I can’t let you get away with that,” Gara said. “The federal rate is 35 percent; obviously you get a deduction on a 35 percent tax rate. This is much different. The lower the price, the lower the actual tax rate … There is no 35 percent tax rate. It’s price sensitive. “When you compare to federal rate at 35 percent, that really is a 35 percent rate at all prices and you deduct from that. You have to recognize there’s a big difference between those kinds of tax systems.” Strike two. “No, I’m sorry, I think you’re misspoken on this,” Seckers replied. “The statutory rate is 35 percent. Don’t believe me? Ask your tax director. If I have $1,000 of profit, my tax is $350 and credits come after that yielding an effective rate.” At this point committee Co-Chair Neal Foster, D-Nome, tried to mediate the argument by saying “we’re going to have to agree to disagree,” but Gara insisted on trying to get the last word. “The credit he’s talking about is price related,” Gara said of the sliding per barrel credits that reduce the statutory rate. “They have nothing to do with investment.” Whiff. Strike three. “We don’t get that credit because prices are whatever,” Seckers said. “I have to produce a barrel of oil. That’s an activity I have to take. If I don’t produce a barrel of oil, I don’t care what the price is, I get zero. So to sit there and say, ‘oh, I just get it because of price’; that’s not true. “The only way I get it is I have to produce the oil. There are activities and steps I have to take, costs I must incur, to get that credit, to get that reduction if you will. I have to produce. That’s the whole purpose of putting that in there. The more I produce, the better off I am, which is good for the state. More production tax, more royalty, more income tax, more property tax. I have to produce to get that credit.” And with that, Seckers sent Gara to the showers. The impotent polemic by Gara against Seckers reveals a willful ignorance or disingenuousness on his part, as well as a fundamental lack of gravity by the Democrats who have elevated him to a leadership position on tax issues. In short, nobody pays the statutory tax rate on net income. Not ExxonMobil, not Donald Trump, and not Les Gara, either. Seckers didn’t blow this fastball by Gara, but his comment about the federal tax rate not being price sensitive deserves shredding as well. The rate may not be sensitive to the price of oil, but it is sensitive to whether a company made money or not. That is definitely not the case in Alaska. Rep. Tammie Wilson, R-North Pole, asked BP’s Damian Bilbao what the federal take was on oil last year. Bilbao testified moments earlier that BP lost about a million dollars per day last year in Alaska. “I would imagine for this year, you’re going to get a wide difference between members of industry. If the industry is suffering a loss, I can’t imagine there was a big federal income tax payment due,” he said. Compare that to Alaska, where the oil industry payments to state and local governments topped $2 billion in 2016 amid massive losses across the board with prices starting the year about $20 below the breakeven number for North Slope crude. It’s no wonder Alaska can’t come up with a coherent tax policy when leading members of the Legislature like Gara can’t or won’t attempt to get the basics right. Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: House Resources tells Armstrong thanks for nothing

The first time Bill Armstrong met former Gov. Sean Parnell several years back he pointed at a map of the North Slope and told him where he intended to find a huge amount of oil. A confident Texas wildcatter is about as uncommon as a member of the House Majority that wants to raise taxes on the oil industry, but only one of them is actually good for Alaska. As information has trickled out over the years since Armstrong and his former majority partner Repsol began exploring, he has been proven more and more right. First there were initial drilling results that Repsol described as successful, and led to some preliminary paperwork being filed with the U.S. Army Corps of Engineers that indicated potential production of 60,000 barrels per day. That alone would have been a significant find, but it got better. About a year later in late 2015, Armstrong swapped positions with Repsol to become the majority 51 percent owner and operator of the find, and the production estimate from the discovery in what’s now known as the Nanushuk play in the Pikka Unit doubled to 120,000 barrels per day. Armstrong bought leases and drilled them this winter some 20 miles from his initial find, establishing that the Nanushuk play discovered at Pikka could easily hold more than 2 billion barrels of recoverable, high quality conventional oil. Repsol billed this winter’s results as the biggest onshore conventional discovery in 30 years in a press release March 9. Just five days later, and only four days after the bill was introduced, the House Resources Committee expressed its appreciation for the Armstrong-Repsol work by reducing the net present value of their discovery with legislation that would cut their deductions for development and raise their taxes across every range of prices once they reach production. The process for the Resources Committee substitute bill was so rushed that a fiscal note from the Department of Natural Resources regarding the impact of provisions requiring approval of certain lease expenditures ranged from “minimal to significant.” There has been no modeling on potential production impacts from raising taxes and cutting development deductions. Talk about passing a bill to find out what’s in it. This is just the latest episode in the neverending quest by Alaska Democrats to create a “heads we win, tails you lose” oil tax policy that isolates the state from the risk of exploration and low prices while allowing it to capture a majority share of the upside when a company like Armstrong or ConocoPhillips is successful. Here’s what we do know about production. During the last full fiscal year of the previous tax policy known as ACES that ended June 30, 2013, North Slope production was 531,000 barrels. That was down more than 200,000 barrels per day in the six years of ACES, or an annual decline rate of 5 percent. Current North Slope production is averaging 520,000 barrels per day, which averages out to a 0.5 percent decline rate in just less than four years, or 10 times better than the rate under ACES. Should the 5 percent decline rate have continued, we would be at about 433,000 barrels per day rather than the current 520,000. That adds up to 31.7 million additional barrels over just one year. Democrats will cry til the cows come home that you can’t make a connection between the first production increase in 14 years with the tax policy they have staked so much political capital in overturning. At current production rates, the North Slope will blow away the state forecast of 490,000 barrels per day and it is still a possibility we could see a second straight year of growth if the fiscal year finishes in June with a daily average greater than 514,000 per day. It is always wise to not assume that correlation (production increasing) implies causation (changing oil tax policy in 2013). But it is also a sound conclusion to recognize that the current tax law has certainly not hurt the state from a production or revenue standpoint. (The cashable exploration credits that are the source of so much budget angst predate the More Alaska Production Act by nearly a decade.) It’s indisputable we’d receive no production taxes at current prices under ACES compared to about $2 per barrel under current law. That doesn’t consider the royalty share either, which ranges from 12.5 percent to 16.6 percent off the top and means the state has unquestionably benefited from the near-complete reversal of the previous decline rate despite the price collapse. The Democrat leaders of the House Resources Committee are not wrong in their attempt to ensure the state is getting maximum value for either its direct cash investments in development or foregone revenue in exchange for additional production. However, it seems the only place Democrats are willing to examine return on investment regarding state spending is where oil tax policy is concerned. They certainly have no interest in determining whether our health and education policies are working as those departments soak up billions in the annual budget while producing results that are mixed at best. Any claim to the contrary is nothing more than the same lip service House Democrats paid to repairing the state’s reputation as an unreliable business partner while working behind the scenes to cement it. Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: No sauce for the gander at House Resources

As Ron Burgundy may say, “That escalated quickly.” Things went sideways not long after House Resources Committee Co-Chair Garen Tarr, D-Anchorage, began a Feb. 22 hearing that was, in her words, to hear from the state’s “industry partners” about the oil tax increases proposed in House Bill 111 introduced by her and her fellow Democrats on the body. Less than six minutes later, Tarr put the smack down on the lead representative of the state’s partners, Alaska Oil and Gas Association President Kara Moriarty. Moriarty was in the middle of responding to the presentation two days earlier by the Legislature’s latest oil and gas consultant, Rich Ruggiero, who’d asserted that tax policy changes were a constant around the world and Alaska shouldn’t feel bad about tinkering with its system for the seventh time in the last 12 years. Backing up that claim, Ruggiero used a slide from IHS CERA plotting the changes by regimes around the world from 2001 to 2011. Former Resources Chair Rep. Dave Talerico, R-Healy, asked Ruggiero if he had updated information from 2012 to the present that would show how regimes have responded to the price crash that accelerated in late 2015 and early 2016. “You had mentioned ‘if you had the rest of the years,’” Talerico said. “Is there any chance you might be able to finish this out to 2016 and maybe provide that information to the co-chairs?” In response, Ruggiero said this: “That would be quite an extensive effort, and I’m not sure what it would inform. Which is why I stated on the slide titled ‘forward’ that some of these slides are dated. The message they’re telling is that Alaska should not be embarrassed or feel bad that it is changing its fiscal system because the regimes around the world where most of the money is being spent are changing their regimes as often or even more often than Alaska is.” Ruggiero, by the way, is being paid $35,000. Talerico looked a bit bemused. “I guess that means no,” he said. “I would like to see even North America if possible.” At that point Tarr asked Ruggiero to see what he could provide and he said he’d see what he could come up with before coming to Alaska the following week. The committee didn’t have to wait that long, because Moriarty found the updated slide from IHS in a report to by the Oil and Gas Competitiveness Review Board from May 2016 that is hosted on the state Revenue Department website. She also got IHS to email it to her. Not much of an “extensive effort” and quite a bargain considering the Legislature isn’t paying Moriarty anything, let alone $35,000. What the slide shows is that in January 2016 while prices bottomed out at about $26 per barrel, every regime that changed its policy offered incentives, not tax increases such as those proposed by Tarr and her fellow Democrats. Before getting into what riled up Tarr against Moriarty, it’s important to know what Ruggiero said on Feb. 20. On his very first slide, he stated: “Working from a common understanding will help everyone better understand the input that will be received from various respondents putting forth self-serving opinions.” Then a couple slides later he went into the “detractor themes” guaranteed to be deployed by the oil industry in response to increasing government take, namely stability, competition and jobs. The next bullet point stated: “In their world there is no concept of the operator earning too much and a government earning too little.” Later he said of the companies, “they’re not charities,” which is a bit rich from a guy who is hardly working pro bono himself. He’d probably have an interesting opinion on a bill that would tax consultant income at a rate of 65 percent, which is roughly the government take on oil revenue between federal, state and local taxes. He might even have a thought about whether anyone would work for the Legislature if they were going to be taxed at such a rate. Ruggiero portrayed the industry representatives as robotically repeating the same thing over and over no matter the circumstance. “Part of what you have to do is decipher from that message is what’s really critical or will chill industry or negatively hurt the state versus their natural inclination, that they have to come out and say whatever takes money out of their pocket is a bad thing,” he said. All this time as Ruggiero told the committee to tune out the oil companies as speaking from an agenda, Tarr never interrupted and never cautioned him not to question the motives of the industry partners she would later be calling to testify. So after Moriarty explained how easily she found the updated information, she said, “Having your consultant share older data from other consultants may demonstrate that he either didn’t take enough time for his presentation, or he is possibly using the data to drive an agenda —” At this point Tarr cut her off. “Miss Moriarty, we’re not going to make statements like that in this committee,” Tarr said. “So you’re not going to impugn the motives of that individual. If you want to respond to anything that was said, that’s fine. But we’re not going to do that.” Tarr’s anger should have been directed at Ruggiero, who’s being paid not a small amount of money to present outdated information and act as though getting new information is going to be an “extensive effort.” It should also probably be directed at him for, to his credit, repeatedly stating that governments typically lower taxes and increase incentives in a low price environment, which is the exact opposite of what Tarr’s bill would do. Moriarty further corrected Tarr on her statement Feb. 20 that the industry requested “half” of the six tax changes in the last 12 years. Moriarty noted that the oil business supported the current tax policy because of the elimination of progressivity at high prices even though it was concerned about the 35 percent base tax rate. She pointed out that industry supported the Cook Inlet Recovery Act in 2010, but that bill didn’t originate at its request. It came out of the Legislature in response to looming natural gas shortages for the state’s population center. “We supported two out of seven if you count the one before you,” Moriarty said. If Tarr wants witnesses to stick to the facts and not make unfounded accusations against others she’s going to need to start with herself. Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: Overtaxing is as bad as overfishing

Dating back to before statehood, Alaskans know that overfishing is a bad thing. Stopping overfishing of salmon and regaining control of the resource was in fact one of the driving forces in the effort to become a state. What we know about sustainability of our vast fisheries resources is worth applying to yet another debate over another immense asset — our oil — and the means by which that resource is taxed. Get ready for more proclamations from Democrats, soft Republicans and the friends of Gov. Bill Walker about receiving “our fair share” of the resource through taxation and the debunked claims that the 2013 oil tax reform was a “giveaway” to industry. The “Alaska model,” as it has come to be known, holds an overarching policy to prevent overfishing and though the enshrinement of sustained yield in the state constitution it has largely been a success. The reason is simple: while there may be short-term economic benefits to harvesting nearly every fish in the sea, the long-term effect will be to destroy the resource. Some of the fish must be allowed to reproduce to sustain populations in perpetuity. It isn’t a difficult concept to understand, but when it comes to the oil industry there is a large segment of the population and their politicians who don’t get it. True, oil, unlike fish, is not a renewable resource. But capital is. Certainly it is tempting to want to collect every dollar possible from the oil business through taxation, but doing so robs the companies of the investment capital they require to expand existing fields and to discover new ones. In the long run, overtaxing will wreck the economic engine of Alaska in the same way that overfishing decimated the salmon resource. The cashable tax credits whose origin in policy date back to the 2006 Petroleum Profits Tax have received the bulk of the attention for the deficit-stricken state budget as the tab is running to nearly $1 billion by the end of next fiscal year. Dealing with the credits is a cash flow problem, however, and the more troubling effort is what is likely to come from either the governor or the new House majority to increase the tax on production. The leaders of the new House majority and the governor opposed the 2013 production tax reforms and campaigned for the repeal and return to the previous system known as ACES in 2014. Those critics of the current policy keep pointing to the low production tax revenue at current prices as proof that the regime is a “disaster,” as Senate gadfly Bill Wielechowski endlessly repeats. Yet according to Walker’s Revenue Department, under ACES the state would have received zero — yes, zero — production tax revenue in fiscal years 2016 through 2018 and the current policy took in more than ACES would have in fiscal year 2015. In fact, under ACES the state would receive no production tax revenue until the price climbs north of $63 per barrel. ACES does collect more revenue at higher prices, but returning to the parallel of overfishing, at what cost? There is no disputing that production declined by an average of 6 percent per year under ACES while the state share averaged 41 percent. There is no disputing that ConocoPhillips, the most active explorer on the North Slope since 2000, did not look for oil from 2010-12 despite sky-high prices. There is no dispute that under oil tax reform, we’ve seen no decline in fiscal year 2014, a slight dip in 2015 amid a record amount of drilling and workovers, followed by the first increase in 14 years in 2016. What’s amazing about the results of the 2013 reform is that oil companies haven’t even seen the upside of it yet. They have seen prices collapse to the point where losses have amounted to billions in the upstream segment — ConocoPhillips lost more than $4 billion in 2015 and another $1 billion in the first quarter of 2016 — and they are paying more in taxes at these prices than they would have under ACES. What the 2013 oil tax reform proved is that allowing companies just the prospect of keeping more of their capital to reinvest is enough of an incentive to spur development and discovery even during a brutal price environment. Not many would have thought when 2016 began with prices bottoming out at $26 per barrel that the year would end with a production increase and hugely successful North Slope lease sale. The supporters of oil tax reform were proven right, but the fight isn’t yet over against those who would crush the North Slope through overtaxing the way the canneries nearly did to salmon by overfishing. Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: The discoveries that almost didn’t happen

We aren’t hearing much from the opponents of the 2013 oil tax reform lately. Facts tend to get in the way of rhetorical hyperbole, and it appears that reality has finally caught up with Democrats and Gov. Bill Walker, who collectively agitated for the repeal Senate Bill 21 in a 2014 voter referendum. Losing that fight didn’t end the debate, however. Nor did the undisputed evidence from Walker’s own Revenue Department that SB 21 was bringing in more money than the previous system as prices started to slide late in 2014. Record employment and record drilling on the North Slope in 2015 didn’t stop the noise, either. The 2016 fiscal year increase in production — the first since 2002 — was barely noted as the news came amid a chaotic end to the session and Walker vetoing some $1.3 billion in spending on June 29, about half of which was cutting the Permanent Fund Dividend to $1,000. The calendar year also closed with an increase in production, which followed by only a couple weeks the third-best lease sale on the North Slope since the area-wide offerings began in 1998. Now comes the news that ConocoPhillips has followed the Nanushuk formation now under development by Armstrong Energy and Repsol with one of its own in the same play that holds 300 million barrels of oil that could flow at a rate of 100,000 barrels per day. The Armstrong-Repsol project in the neighboring Pikka Unit could flow at a rate of 120,000 barrels per day. Those two projects combined are a bit less than half of the current fiscal year average through the Trans-Alaska Pipeline System of 510,000 barrels per day, and both companies are further exploring their acreage this winter with the belief there’s even more to be found. Add in ConocoPhillips’ Greater Mooses Tooth 1 and 2 now in construction and permitting, respectively, and that’s another 60,000 barrels per day with GMT-1 to provide half that total beginning late in 2018.  Should the more longshot prospect being explored by Caelus come to fruition with up to 200,000 barrels per day from Smith Bay, we now have developments that nearly equal the current throughput potentially coming online by the early 2020s. As we ring in the new year with the state expected to lose 7,500 jobs in 2017 and the sharply divided Legislature convening with its last best chance at fixing a $3 billion-budget deficit, it is the oft-maligned oil industry that is providing a lone ray of hope for the Alaska economy. When the Legislature inevitably takes up oil tax policy this session, it is important to remember who was completely wrong about SB 21. All of the current developments and the 2016 increase in production would have been at risk if the Democrats and Walker had their way in 2014. Walker, for his part, had a convenient case of amnesia in responding to the ConocoPhillips announcement after he proposed tax increases on the oil industry just last session. “It demonstrates that Alaska remains an attractive place to do business and look for oil,” Walker said. Certainly it does “remain” attractive, but that’s no thanks to Walker or Democrats whose preferred policy resulted in continued annual decline and no discoveries. It is not hard to draw a straight line from the change in policy in 2013 with the increase in activity and possibly the biggest find since Kuparuk on the North Slope with the Nanushuk play. ConocoPhillips drilled no exploration wells in 2010, 2011 or 2012. It drilled three last year, made a big find and snapped up hundreds of thousands of acres around its discovery in December despite losing billions in 2015 and 2016 as prices cratered. The only good thing about that was a temporary pause in Sen. Bill Wielechowski’s banal quarterly press releases pointing to ConocoPhillips profits as a reason to jack up its taxes. “There is a direct correlation between investment and tax policy,” ConocoPhillips Alaska President Joe Marushack said on Jan. 13 as he described the company’s process for allocating capital between Alaska and the rest of its global portfolio. “If the tax changes, the economics change, the allocation changes,” he said. “It’s very simple.” So simple even the Democrats and the governor should be able to get it. Andrew Jensen can be reached at [email protected]

AJOC EDITORIAL: Production forecast leaves room for pleasant surprise

A brutal year in the Alaska oil patch ended on a positive note as calendar year 2016 followed the fiscal year trend with an increase in North Slope production. Amid the worst price environment since the late 1990s resulting in thousands of layoffs for the oil industry, production grew in the fiscal year ended June 30 and for the calendar year ended Dec. 31. With an average of about 514,000 barrels per day for the fiscal year and 517,000 for the calendar year, the state’s most recent production forecast for the current fiscal year predicting a drop to 490,000 appears extremely conservative. After many recent production forecasts have overshot estimates, the state adopted a new, in-house approach that officials acknowledge will result in lower predictions. Considering the state’s budget woes, erring on the conservative side is certainly not a bad thing. It will also leave room for a pleasant surprise by the end of the fiscal year. Current North Slope production from July 1 through Jan. 2 is averaging 507,000 barrels per day, far greater than the forecast as the traditional peak production winter months await. At 490,000 barrels per day, total fiscal year production would amount to nearly 179 million barrels of oil. At the current production average, the Slope producers have already pumped 94.4 million barrels through Jan. 2. What that means is that production would have to average 472,287 barrels per day for the rest of the fiscal year to hit the state forecast of 490,000 per day. While there has no doubt been a pullback in drilling and well workovers from record levels in 2015, there is as of yet no indication that the production will fall by that much from the current daily average. In the 2016 period from Jan. 2 to the end of the fiscal year on June 30 while prices averaged less than $40 per barrel, North Slope production averaged nearly 527,000 barrels per day. That means that to hit the state’s production forecast, the daily average would have to drop by about 55,000 barrels per day during the same period of 2017 — a 10.4 percent decline — even though prices have rebounded to better than $50 per barrel since OPEC announced it would cut production back in November. There is a conspiracy theory out there that the state is intentionally lowballing price and production forecasts to make the state’s fiscal situation appear more dire than it is — and it is dire — in order to make a harder sell for its package of revenue measures and the use of Permanent Fund earnings to plug the budget deficit. There is no need to go there, but there is a need to push back on those who keep advancing the idea — including Lt. Gov. Byron Mallott — that the state’s days as an oil realm are drawing to a close. Given the production increases, the third-best lease sale in decades in December and strong prospects under development, the evidence does not back up those who are spinning the end-of-oil narrative. Gov. Bill Walker has not exactly expressed enthusiasm for prospects by independents Caelus and Armstrong, and his Natural Resources Deputy Commissioner Mark Wiggin reacted to questions about the 2016 production increase not with celebration but with an Eeyorish comment about how we’re not heading back to our peak production days in the late 1980s. Production increases should be welcomed, not downplayed, and momentum established after the passage of Senate Bill 21 should be sustained rather than stifled. The North Slope producers gave the state something to feel good about to end the year, and beating the ultra-conservative forecast in the new year would result in a much-needed boost to the bottom line. Andrew Jensen can be reached at [email protected] Correction: The original version of this column attributed a statement about not returning to late 1980s production levels to Tax Division Director Ken Alper. The statement is actually attributable to Natural Resources Deputy Commissioner Mark Wiggin.

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