Posted Wednesday, April 19, 2017 - 1:08 pm
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]
Posted Friday, April 14, 2017 - 12:29 pm
Change is hard… even when everyone agrees that change is necessary. It’s easier to do nothing than it is to affect change. But every once in a while you bump into something that’s just so utterly broken that change is the only option. That’s where we’re at with Alaska’s workers’ compensation system.
In 2004 Alaska was the second most expensive workers’ compensation state in the country. It took us almost a decade, but in 2012 we finally dethroned states like California and Illinois as the worst in the United States.
When it comes to getting hurt people back to work, we’re no longer dead last in the nation. But we’re close enough to remember the feeling.
The Alaska Chamber has been working alongside Sen. Cathy Giessel and the Workers’ Compensation Committee of Alaska to tackle our broken workers’ compensation system. The introduction of Senate Bill 112 is the first step in addressing the problem and we look forward to working with all parties to fix the system.
The argument for reform
The obstacle that derails many reform attempts is that frequently there are opposing constituencies on either side of an issue. That’s not the case with workers’ compensation. Alaska’s current system is broken and it’s not serving anyone.
In 49 of 50 U.S. states, litigating attorneys are compensated based on a set percentage of settled claims. In Alaska, attorneys invoice for their time and preferred hourly rate, in some cases exceeding the settlement amount.
Ten years ago when the Chamber started advocating for reform, you’d mention workers’ compensation in a room full of people and everyone’s eyes would just glaze over.
There are a lot of moving parts to the system, and it’s taken a long time to get everyone up to speed on why it’s failing Alaska workers. But we’re there now. Over that last three or four years, Alaska has flirted with incremental improvements. Progress has been frustratingly slow, particularly if you’re an injured worker floundering in a bungled system or an employer hemorrhaging money at activities that don’t help your employees.
We’ve made small improvements, particularly with the medical community stepping up to accept certain payment controls on common procedures. And now we’re finally ready to tackle the foundational flaws in Alaska’s failed workers’ compensation system.
So what has to change?
Make wise choices
Alaska needs to adopt options for employees to direct their own care. Currently, if an Alaska worker is uncomfortable or dissatisfied with their doctor, they can switch once. Then they’re stuck. It’s worse for employers. If there’s a talented specialist or experienced out-of-state option, our Alaska companies or their employees don’t have that option.
Use what works
There are medical treatment guidelines that help ensure treatments for injured workers are both reasonable and necessary. Alaska doesn’t use those guidelines and we should. Similarly, we need to adopt official disability guidelines and utilization reviews to make sure our provider community is getting our workers the care they need.
Pull the rest
Re-employment benefits pay for training so injured workers can move into a new field. Re-employment training sounded pretty good as a concept; however, in practice, re-employment benefits don’t do anything and need to be repealed.
Between a Department of Labor commissioned study and one from California, we find that nearly no one completes their re-employment program and they return to their old profession. Instead of giving people a lump sum for training they’ll never get, we should implement a voucher system that will go towards a person’s re-employment program.
The inner workings of workers’ compensation are legitimately challenging, but the goal of the system isn’t. Many states have success models that we can use to improve our system. Alaska can make wise workers’ compensation choices, use what works, and get rid of programs that don’t.
Curtis W. Thayer is lifelong Alaskan and serves as president and CEO of the Alaska Chamber.
Posted Wednesday, April 12, 2017 - 12:38 pm
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.
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]
Posted Monday, April 10, 2017 - 12:18 pm
There is an old saying: “Just because you can, doesn’t mean you should.”
One of the biggest issues emerging this legislative session is whether the state should pass a fully balanced budget, where revenue exactly matches expenses for a zero-sum gain.
While a balanced budget is normally a good idea, I would argue it will be detrimental in our case because it includes instituting an income tax. I advocate that carrying a modest deficit going forward is instead in the best interest of our state.
The Alaska Senate recently passed Senate Bill 26, a bill that restructures the annual draw from the Permanent Fund’s earnings. Using earnings of the Permanent Fund to help cover the budget deficit is the single most important action this legislature can take.
It is exactly in line with the vision of the original trustees of the Permanent Fund who wrote, “The earnings from the Permanent Fund can and should help level the peaks and valleys of the Alaska traditional boom and bust economic cycles,” as long as Alaska has “sane and reasonable levels of government.”
SB 26 reduces Permanent Fund dividend amounts to $1,000 per Alaskan, which is just short of the 30-year average, and applies the remaining earnings toward reducing our substantial budget deficit. It is a solution that closes the gap substantially.
The next place to focus is budget reductions. But, defining a “sane and reasonable” level of government is quite a challenge. There are groups calling to trim what they feel is still a bloated bureaucracy. Other factions say our state government is right-sized and not to make any additional cuts.
So far, the Senate Majority is looking at a 5 percent reduction for most agencies (which is 5 cents on the dollar) and I am pleased to say many of the departments met the challenge and offered specific areas where their agencies could scale back.
The latest budget presented by the Senate for fiscal year 2018 has general fund spending reduced to about $4.1 billion, which meets the spending cap the Senate placed within SB26. This spending cap grows by inflation each year, and if adhered to, will stop the wild fluctuations in the operating budget and keep government growth in check.
Is there room for additional reductions? You bet, and the Senate continues to advocate for health care reform, a freeze on state salaries, and shared service consolidation across departments.
With a draw on the Permanent Fund earnings, together with spending reductions, where does that leave us? There is still a gap of about $500 million dollars remaining to a balanced budget. I urge lawmakers not to try to fill it with an income tax.
If we institute an income tax now, we will be kicking our economy while it’s in a recession. In about five years, many small businesses and working families may leave Alaska and move to the Lower 48 where the total cost of living (health care premiums + energy + transportation + income taxes) is much lower. The result will be higher unemployment rates where only a skeleton crew of die-hard working Alaskans remain, and private entrepreneurial innovation and economic expansion is cut off at the knees.
Instead of an income tax, I urge my fellow lawmakers to allow the Constitutional Budget Reserve to absorb the deficit for the next few years. Modeling shows that the CBR has the capacity to cover a modest budget deficit for the next decade. Meanwhile, we can monitor the price of oil, work to increase oil production, look for additional economic opportunities, and pursue legislative reform that further reduces government spending.
I have many takeaways from my first few months serving as a legislator. The largest is that there is no “perfect” or “easy” way out of our problems, and every decision we make has major consequences. So far, the suite of bills presented by the Senate Majority ensures the longevity of the PFD for all Alaskans, caps government growth, does not tax the income of hard-working Alaskans, and keeps private dollars available for economic investment.
Coupled with a 5 percent decrease in spending, this is the best path out of our financial quagmire.
We must each remember that choices we make now will have both short and long-term repercussions. Furthermore, budget solutions are intertwined, where one affects the other. It’s imperative that we make responsible decisions to ensure a safe, thriving, and accessible state with a great future.
Natasha von Imhof is a freshman State Senator with a financial analysis background. Senator von Imhof sits on the Senate Finance, Resources Committee and the Health and Social Services Committee.
Posted Friday, April 07, 2017 - 3:08 pm
One hundred years ago, Alaska’s leaders came together around a vision to create an institution of higher learning. They gathered on a hill near downtown Fairbanks and pledged their support for this new undertaking, now called the University of Alaska. Few institutions generate the kind of economic benefit or impact on our communities as does our university, and in this time of enormous change and challenge the need to support our university has never been greater.
I believe that it takes a great university to build a great state. Since its founding 100 years ago, the University of Alaska has developed into a high quality, affordable choice for those looking to create opportunities and improve their lives. Alaska has always had ambitious goals and it’s the university’s job to help our state achieve them. In serving Alaska for 100 years the university has:
• Grown from one campus in 1922 to 15 campuses today, from Ketchikan to Kotzebue.
• Graduated one person in 1923 and 4,700 this last year.
• Become the number one producer of Alaska’s workforce.
• Risen from a remote territorial college to the world’s leading Arctic research university and the number one research organization in the state providing real solutions to real problems.
Alaskan values are reflected in the fabric of the broad university community: grit, perseverance, work ethic, commitment, shared learning and mutual respect. These values drive faculty and staff every single day as they work to serve students and our state.
Students seek skills, knowledge, and a brighter future full of opportunity; faculty have committed themselves to discovery, teaching, and serving civil society; UA staff give their best every day to support the educational mission; and, alumni carry the UA flag out into the world, working all across our state and around the globe, creating new businesses, solving the state’s problems, and giving back to the university that moved them forward in life.
The university’s partners – parents, employers, the communities, public agencies, researchers – are critically important to helping advance the university. Its growing base of private donors are generously contributing their own resources to help students to realize their dreams and to help them strive for excellence.
These are just some of the people and programs that will be impacted if higher education funding is cut.
In this centennial year of the university’s founding, there is no doubt that UA has the power to change Alaska’s destiny – it changes lives, create opportunities and promotes economic prosperity.
Please tell your legislators that you care about the university, about growing our own, right here in Alaska, and to fund the university’s operating budget at the level requested by the governor and passed by the House.
Arliss Sturgulewski is a former member of the Alaska State Senate, Republican Party candidate for Governor and a Trustee Emerita for the University of Alaska Foundation.
Posted Friday, April 07, 2017 - 2:18 pm
For 14 years Rep. Les Gara has skewed the facts to support his personal agenda: Tax the oil industry out of existence to pay for more and more government.
In his latest interpretation of “the facts,” he calls Alaska’s production tax rate “mythical” and again strikes out at the tax credits that have proven to be one of the best investments Alaska has ever made.
It galls him that Alaska’s production tax is a 35 percent tax on net profits — and that there is a difference between a statutory tax rate and an effective tax rate, as the tax counsel for a major producer had to explain to him a few days ago.
“The calculation is based on 35 percent,” the attorney testified. “If I have a $100 profit, my tax is $35 on that. It may get reduced by credits …my effective tax rate may come down. But it’s calculated at 35 percent.”
Gara wants to change our tax system to a gross tax, which is a totally different tax system that our state has rejected — for good reason.
When Gara talks about fair share he also has a habit of conveniently forgetting that the production tax is just one part of the entire tax bill that industry pays. The other includes royalties, state and federal income taxes and property tax.
What that means is that Alaska takes in more than the oil industry earns in profits regardless of the price of oil. In fact, at lower prices, the state’s share gets proportionally bigger than the industry share. At $30/barrel oil, Alaska takes in $1.9 billion per year while the oil industry loses more than $1 billion.
When the price of oil is high, Alaska still earns significantly more than the industry. At
$100/barrel oil, Alaska takes in about $5.5 billion in revenues while the industry earns less than
On the subject of incentives, Gara ignores the fact that from fiscal years 2007-2015, the state collected
$62.1 billion In total petroleum revenue while paying out $3 billion in cashable/refundable credits to North Slope and Cook Inlet producers and explorers.
That’s right, Rep. Gara. Alaska dispenses $3 billion in credits and collects $62 billion in revenue. Not a bad return, especially when you consider that that investment Jed to the discovery of the three largest oil fields on the North Slope in 30 years, doubled Cook Inlet oil production and turned a natural gas deficit into a surplus. Maybe you would have preferred that we froze in the dark.
That said, we aren’t quarreling with the need to look at cash credits to figure out alternative
Incentives that the state can afford with today’s low oil prices but still attract the investment we need to keep production levels stable and bring our exciting new discoveries to production. All that requires a staggering amount of investment: $3-5 billion a year to maintain existing production levels in Cook Inlet and on the North Slope, and the $10 billion or so just to develop Caelus’ new discovery at Smith Bay.
We can count our lucky stars that oil has paid almost all our bills for decades. And that in these days of low oil prices and declining production, it still provides double what we collect from all other sources of unrestricted revenues.
In fact, oil accounted for $966.9 million in FY 2017, or about 72 percent of our unrestricted revenue stream.
But that isn’t enough for folks like Gara. They want to jack the production tax up even more on an industry even when it is losing millions each day - not because it makes sense or Is good tax policy but because they think the oil companies will continue to develop our oil resources with higher tax rates. The practical result is thdat any investment will require higher and higher oil prices for a field to become economic.
Gara likes to accuse businessmen like me of being lackeys for the oil industry. The truth is we are just doing what business people are supposed to do -support our major source of revenue and jobs by encouraging investment.
Our goal is to keep jobs growing and having more oil flowing through the pipeline-just a very straight forward common sense approach to a bright future.
Patrick Reilly is the owner of Rain Proof Roofing.
Posted Wednesday, April 05, 2017 - 1:17 pm
Irresponsible spending by state lawmakers has left us with a multibillion-dollar budget deficit. This latest crisis underscores the need to tighten the state’s “spending cap” on annual expenditures, and a bill recently passed in the Alaska Senate is a good start.
Senate Bill 26 imposes a statutory spending cap of $4.1 billion in general fund appropriations each year, which would grow with inflation. A statutory cap — which can ultimately be set aside during the budget process — would be less effective than a Constitutional limit, but it is a start.
Whatever form it takes, a revised spending cap is desperately needed to put our fiscal house in order over the coming years.
Alaskans have been supportive of the idea for more than three decades. When the state’s current constitutional spending cap was put before voters in 1982, 61 percent voted in support. When given the option to overturn the limitation four years later, the margin in favor of the spending cap was even greater: 71 percent to 29 percent. More recently, a 2015 poll by the Alaska Chamber found a majority of the state remains in favor of spending caps.
Regrettably, the constitutional spending limit that voters approved in the ‘80s has proven to be woefully insufficient to address the budgetary challenges of 2017.
Simply put, it is set too high to be useful. Under the current provision, which excludes certain types of government funds, the limit for this year’s budget is $10.1 billion — more than double the budget of $4.7 billion.
In the last decade, state appropriations have only come close to the current cap twice — once in 2009 and again in 2013. That in itself is alarming, given how high the spending limits are set.
The cap will need to be drastically reduced if it is to serve as an effective check on government spending.
With a tighter spending cap in place, we would not find ourselves scrambling to cover a $3 billion budget shortfall. Historically, the state budget explodes when oil fetches a high price, leaving us vulnerable to massive cuts when prices fall.
For instance, state spending in the years between 2004 and 2013 more than doubled, from about $3 billion to $8.7 billion. Since then, falling oil prices have forced the state to gradually cut back. An effective spending limit would compel lawmakers to preserve a leaner government that is more sustainable over the long term.
As we look for ways to cover this year’s deficit, our focus should be on cutting wasteful and unnecessary expenditures. Legislators have done an admirable job of reducing spending over the last few years, but plenty of bloat remains to be cut.
The facts speak for themselves. Alaska has one of the biggest public sectors in the country, second only to Wyoming; 24.2 percent of Alaska workers are employed by the public sector (federal, state, and local), compared to a national rate of 15.5 percent.
In 2015, the state government spent more than $18,000 per resident, far more than any other state in the country and more than triple the national average, which is below $6,000.
In addition to instituting a new spending cap, Senate Bill 26 would use about $2 billion in investment earnings from the Permanent Fund to cover the budget shortfall. It’s regrettable that using those funds has become necessary, but doing so is preferable to raising taxes, as some lawmakers have proposed.
New taxes would burden hardworking families and make the state less attractive to new businesses and workers, leading to a decline in economic growth.
Rather than squeeze more revenue from taxpayers, state lawmakers should prove they are responsible stewards of public funds by enacting an effective state spending cap. If successful, they could ensure fiscally-responsible budgets for decades to come.
That’s a win for all Alaskans.
Jeremy Price is the Alaska State Director of Americans for Prosperity.
Posted Monday, April 03, 2017 - 4:10 pm
The economic future of Alaska may depend upon how the legislature interprets and acts on the words: “Fair Share.”
Keep Alaska Competitive supporters know that it will take a combination of elements to fix our fiscal crisis: continuing to cut state government, restructuring the Permanent Fund with Senate Bill 26, and stable, competitive tax policies.
Alaska’s oil tax policy is very complex and extremely difficult to understand, especially for those of us who are not in the petroleum industry or are not accountants. Our legislators in Juneau face very difficult and critical decisions regarding these often confusing tax issues. The decisions they make in the next two months may determine if Alaska has a viable, long term economic future or a failed economy.
The question is: Do Alaska’s current oil tax laws fairly compensate Alaska, and are they competitive with other oil jurisdictions to attract investment to our state?
Too often, people only look at Alaska’s production taxes when asking this question.
It is important to consider all of the taxes, royalties and fees imposed on the oil industry: royalty: 12.5 percent to 16 percent of revenue (i.e. royalty is on “gross” value); state corporate income taxes: 9.4 percent of profits; property taxes, local and miscellaneous taxes; and of course, federal income taxes.
We believe that Alaska’s tax take is more than fair to our state, especially at lower oil prices, while providing a competitive environment for the petroleum industry to invest here.
The following information is available from the Alaska Department of Revenue, or the KEEP Alaska Competitive website (KeepAlaskaCompetitive.com):
At low oil prices, Alaska takes in substantial income from the oil industry. For example, at $30 oil prices, Alaska takes in $1.9 billion per year in taxes, while the oil industry loses more than $1 billion.
At high oil prices, Alaska also takes even more revenue from the oil industry. For example, at $100 oil prices, Alaska takes in about $5.5 billion while the oil industry earns less than $4 billion.
At all prices, Alaska takes in more than the oil industry earns in profits.
Keep in mind that the oil industry pays for 100 percent of the expenses, provides 100 percent of the capital and takes most of the risks.
We can only see two ways for Alaska to reverse the impact of the current recession: a catastrophic event, like a war in the Middle East, or we attract investment to our state with competitive taxes and regulations.
It is also important to note that Alaska is a high cost oil province. It is critical that our tax policies, in addition to these high operating costs, do not drive investment away. We must always remember that these investors can take their dollars anywhere in the world that provides the highest returns to their shareholders. Alaska must compete for these investments.
Most of us agree that Alaska needs continued investment and production of oil through our pipeline. We also agree that we need the jobs associated with oil production.
If Alaska’s leadership can solve our fiscal crisis now, maintain its competitive oil tax policy, restructure the Permanent Fund with SB 26, market our abundant resources, attract investment and control our spending, the future of our great state can be very positive.
We MUST get this right.
Jim Jansen is chairman of Lynden. Marc Langland co-founded Northrim Bank and served as its chairman until he retired at the end of 2015. Jansen and Langland are the co-chairs of KEEP Alaska Competitive.
Posted Monday, April 03, 2017 - 3:51 pm
Last week an op-ed went out that somewhat mangled the reality of Alaska’s nearly non-existent oil production tax. I appreciate the opportunity to set some facts straight, so we can all have a fair discussion on an important topic.
According to the Department of Revenue, next year oil companies will generate more in state-owed oil company tax credit subsidies than they owe in oil production taxes. In the following two years, unless the law is changed, generated tax credits will erase more than half our oil production tax revenue, at a time when schools are struggling and we have a $3 billion deficit.
A recent editorial made some claims about our current oil tax rates. They were incorrect. To help, I’ll share some analysis from a 2017 State Department of Revenue Report.
Alaska’s current oil production tax rate falls at lower prices under a sliding scale tax formula. The average North Slope so-called “New Field” (a definition that includes at least three old fields) pays a zero percent production tax, no matter how profitable, for the first seven years at all prices under $70/barrel. That’s according to the Department of Revenue report.
That same report notes that the remaining North Slope fields, on average, pay a small flat four percent gross tax, no matter how high profits are, all the way up to prices of $73/barrel.
Zero percent and four percent oil production taxes (this doesn’t include royalties) are a pathway to austerity at a time of $3 billion budget deficits. At higher profits, companies should pay a fair share, to help balance out a fiscal plan so we can have a stable economy and budget, and good schools, and a trained work force.
The recent editorial addressed Alaska’s mythical “35 percent” production tax rate. There is no 35 percent oil tax rate under Alaska law.
I’ll just let an excerpt from a recent Alaska Dispatch piece set the record straight. The Dispatch wrote:
The state has a 35 percent oil tax, declared Dan Seckers, a tax attorney for ExxonMobil in Anchorage. “I’m sorry I can’t let you get away with that,” Rep. Les Gara said. He said that is true only if or when oil ever reaches $160 a barrel.
“The lower the price, the lower the actual tax rate,” he said. Gara is correct. The system in state law has a built-in tax reduction at lower prices.
He quoted from a chart prepared by the Department of Revenue that shows the effective tax rate is 12.1 percent when oil is at $60 a barrel.
For oil that comes from areas such as Point Thompson, eligible for an extra tax break, the tax rate is zero at $60. Oil is now at about $50 per barrel.
“There is no 35 percent tax rate, it is price sensitive,” said Gara.
Seckers wanted to argue this. “Sorry, I think you’ve misspoken on this, he told Gara. “The statutory tax rate in Alaska is 35 percent. You don’t believe me? Ask your director of tax under Section 011e.”
That section mentions 35 percent and there is no question it is in the statute, but it doesn’t mean much. No company pays anything close to that percentage or will be in danger of paying that amount unless oil increases by more than $100 per barrel. At $160, the tax would be close to 35 percent.
Seckers did allow that Gara is correct that the “effective tax rate” is far lower. Case closed. The effective tax rate is what matters.
But I understand Seckers’ misplaced insistence on 35 percent, as otherwise he would not be able to testify repeatedly at hearings that Alaska has an oil tax rate under SB 21 that is three times higher than anywhere else in the United States.
“You know what the next tax rate is in the United States on production?” Seckers asked the House Resources Committee during a Feb. 1 meeting. “Twelve and quarter. Louisiana. You guys are almost three times as high as any other state in terms of production tax. Why was that (SB 21) an improvement so to speak? Well, because it was predictable.”
What’s predictable is that it is misleading to say we have an oil tax that is three times higher than anywhere else in the U.S.
And what’s also predictable is that this is a word game, the result of deceptive language that found its way into SB 21. The result is that the real tax rate, which varies with the price, is far below 35 percent under any circumstance that we have seen.
Thank you for letting me set the record straight. I hope we can have a discussion based on facts, and find solutions to move this state, and our needed partnerships with the oil industry, forward.
Posted Wednesday, March 29, 2017 - 10:58 am
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?”
“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.”
“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]
Posted Tuesday, March 28, 2017 - 12:12 pm
Companies that work in any offshore industry understand the seriousness of their work and take extra precautions whenever possible to preserve the waters they do business in. That’s why it’s frustrating when environmental activist groups attempt to mislead the general public about offshore industries and the important business they do.
It has become common practice for environmental non-governmental organizations, or ENGOs, to distort small events in an attempt to convince people that all offshore activity is unsafe.
No one is more familiar with such tactics than the offshore energy industry. ENGOs frequently target offshore oil and gas operations and use minor incidents as justification for why the offshore energy industry should be stopped entirely. One such example is currently taking place in the waters of Alaska’s Cook Inlet.
An independent operator, Hilcorp LLC, detected a small natural gas leak in one of its 8-inch pipelines in Cook Inlet and immediately reported it to the appropriate regulators. Due to the current ice conditions, the company cannot safely send divers to repair the leak at this time.
The company has stated that their actions are dictated by safe operations and environmental considerations. In the meantime, the company has lowered the pressure of the line and is conducting a variety of monitoring activities to ensure that the leak has minimal impacts to the environment.
Unfortunately, activist organizations are seeking to use this Cook Inlet incident as justification for why the company should not be allowed to operate in other offshore areas and attempting to convince the public that any form of offshore energy development is hazardous. Nothing could be further from the truth.
These overzealous recriminations are hollow, but dangerous; especially when they catch the attention of large ENGOs who exploit the incidents to achieve their national goals. In this case, Cook Inletkeeper’s dramatic over-exaggeration of the incident has caught the attention of national groups such as the Wilderness League and Inside Climate News.
These organizations have now inserted themselves into public discussion of the incident and are attempting to influence the regulatory outcome. Groups such as Greenpeace and the Sierra Club use these devious playbooks as well — both groups have highlighted minor local incidents in an attempt to achieve wider objectives and incite regulatory change.
Make no mistake, incidents of any size should be avoided and given immediate attention. That’s why response plans are imperative for companies who work in the offshore energy industry. The company being targeted by activists in Cook Inlet had a response plan in place, and carried it out immediately upon discovering the leak.
Unfortunately, not one ENGO has mentioned this in their coverage of the incident or the operator. Instead, they have chosen to call out other projects the company is working on, in attempt to sway the public and regulators.
These national activists consistently fail to tell a more complete story, when it doesn’t fit their narrative. Important details like a successful record of safe operations, rigorous adherence to regulations, job creation numbers, and tax dollars paid to local and state governments are always ignored when ENGOs attack the offshore energy industry.
Accidents happen, but how an operator responds to them often says more about the company than the actual incident. In order to evaluate and report an incident, the public needs facts and perspective. There is no place for overblown panic in the offshore energy discussion.
Randall Luthi is the president of the National Ocean Industries Association.
Posted Wednesday, March 22, 2017 - 9:41 am
After eight years of retreat, it’s time for America to charge back into the energy-rich waters of the outer continental shelf and secure once and for all its rightful place as an energy superpower.
With his ambition to return America to its glory days and reassert the nation’s influence on the world stage, President Donald Trump would do well to start with energy security and a bottoms-up review of the energy policies put in place by his predecessor.
To do that, the president needs a full team of experienced and knowledgeable staff at the U.S. Department of the Interior and its agencies.
The Senate’s confirmation of Secretary Ryan Zinke to head Interior earlier this month was an excellent start, but hundreds of positions remain unfilled, many critical to restoring access to our nation’s vast offshore wealth.
Responsible development of our offshore resources has long been a major contributor to the economic health and security of our country. Taxes, royalties, and rents from offshore production are the treasury’s second-highest source of revenue — right after the annual contributions of the millions of Americans who pay income taxes.
Revenue from offshore production took a nosedive under the Obama administration, though. The U.S. government made just $2.8 billion from offshore leases in 2016 — a fraction of the $18 billion earned in the final year of President George W. Bush’s time in the White House.
The U.S. offshore holds an estimated 90 billion barrels of oil and 327 trillion cubic feet of natural gas. Of the nation’s 1.7 billion offshore acres, though, less than 1 percent — or 17 million acres — are currently under lease.
That small portion still delivers nearly one-fifth of all of the oil produced in the country. The vast majority of which — 99 percent — is produced in the Gulf of Mexico off the coasts of just four states: Alabama, Louisiana, Texas and Mississippi.
California and Alaska are the only other states with offshore production — and the entirety of California’s federal waters have been off-limits to new leasing for decades.
Soon after coming into office, President Barack Obama began to reverse progress made during the Bush administration, including reducing the frequency and number of lease sales, blocking exploration along the Atlantic and Pacific coasts, and curtailing lease terms.
Nearly 8 million acres of federal waters were leased in 2008. That number dropped below 3 million acres in 2009 and has stayed below that level ever since.
By the time Obama left the White House in January, he’d succeeded in barring oil and gas activity in almost every corner of the OCS, including nearly all waters off the coast of Alaska. Today, roughly 90 percent of federal offshore areas are off-limits.
Obama’s efforts, including an avalanche of new regulations, have been effective in restricting our ability to capture the full economic and competitive potential of America’s collective offshore wealth.
Thanks to investments made by private industry a decade ago, oil production in the Gulf of Mexico is expected to reach 1.9 million barrels a day by the end of this year, providing roughly 20 percent of total U.S. production. Still, that represents a substantial reduction from 2010, when federal waters accounted for nearly 30 percent of domestic production.
The share of U.S. natural gas production from the federal offshore experienced an even greater decline, dropping from 16 percent of total U.S. production to 4 percent between 2006 and 2015.
Luckily for the U.S. economy, while oil and gas production from federal areas was steadily declining, production on private and state-owned lands increased dramatically — doubling between 2006 and 2015 — helping limit the fallout.
While states and private landowners have continued to keep domestic production strong, sustaining U.S. dominance will require the discovery of new deposits to keep ahead of consumption as American living standards rise.
We cannot forget the states, off whose coastlines new production would occur. Congress should make sure coastal states from Maine to Alaska have a stake in helping to meet the nation’s energy needs by expanding the federal program that currently provides four Gulf of Mexico states 37.5 percent of all revenues from oil and gas activities off their shores.
Offshore energy development is a vital part of the U.S. economy, providing jobs, energy security, and much-needed government revenue. With that in mind, it is imperative that offshore leasing remains a robust part of the federal government’s mission.
So far, the new administration appears to be proceding cautiously. This week’s auction of 73 million acres in the Gulf of Mexico is a start, but more needs to be done — and quickly — to make sure the United States remains competitive.
Achieving our energy goals before another election swings the pendulum back the other way will require the president to tap good people to serve at the critical agencies within Interior. Reviewing and replacing backward-looking policies can take 18 months or longer. There is little time to waste.
After years of falling production and government neglect, our strategic offshore resources are ready for the kind of renaissance that has made our onshore oil and gas activity the envy of the world.
Robert Dillon is Vice President of Communications for the American Council for Capital Formation, a pro-growth economic think tank based in Washington, D.C., and the former communications director of the U.S. Senate Energy and Natural Resources Committee.
Posted Wednesday, March 15, 2017 - 10:50 am
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]
Posted Tuesday, March 14, 2017 - 5:00 pm
As we reach the halfway point of the 2017 legislative session, we wish to share some thoughts about this critical time that represents a truly defining moment in our state’s history.
What we do or fail to do over the next few months will send ripples through the lives of Alaskans for generations.
Alaska faces new realities and unfamiliar struggles. Navigating the uncomfortable concepts needed to overcome these challenges has pushed each of us to question what we really need or want from our government. After two years of public outreach and input, this difficult debate now rests with our legislators.
Both the House and Senate have taken this seriously and filed legislation that, if passed, would begin to address this historic challenge. We therefore applaud both chambers for showing the courage to engage in these discussions.
We are also pleased that things are progressing well, and we see no reason why this work cannot be completed within the regular 90 day legislative session. Compromise is certainly still required, and we have stated all along that these plans should be considered written in pencil — but the time is rapidly approaching to break out some ink.
As we work toward a solution, we will evaluate all plans against two main criteria. The first is math: does it add up; are the assumptions associated with it valid; and can it realistically eliminate the entire deficit in a reasonable period of time?
The second criterion is vision: do the mechanics of the plan remove uncertainty from our economy; will it preserve the quality of life Alaskans deserve; and does it have a long-term view that will put us back on a path to prosperity?
It is essential that both math and vision be considered together as we move forward. Otherwise the easiest, most non-controversial math will gain traction at the expense of a severely tarnished vision.
We must remain vigilant against such tendencies. Our children deserve better. We therefore encourage all participants to avoid the path of least resistance and to embrace the tough decisions required to reach a truly meaningful solution.
One needs only look at the legislation we proposed last year to know what we consider to be an example of a fair and balanced approach.
There are those who say we cannot solve our entire fiscal problem this year; that there are too many difficult lifts to do at once; or that implementation should be spread out to minimize impacts on the economy.
While these may be reasonable concerns, there is simply no perfect solution.
Continued delay results in even worse consequences. Without a comprehensive solution this year, we will see the recession deepen, state investments dry up, a further out-migration of Alaska’s best and brightest, and short-sighted decisions like shifting state expenditures to our local communities who are far less equipped to handle them.
Partial solutions only extend the runway; they do not allow us to actually take off. It means continuing to rush down a runway at high speed for a longer time, but with no plan for how to clear the trees when we finally get to the end.
And even if we got off the ground at the very last minute, the more time spent on the runway means less fuel to reach our ultimate destination — a bright future.
Alaska has shining potential. If we can only get this fiscal challenge behind us, we can immediately devote all our attention to priorities like building a strong economy with safe and vibrant communities; ensuring healthy families; and pursuing responsible resource development.
It is all within reach — if we solve the crisis. We must first fix Alaska to build Alaska. We just need to balance our checkbook, and then we can get to work on what’s really important.
History is waiting. Posterity is watching. We have a sacred responsibility to honor both.
So please let your legislators know that you support them as they do the difficult job we were all sent here to do. Tell them it is okay to make the tough decisions and that we need to tackle it all.
Most importantly, be sure to let them know it all has to happen this year.
Posted Wednesday, March 08, 2017 - 1:01 pm
During a town hall meeting with local legislators, Alaska Senate Majority Leader Peter Micciche, a Republican from Soldotna, discussed a plan to use earnings from the Alaska Permanent Fund to help pay for state government. At a press conference in Juneau on Feb. 26, he said that he would consider the current session a success if the Legislature could pass such a measure, along with the operating and capital budgets.
On Feb. 27, House Majority Leader Chris Tuck, an Anchorage Democrat, responded that focusing on the use of permanent fund earnings would be the “easy route” in addressing the state’s multi-billion dollar deficit.
We’d like to pose this question: If a plan to use permanent fund earnings is easy, why hasn’t it been done yet?
Indeed, Rep. Tuck seems to disprove his own point with that sentiment. For the past two sessions — and extended sessions, and special sessions — lawmakers have adjourned without any plan in place to use earnings from the permanent fund.
No, lawmakers have been taking the easy route for the past two years, drawing on the state’s savings to cover the $3 to $4 billion gap.
But because lawmakers have taken that route for the past two years, they are quickly running out of the easy route option going forward.
At that point, using permanent fund earnings will be the only route.
Rep. Tuck’s point is that he would like to see lawmakers also look at oil tax credits, a point of contention over the past two sessions as well.
However, lawmakers have known for quite some time that some version of a plan to use permanent fund earnings is the largest and most crucial part of addressing the deficit. It’s been acknowledged by Gov. Bill Walker, by the Senate, and even by other members of Tuck’s House Majority coalition. Too many lawmakers have been putting that tough decision off, saying that they don’t want to look at the permanent fund until they’ve done this or that or the other.
Meanwhile, Alaska has burned through billions of dollars in savings waiting for this, that or the other to get done.
We hope that the Legislature takes significant steps during this session to address both the short-term and long-term fiscal health of Alaska. We know that means using a portion of the permanent fund earnings to pay for state services.
We are under no illusions that doing so will be easy.
Posted Wednesday, March 01, 2017 - 1:00 pm
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]
Posted Wednesday, February 22, 2017 - 2:42 pm
Democrats in Alaska are once again sharpening the hatchet and taking aim at the state’s favorite goose — the oil and gas industry.
As Alaska slips deeper into a recession that began in mid-2014, lawmakers in the 49th state are wrestling with ways to close a $3 billion budget deficit caused, primarily, by an extended period of low oil prices.
But increasing the tax burden on the government’s number one source of revenue when the industry is struggling with declining production, increased regulatory costs, and falling profits is likely to collect less, not more for the state’s treasury.
There’s no question that Alaska is hurting. The once politically unthinkable — imposing an income tax or cutting the amount residents receive each year from the state’s Permanent Fund — are both now being openly discussed in the halls of the state capitol in Juneau.
In the state House, majority Democrats are seeking to increase the tax burden on the oil and gas sector, which, despite the downturn, still supports one third of all Alaska jobs and accounts for 65 percent of state revenues.
The governor’s office has already taken aim at the oil industry, vetoing hundreds of millions of dollars in tax credits promised by the previous administration in exchange for new investment in the state’s aging oil fields.
The administration argues the state can’t afford to pay the credits in the current fiscal environment, but the investments have already been made — resulting in the first uptick in oil production since 2002 — and the obligation to make good remains on the books.
A bitter fight over changes to the state’s oil tax system also brought the legislature to a standstill in 2016.
Legislation introduced Feb. 8 — House Bill 111 — picks up where things left off last year, attempting to increase the government’s take by further rolling back tax credits on new investment and raising the minimum tax to 5 percent of the gross value of production — which equates to an increased tax liability of 25 percent to 100 percent, depending on the company.
The legislation reduces the risk to Alaskans of developing the state’s resources by shifting it almost completely onto the oil companies. Resource extraction taxes usually try to strike a balance to encourage continued investment.
Governments either set a floor to capture a guaranteed minimum at low prices in exchange for allowing companies a greater take when prices rise or they share the risk at low prices for a bigger piece of the prize at high prices.
But the House proposal goes after the producers at both ends of the scale. It seeks to capture more revenue at low oil prices and grabs a bigger share when prices rebound as well. Doing so greatly reduces the incentive for private companies to invest in Alaska.
Hiking taxes on the oil industry may be popular with voters but it’s not necessarily sound economic policy. Higher taxes may bring in additional revenue in the short term but at a cost to long-term investment.
Put another way, killing the goose that lays the golden egg will result in further job losses and economic contraction, not increased state revenues.
Oil taxes are always a contentious issue in Juneau, but here are few things lawmakers should keep in mind before considering further changes.
Alaska lawmakers have changed the tax regime on the oil industry six times in 11 years, including three times in the past three years alone.
Such volatility is unsettling in the best of times to companies that make investment decisions years, often decades into the future. But raising taxes when oil prices are barely above the breakeven point on the North Slope and production has on average declined steadily for more than two decades makes an already challenging environment worse.
Tax hikes don’t happen in a vacuum. Drive taxes high enough — and factor in the uncertainty created by constant change — and companies will alter their behavior. For oil companies that means weighing investment of limited capital in Alaska against any number of competing prospects in the Lower 48 and around the globe that offer better returns and a more stable tax system.
The long-term challenge facing Alaskans is not so much the low price of oil — which fluctuates with market forces beyond their control — but the amount of oil being produced. The trans-Alaska pipeline has seen a 39 percent decline in throughput in the past decade and is operating at one third of its capacity.
Production on the North Slope has fallen 68 percent over the past 20 years from a peak of 2 million barrels a day. Alaska currently produces about 500,000 barrels a day, putting it fourth on the list of top-producing states, behind Texas, North Dakota, and California. Add the Gulf of Mexico and Alaska drops to fifth place.
The North Slope oil fields are far from exhausted. Prudhoe Bay remains one of North America’s biggest oil fields and large areas of Alaska have yet to be fully explored. But if Alaska’s tax regime makes the state uncompetitive then it can expect to lose investment needed for exploration.
Instead of digging themselves deeper into recession, Alaskans should focus on making the North Slope competitive with other oil-producing regions and improving access to untapped resources to attract private investment and boost production to ensure a stable economy for future generations.
Robert Dillon is vice president of communications for the American Council for Capital Formation, a pro-growth economic think tank based in Washington, D.C., and the former Communications Director of the U.S. Senate Energy and Natural Resources Committee.
Posted Tuesday, February 21, 2017 - 11:11 pm
Having spent time in Juneau at the beginning of the legislative session for the Alaska Chamber’s annual Legislative Fly-In, I’m pleased to see that my enthusiasm for 2017 is reflected in the halls of the state capitol. There are some optimistic new faces in Juneau this year. And I saw confident, determined looks on the faces of veteran legislators.
Over the past several years, Alaskans have watched as state government argued over the size of our public spending problem. In rare cases, some questioned if the state truly faced fiscal challenges at all. But the paralysis of indecision that plagued the capitol appears to be behind us.
As Alaskans, we are blessed in so many ways, including the resources needed to fix our fiscal problems. Our financial reserves are most certainly under strain and we can’t live off savings forever. But our resources are considerable and by working swiftly, collaboratively and wisely, we can close our fiscal gap while encouraging future investment.
Alaska needs a fair and balanced approach to solve our fiscal crisis. The options for balancing the budget remain viable.
1. Cut the cost of government. We must live within our means.
2. Restructure the Permanent Fund to protect the dividend and include controlled use of the earnings reserve account to pay for government services.
Alaskans have made it abundantly clear that new and increased taxes are an option only after steps one and two are complete. While the state has made some cuts, we have yet to tackle the large-dollar, formula-based spending items. Similarly, recent budget reductions are the result of pushing obligations off into the future. When the bill eventually comes due, we must have a fiscal plan that accommodates those obligations.
Restructuring the Permanent Fund can help us close the gap. Moving to a percent of market value plan — as proposed in the Senate — or similar structure is a part of Alaska’s blueprint for economic stability. When paired with spending limits like those proposed by both the House and Senate, Alaska can again be a stable and predictable partner for investment.
Sustainable state spending isn’t the only issue for chamber members and Alaska’s economic future, and it’s not the only issue moving in the capitol this year.
Workers’ compensation reform is a perennial top priority for both employers and workers. Workers’ compensation is a complicated system and one with universal impact on Alaska’s workforce. It’s taken years to bring the stakeholders to the table and to lay a foundation for systemic, comprehensive reform. Expect more from the chamber on this topic over the coming months. And look forward to a workers’ compensation system that better protects employees and employers while getting Alaskans back on the job.
Seeking to grow our economy we are working with our federal delegation on access to lands and resource development for the benefit of all Alaskans. We’re working with within our fisheries and with our maritime, tourism, mining, and timber industries to ensure Alaska’s economy is diverse, robust and marketed successfully to the world. But stability for the future starts with a predictable and sustainable state government.
With stability comes investment and economic health for Alaska. That’s a goal that crosses party lines. It’s important for employers and workers — public and private. It’s something that Alaskans are demanding more and more vocally. And I’m optimistic that we’ll get there this year.
Curtis W. Thayer is lifelong Alaskan and serves as president and CEO of the Alaska Chamber.
Posted Wednesday, February 15, 2017 - 2:32 pm
This question gets to the heart of the matter: What is it we really want Alaska to look like? What kind of Alaska do we want 20 and 40 years from now?
We would wager that more people than not want to have a strong education system with reasonable class sizes, reliable public safety in our communities, well maintained roads, health care, affordable energy, well managed fish and wildlife, clean water and air, a fair justice system, a strong university, and of course a Permanent Fund Dividend check every year.
We would go a step further and say that most Alaskans are willing to contribute if it means having these things now and for future generations.
In order to consider the magnitude of the obstacles that stand between us and the Alaska that we want to live in, let’s consider the fiscal deficit that has been discussed these last several years. Alaska has a $3 billion budget deficit caused by the precipitous drop in oil price and the long-term downward trend in oil production.
Our oil fields are not what they use to be and the global economics of oil have changed significantly during the past 40 years. Our state’s unrestricted general fund revenue, which is predominately derived from oil (90 percent), has dropped from $9.9 billion in fiscal year 2012 to $1.4 billion in fiscal year 2017 and a projected $1.6 billion in fiscal year 2018.
North Slope oil production is projected to decrease to 455,000 barrels per day in fiscal year 2018 — the lowest level in the pipeline’s history and far from the more than 2 million barrels per day it used to carry.
If no solutions are passed this session, the Constitutional Budget Reserve account will be nearly depleted by the end of fiscal year 2018, and our Legislative Finance Division predicts that all our state savings accounts will be depleted in five years.
There would not be enough money in savings and Permanent Fund investment earnings accounts to cover future budget deficits, and there would be no money to pay PFDs.
There is no silver bullet for solving our fiscal problem. To maintain the Alaska that we want to live in, we need a durable solution that includes a combination of measures: 1) A percent of market value draw from the Earnings Reserve account (within the Alaska Permanent Fund); 2) A reasonable broad based tax; 3) A moderate and protected PFD payout; and 4) A restructuring of the oil and gas tax credits. Implemented together, these four pillars will lay the foundation for a prosperous future for all Alaskans.
Two bills were introduced this past week by the House Majority members that address these four essential pieces. House Bill 115, sponsored by the House Finance Committee, asks lawmakers and Alaskans to embrace a fair and balanced approach to creating fiscal certainty for our state.
Fiscal certainty is a necessity for economic growth, and greater economic growth will contribute to further fiscal certainty. HB 111, sponsored by the House Resources Committee, would restructure the oil and gas tax credit program. Together, these bills place Alaska on a sustainable path.
We think about Gov. Jay Hammond and what actions he would consider at such a time. Gov. Hammond was a man of vision. He had the ability to look well into the future to see the day that the Earnings Reserve account would replace oil’s role in supporting our state, while maintaining both the Permanent Fund principal and dividend.
Each year we delay implementation of such a plan is another year of borrowing from the CBR that we need to pay back. The state has now seen four straight years of Alaskans leaving the state — over 17,000 to date.
According to the Institute of Social and Economic Research, between 2014 and 2016, we lost 1,500 private sector and 1,700 public sector jobs. There is a powerful direct correlation (in our state) between the price and production of oil and employment. It is time to break this cycle of dependency and put Alaska on a stable path that is no longer so reliant on oil.
In the early years of our state, Alaskans pulled together to pay for the services that were important to our families and our future: education, roads, and hospitals. We willingly paid a state income tax, a school tax, and other fees.
Then oil came along and we enjoyed the profits that came with it. But anyone who has lived here long enough knows there is a cycle to everything. Some years the fish limits are high, some years they are low. If we respect the cycles and work with them we can sustain our way of life.
It’s not going to be easy. We will have to adjust to a smaller government, and we will have to accept the fact we must start contributing to the services that we want for our children and our quality of life. Yes it will be a difficult shift, but when have Alaskans backed down from a challenge?
This is why many of us chose to live here and why we choose to stay. The Alaska House Majority Coalition members are willing to face this challenge. We encourage you to reach out to us, to learn as much as you can about possible solutions, and to offer your ideas.
Together we will craft a plan that is fair and balanced for all Alaskans, provides for a strong economic future, and helps realize the Alaska we want to live in.
Reps. Paul Seaton, R-Homer, and Neal Foster, D-Nome, are the co-chairs of the House Finance Committee.
Posted Wednesday, February 15, 2017 - 2:31 pm
An observation from educator/philosopher William James came to mind as I watched Robin Brena lecture the House Resources Committee on Feb. 3 on his version of reality.
“There’s nothing so absurd that if you repeat it often enough, people will believe it,” James wrote.
Well, Brena repeated the words “fair share” 40 times during his two-hour, 71-slide presentation.
In Brena’s mind, “fair share” means fixing Alaska’s fiscal mess by jacking up taxes on the oil industry and changing our tax policy for the seventh time in 12 years. He forgets that our own commissioner of Revenue, Randy Hoffbeck, has repeatedly said that the state is collecting more money under our current tax policy called SB 21 than we would have under the old one, called ACES.
To quote him: “SB 21 brings in substantially more revenue to the State at low prices.”
Forget that the oil flow through the pipeline actually increased in 2016 for the first time in more than 14 years.
Forget that our current tax policy lured new explorers which made two of the world’s largest oil discoveries in decades. And ConocoPhillips which continues its string of discoveries in an area other companies gave up on years ago.
Forget that the industry invested more than $5 billion in Alaska at a time they were hemorrhaging dollars. As BP recently testified, “In 2016, we lost over a million dollars each day in Alaska.”
Forget the advice of ExxonMobil Tax Counsel Dan Seckers who said, “The need for Alaska to maintain a competitive fiscal regime that encourages critical, ongoing and long-term investment is by far one of the most important issues you face.”
Forget what companies like Hilcorp have meant for our state. This independent company almost single-handedly doubled oil production in Cook Inlet and turned a natural gas deficit into a surplus. Now they’ve found a formula to develop Liberty, one of the largest potential sources of new light oil production on the North Slope, with an estimated 80 million to 130 million barrels of recoverable oil.
Hilcorp has invested more than $1 billion in Alaska but they, too, want and need certainty. As they said, “If the Alaska Legislature makes yet another tax policy change this year, we will adjust our investment spending in Alaska accordingly.”
Mr. Brena, why do you continue to mislead Alaskans by implying that our production taxes are the only state tax on the oil industry? You ignore the fact that in addition to production taxes, the industry pays Alaska 12.5 percent of revenue in royalties, 9.4 percent of profits in state income taxes, and local property and federal income taxes.
You suggest that revenue be split one-third for Alaska, one-third for the producers and one-third for the federal government. You ignore the fact that oil companies would pay 100 percent of the expenses out of their one-third, after assuming 100 percent of the business risks.
Please quit trying to mislead us and quit trying to drive away the industries that determine our economic future.
And why do you ignore the Alaska Department of Revenue data that clearly shows that under the current tax policy, Alaska takes in more revenue than the producers at all oil price levels? Alaska receives substantial revenue, even when the companies are breaking even or losing money. Our current tax policy is already fair to Alaska, perhaps too fair.
Our state is built on oil and is fueled by oil. Why would we declare war?
How are we going to foster a growing economy for our kids and grandkids when you advocate for continually raising oil taxes and regulations, which result in less long -term capital being committed to oil production?
How are we going to ensure the industry keeps investing $3 billion to 4 billion per year to keep our legacy fields producing at sustainable levels?
How do we keep attracting high paying jobs that have been the key to our increased standard of living and strong economic growth for 40-plus years?
How will we fund state government when oil production dives because we cannot attract the capital investment we need because we continually change the tax burden?
The oil industry supports a third of our economy. We need to keep it healthy, and that Mr. Brena, is much more complex than your hollow mantra of “fair share.”
Rick Broyles is the secretary-treasurer of Teamsters Local 959 and a founding member of KEEP Alaska Competitive.