Posted Wednesday, April 26, 2017 - 12:34 pm
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]
Posted Wednesday, April 26, 2017 - 12:34 pm
The debate in Juneau is about what kind of state we want to live in. I want an Alaska we can all believe in, not one where too many of our neighbors are talking about leaving.
I think the Alaska House Majority Coalition and the GOP-led Senate, despite divergent views, can find common ground. Your views matter. I believe legislators will listen if you speak up. Here’s where we are today.
On one side, the GOP-led Senate is standing by major additional cuts to public education and our university.
These cuts also hit Alaska’s abused and neglected children, and seniors and Alaskans born with disabilities who battle every day for a life with dignity.
Alaska is already facing a dwindling ability to battle and prevent crime with inadequate troopers, prosecutors, and police. That’s not the Alaska I believe in.
Then there’s the economy, the recession, and the job losses we face. Our neighbors are talking about leaving Alaska. They see little commitment to the schools where they send their children, or to supporting the economy their businesses rely on.
According to the University of Alaska’s Institute of Social and Economic Research, cuts beyond the $3.4 billion in budget cuts since 2013 will kill more private and public sector jobs, extending a recession we should fix instead.
Studies show that each extra $100 million in budget cuts, by circulating less money to our businesses, the housing market, and the economy, will cost us another 1,000 – 1,500 jobs lost, mostly from the private sector.
That’s on top of the 6,500 jobs Alaska lost last year.
Let’s get one red herring off the table. We all believe in cutting waste. But since 2013 the Alaska Legislature has cut over 40 percent from the state’s budget.
We have the second smallest per capita budget in the past 42 years, when adjusted for inflation.
The Senate effectively conceded there’s not a ton more waste to cut to fill the $2.6 billion budget deficit, when they aimed the bulk of their proposed budget cuts at public schools and other Alaska priorities.
Many legislators of all parties privately admit we’ve cut too far.
This makes the Senate proposal more perplexing. Our Senate colleagues have passed $65 million in public education cuts, which will likely lead to the loss of 400 – 600 more teachers, counselors, and support staff statewide at a time when our schools have already been losing counselors and student support.
The Senate has proposed over $5 million in cuts to the Pioneer Homes, which they now concede was a mistake. They have proposed $39 million in cuts to the department that protects our seniors, disabled Alaskans, innocent children who’ve been victimized by child abuse and neglect, and many others living on the edge.
The Department of Health and Social Services, which has already been cut by roughly $200 million since 2015, cannot absorb those additional cuts, beyond the $30 million in careful efficiency cuts the governor and the Alaska House Majority Coalition found, without hurting our most vulnerable neighbors.
Our only state mental health institution is already so underfunded that people are shorted on treatment for mental illness and to prevent suicides. Thirty percent of released patients are readmitted within six months.
The Alaska House Majority Coalition found another $81 million in cuts this year, without harming these Alaskans.
There is room for consensus. The Senate says they need make these cuts because we have a $2.6 billion budget hole. But they only partially fill that hole, with a plan that cuts the PFD to $1,000.
We shouldn’t do only part of the job or put it on the backs of the poorest and most vulnerable Alaskans. We can find a fair resolution. The Alaska House Majority Coalition has said part of the plan must be a fair share for our oil and an end to unaffordable oil company subsidies.
We propose an increase from last year’s dividend to $1,250, instead of the Senate’s $1,000.
And we proposed a very modest school tax that seeks a contribution from those most able to pay, with the funds going to public education. If approved, the school tax would be the fourth smallest income tax in the nation.
Under that proposal, a joint filer, for example, would pay no income tax on their first $31,000 in income, and would only pay $25 on each $1,000 in income above that.
Rates would modestly rise on Alaskans with greater wealth and a greater ability to contribute.
I wish there were a magic way to end job losses. All legislators want a bright future for our residents. We need a balanced approach that fully solves our deficit.
We can’t kick the can down the road anymore.
Rep. Les Gara, D-Anchorage, is the vice chair of the House Finance Committee. You can find legislator e-mails by calling 269-0111.
Posted Wednesday, April 19, 2017 - 2:36 pm
Today I’d like to share with you the Senate’s vision for Alaska’s next steps forward into the 21st century. We now face a harsh economic reality where world energy sources are cheaper and more diverse than ever before.
Oil prices are low, and may stay that way.
Thanks to the statesmen of the 1970s, Alaska remains rich in a more universal commodity, cash. With over $60 billion, Alaska’s capital resources can earn more than all our oil wells combined. And I suspect that cash, unlike crude, won’t ever fall out of favor with the cultural elite.
On March 15, the Senate passed Senate Bill 26, a modified version of the Governor’s Permanent Fund restructuring plan. On April 12, the House of Representatives passed the bill with some changes to the details. Dividends under our version would be about $1,000 and, under the House version, about $1,250.
But on top of these variations, the House included completely new requirements. In order to transition our capital resources onto a modern sustainable Percent of Market Value foundation, they’re demanding that we in the Senate institute new taxes.
Apparently, it’s not enough to use a portion of dividends to keep the lights on. You, the working public, need to be hit where you will feel it even more: your paycheck.
There may come a day when maintaining effective government requires invasive taxation. War, fire, floods and earthquakes litter Alaska’s past and may strike again at any time.
Thankfully, that’s not today. By leveraging our reserve accounts wisely, Senate Bill 26, without any new taxes, will fund our government beyond the horizon of reasonable predictions. Here’s how:
First, our Senate Bill 26 covers about 88 percent of the present fiscal gap, intentionally leaving a small budget deficit of about 12 percent, easily covered by our reserves for a decade. This small deficit ensures that there is continued accountability on government to seek new efficiencies and streamline operations.
It is my position that if you are paying half your dividend to government, it had better be kept away from the all-you-can-eat buffet of public money.
Second, our version of Senate Bill 26 actually begins growing the Constitutional Budget Reserve after 2022, according to the nonpartisan Legislative Finance Division.
A growing CBR equals sustainable government: keeping schools open and roads cleared, indefinitely and without new taxes. The Alaska IRS can remain where it belongs: a progressive dream and a collective nightmare.
So, if the Senate’s plan leads to a replenished CBR and fully-funded government operations, why would we want to hire 65 new Alaska IRS bureaucrats to come after you?
I have no idea.
When progressives want to reduce smoking or super-sized sodas, what do they do? They raise taxes on them with the stated intention of stamping out consumption.
But when those same groups advocate for taxes on the income from jobs, they insist that employment will not go down and that jobs will not be lost. How are both possible?
We believe just as taxes on tobacco reduce smoking, taxes on labor must inevitable hurt workers, reduce job creation and trip up our stumbling economy.
With Alaska jobs under pressure, this is precisely the worst time to enact a needless tax on employment. Yet, in a press conference this Tuesday, the House Rules Chair stated, “If the Senate think we are going to get out of here (Juneau) with just Permanent Fund changes (no income tax) they have another thing coming.”
I expect the rhetoric will get worse before it gets better. You will read in the papers that the Senate is stonewalling, that we are obstructionist. The TV will say we eat puppies and squash ladybugs. The bureaucrats will grumble that our plan is “incomplete”, that our Senate Bill 26 wouldn’t actually work the way Legislative Finance says it does.
You will hear many things about us, and most of them won’t be pleasant.
But we aren’t working for popularity with the beautiful television people, the cynical press, or the bureaucratic institutions who will never be satiated by more public spending.
The members of the Alaska Senate majority are fighting for you, for your paycheck and for your job.
The only thing standing between you and an income tax is the Senate.
Sen. Pete Kelly is the president of the Alaska Senate and represents Fairbanks.
Posted Wednesday, April 19, 2017 - 2:26 pm
Alaskans have long recognized the importance of Cook Inlet producers and the energy and economic opportunities they create. With ongoing investments, the region has flourished and southcentral Alaska’s energy production has reached new heights.
Energy development in Alaska, and across the Cook Inlet is a big reason why the Alaska Support Industry Alliance exists today. Our members understand the necessity of safe and environmentally sensitive development and know the importance of accessibility to affordable Alaskan energy sources.
Natural gas production in Cook Inlet provides heat and electricity to over 80 percent of the Southcentral region. Many Alaskans, myself included, remember just a few years back when the threat of brownouts was a great concern for everyone in Anchorage.
Fortunately, through a coordinated effort of the legislature, the utilities and the producers the threat was eliminated. In contrast, southcentral Alaska now has a valuable supply of energy today, which can be attributed directly to the investments made in the last few years.
Production in Cook Inlet has risen dramatically since 2010, with 75 new oil and gas wells drilled. This increase has brought numerous benefits to the region and its people. Benefits such as affordable energy and regional infrastructure can all be directly attributed to producers entering and conducting exploration projects in Cook Inlet.
These projects have led to added investments such as refinery and port infrastructure that continue to add value to Alaska and its economy. Additionally, many Cook Inlet producers are smaller or independent operators who have weathered the oil price downturn when others had to stall their investments. The companies remaining in Cook Inlet deserve recognition for the jobs and revenue their responsible development continues to provide.
Sadly, environmental groups seek to mischaracterize these producers and downplay their investments in an attempt to emphasize their own agenda. Such is the case occurring right now with attacks on Hilcorp Alaska’s operations.
The company recently discovered and quickly reported two small unrelated leaks in their Cook Inlet operations. One has been assessed at less than three gallons of oil, an amount too small to allow for response equipment use. Activists groups, however, do not focus on the company’s quick response or their past contributions to Alaska. Instead, they turn the story into a rallying cry for why all offshore drilling should be banned. Opportunism at its worst.
Hilcorp Alaska has been the largest operator in Cook Inlet since they acquired Chevron’s platforms and associated infrastructure. Obviously it would be a major blow to our communities and the state if those investments were never made.
Communities in Alaska and the members of the Alliance rely on the investments energy companies bring to the state. From communications, to finance, to oilfield services, our members constantly receive new business from Cook Inlet operations. These operators also hire our members as contractors, providing vital jobs and tax dollars to the region.
The Alliance is proud of the new heights energy producers in Cook Inlet have reached in the last few decades. Discounting these achievements based on minor incidents is unproductive and damaging to the economic future of the state.
Outside activists should first speak with the companies who support these Cook Inlet producers on a daily basis to hear their testaments before issuing ridiculous press releases disparaging Alaska’s top industry. If they did so, they might realize the value of these producers who keep the lights on in Southcentral Alaska.
Rebecca Logan is the president of the Alaska Support Industry Alliance.
Posted Wednesday, April 19, 2017 - 1:08 pm
It is time to speak up to support the University of Alaska.
By 2025, 65 percent of the jobs in Alaska will require some form of postsecondary education. The last time this was measured, just 37 percent of Alaskans held a degree and only 50 percent had some form of higher education.
Alaska is facing large workforce gaps today and these will only grow if we can’t educate and train our own residents to compete in an economy that increasingly demands, and rewards, higher education.
The university has historically been a major economic driver and a primary source for developing Alaska’s workforce. So when UA President Jim Johnsen asked us to co-chair the Alaska Public Higher Education Roundtable, we quickly agreed.
We know that the university solves real world problems, produces an informed citizenry, and helps propel Alaska forward.
We want our young people to study, work and stay in Alaska. A strong state university helps ensure that happens, and positions our people to build innovative new enterprises that will serve our state well into the future.
Maintaining our global leadership in Arctic research also is essential. The university is the number one Arctic research institution in the world, but it needs our support to remain competitive.
There is a direct correlation between educational attainment and income. Education builds a stronger, more diversified economy and healthier, more engaged citizens who give back to the communities in which they live and work.
That’s great for families, businesses, and our state.
However, our university faces a series of challenges: Alaska’s low high school graduation and college going rates, the university’s land grant deficit (only Delaware received less than we did), recent state budget cuts, and a rapidly changing economy, which will demand a more highly educated workforce.
The University of Alaska is facing these issues head on, but it is being hit by year-over-year budget reductions. Over the last three years the university’s budget has been cut by $52 million dollars.
As a result, there are 927 fewer people working at UA today than in 2015, 50 academic programs have been suspended or discontinued, fewer classes are offered, less research is being done, and fewer Alaskans are being educated.
Through our engagement with the university, we know that it is proactively pursuing several worthwhile strategies to diversify and increase its revenues, reduce its costs, and gradually moderate its reliance on state funding. These include:
• Increasing enrollment through aggressive recruitment and online programs
• Building stronger partnerships with Alaska’s school districts
• Growing research capacity and investments
• Eliminating unnecessary redundant programs and services
• Cutting administrative overhead
• Increasing public/private partnerships
• Increasing philanthropic support
• Addressing its land grant deficit
• Looking out 10 years to make sure Alaska’s long term education needs are met
However, the university still relies on the state for an important part of its funding. The legislature should give the university ample time and the funding needed to continue the progress it is making to pursue these worthwhile strategies.
The Alaska Public Higher Education Roundtable agrees that it takes a great university to build a great state. The University of Alaska changes lives and creates economic opportunity at a time when our state desperately needs it. Let’s show our support.
Aaron Schutt and Ed Rasmuson are the co-chairs of the Alaska Public Higher Education Roundtable.
Posted Wednesday, April 19, 2017 - 1:08 pm
I am disappointed that the Walker Administration has given in to the fear tactics and misinformation of the Department of Homeland Security and the Transportation Security Administration by putting forth legislation to make Alaska implement the Federal REAL ID Act and pay for it ourselves. It is my duty to set the record straight and make sure people have the facts they need to defend their rights.
The Department of Administration has been reporting that if we do not agree to comply with REAL ID we will not be allowed to use our state IDs to get through TSA checkpoints or to get on base. In reality there is no existing or proposed federal law or regulation requiring ID to travel at all.
A recent reply to a four-year-old Freedom of Information Act request to the DHS has shown that 77,000 people per year fly without ID, and only 2 percent who try are ever turned away. Not only that, it is the Pentagon and individual base commanders who decide what ID is required to get on base.
The Department of Homeland Security does not have authority over the Pentagon. That is why the DHS instead uses fear tactics and misinformation to try and force REAL ID on the states.
As background, the REAL ID Act was never debated by Congress, but rather was hidden in a 2005 emergency appropriations bill. It is barely six pages long, but it opens the door for the Department of Homeland Security, the TSA, and outside private organizations to control the identification cards we need to exercise our inalienable rights of work, travel, gun ownership, and privacy. But only if we give them that power by putting REAL ID into our state laws.
Alaskans are being told that under the governor’s bill, they will be allowed to choose between a REAL ID and a regular ID, but this is inherently false. Under the REAL ID Act, noncompliant IDs must marked “NOT FOR OFFICIAL PURPOSES.”
The old ID will be gone forever, and if you can’t come up with the required paperwork to get a REAL ID, you will be stuck with a bogus ID.
Regardless of which ID you get, your personal data will be entered into a private nationwide database where you will no longer be able to obtain any information about it or have any control over it.
The REAL ID Act requires each state to “provide electronic access to all other States to information contained in the motor vehicle database of the State.” For years it was impossible for states to comply with this requirement until a private organization, the American Association of Automobile Administrators, or AAMVA, and a private company in Midlothian, Va., named Clerus Solutions created a private national database called SPEXS to satisfy this mandate.
Since then DHS has left it to AAMVA to set the standards for the national database.
Surprise, surprise. Clerus Solutions is made up of former AAMVA executives. The founder and chairman of the Board of Clerus Solutions actually helped Congress write the REAL ID Act. He and the president and CEO, the senior vice president, and the senior business analyst all were top executives at AAMVA before forming Clerus Solutions and the SPEXS database.
In January of 2017, without permission from the Legislature, the Department of Administration uploaded almost every Alaskan’s personal ID data including much of our Social Security information to the SPEXS Database.
The Social Security Administration expressly warns against using social security information in this manner, and the REAL ID Act does not specifically require that such information be shared, but the Administration has defended the practice because it is an AAMVA requirement.
AAMVA and its subcontractors are not subject to the Freedom of Information Act or any other state or federal public information laws. There is no way to correct mistakes or obtain information about the data they have compiled on you. In addition, they can change the data requirements and the states must give it to them or lose REAL ID compliance.
Neither DHS nor the TSA will appear before any of our committees or truthfully answer any of our questions about the REAL ID Act. It is almost pointless to try because they can expand or change the requirements of the REAL ID Act at any time by publishing them to the Federal Register, which they have done numerous times.
Rest assured, I would not be standing up to DHS and the TSA like this if we did not have a much better alternative available to us. For $55 anyone who can get a REAL ID can get a passport card. 65 percent of Alaskans already have a passport or passport card.
A passport card is actually better than a REAL ID because it will get you access to everywhere a REAL ID will and more. A passport card can be obtained through a post office and only requires two pieces of documentation, whereas a REAL ID requires four pieces of documentation and a personal visit to a DMV, which many communities don’t even have, and a passport card is protected by federal public records and privacy laws.
If you or someone you love has ever been wronged by the TSA, you know it is a bad idea to hand over control of our identity cards to the DHS and private organizations. Please join me in calling upon Gov. Walker to withdraw his legislation and instead sue the federal government to defend our state and federal constitutional rights to travel freely, to have privacy, and to manage our own affairs.
Rep. Chris Tuck is the Majority Leader in the Alaska House of Representatives.
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.