The Anchorage Daily News ran an article yesterday on ConocoPhillips Alaska's quarterly earnings report. The headline was "ConocoPhillips earned $551 million in Alaska in 2Q." The headline, and story, was roughly the same also in the Alaska Dispatch ("Conoco turns $551 million profit in Alaska for second quarter") and the Juneau Empire ("ConocoPhillips produces strong Alaska profits"). The Fairbanks News-Miner and APRN, except for the Dillingham affiliate ("ConocoPhillips Alaska reports huge profits") do not appear yet to have a run a story on CP's quarterly report.
Here is what the headline should have read to accurately reflect the story ... "State earns $983 million, ConocoPhillips $551 million from CP Alaska production in 2nd Quarter." That leaves a different impression, doesn't it? What if it read, "State earns $983 million on no investment, ConocoPhillips $551 million on $100 billion investment from CP Alaska production in 2nd Quarter."
But sadly, all that the ADN (and, for that matter, the Dispatch) reported in their headlines was CP's share. That lack of balance is important -- and may explain much about why the general population thinks the oil companies are greedy.
Thursday, July 26, 2012
Thursday, July 19, 2012
"Understanding Alaska's Budget" May Explain Much More Than It Intends ...
The Alaska "House Special Committee on Fiscal Policy" yesterday released a new website focused on "Understanding Alaska's Budget." The website may explain much more than the authors intend about how Alaska has worked itself into its coming fiscal crisis -- and why recent legislatures have made the problem worse.
The press release announcing the website provides the first clue. The release quotes the Chair of the House Special Committee as follows:
“We’re in the cat-bird seat, financially, now, but with throughput this week under 400,000 barrels, and with a volatile oil price, we need to prepare people for the likelihood of lower revenue. That means also preparing to handle the challenges before we reach a crisis – that’s what this is meant for.”Alaska is not in "the cat-bird seat, financially, now." Alaska has a temporary cash surplus, the same way that you or I would if we treated as current disposable income the money that we otherwise need to put away for our children's college tuition or our retirement. Spending it now means that our children -- and us -- will be worse off in the future as our income winds down but our spending needs continue.
As the University of Alaska Anchorage's Institute of Social and Economic Research ("ISER") has made clear in two recent studies, once adjusted for the savings levels that are required to fund tomorrow's state spending requirements once oil winds down, Alaska is not currently in the "cat-bird" or any other type of comfortable seat. Instead, as I explain more fully in a recent piece (which relies on the ISER studies), Alaska is very much behind the curve and is spending away today at an alarming rate money that otherwise should be put away to handle future needs.
The fact that the "Special Committee on Fiscal Policy" thinks otherwise is not only disappointing -- it is downright alarming. Thinking you are in the "cat-bird" seats leads to short term decisions that have very bad long term consequences.
The second clue that the website provides about how Alaska has worked itself into this situation is even more telling. One of the things about the House website that holds promise is that it has a tab headed "Fiscal Gap," which attempts to explain Alaska's coming fiscal crisis and alternatives for dealing with it.
But then, precisely at the critical moment, the website -- and evidently the Committee, like the Legislature since 2006 -- goes soft and, just like the shortstop in the critical series, lets the hard liner go through its legs. On the "Fiscal Gap" page, the Committee has a header entitled "What can be done" that lists various alternatives for dealing with -- and closing -- the Fiscal Gap. The last two on the list are mirror images of the same step -- cutting spending (which actually is last on the list), and increasing savings. Here is what the website says about cutting spending (which, of course, is necessary in order to increase savings):
"Budget cuts will likely be needed to address a fiscal gap, so it will be important to look for ways to cut out waste, trim non-essential services and find other ways to do more with less. However there is a limit to what can be done without gutting essential services that Alaskans rely on, and deep cuts are likely to slow the economy.At the end of that paragraph there is a hypertext link that seeks to explain why "deeper cuts are likely to slow the economy." That explanation is where things really spin out of control. Here is the explanation given at the link (its long, but important; I have emphasized portions that provide the most significant insight):
Why not just cut the budget?
Alaska’s operating budget has been increasing at about 9% per year for the last decade and is expected to continue on this path. Even with tighter budget control, the budget will need to increase as population increases and to adjust for inflation just to maintain current levels of service. Increases in future obligations due to an aging population are a part of fiscal gap calculations and one reason why Alaska is not alone in facing future budget woes.
While deep cuts to state services could help the plug the fiscal gap, they would hurt the economy and Alaska families. State government not only provides needed services and infrastructure, it also plays a significant role in the state’s economy, directly employing around 7% of working Alaskans (24,000 people in 2011) and generating even more jobs by providing grants and contracts to the non-profit and private sectors and by being a major purchaser of goods and services from Alaska businesses. Without state funding some of those jobs will disappear.
Often when people talk about cutting government spending they mean cutting out excess bureaucracy and paring back non-essential services. It will be important to find efficiencies and look for ways to trim waste, but there is a limit to what can be cut without cutting into basic services that many Alaskans rely on. Administration only accounts for 4% of the state operating budget. While there may be efficiencies that can be found, administration cannot be gutted since it includes core services like IT and telecommunications services, accounting and payroll that state agencies need to operate.
In past years, the state has cut the capital budget when short-term deficits have occurred in years of low oil prices. Cutting the capital budget provides immediate savings but is a short-term fix that has its own negative impacts, such as higher future costs due to deferred maintenance on public buildings. Cuts to the capital budget also impact general contractors, engineers, and people working in the trades throughout Alaska who contract with the state to plan and build infrastructure projects. Maintaining public infrastructure, including roads, bridges, ferries and public health clinics is a core function of government that no one else is going to pay for if the state doesn’t do it.
Budget cuts impact people differently. Cuts to education impact children and families, while cuts to the capital budget impact the Alaskans in the construction industry, and cuts to health and human services impact people with fewer resources. In one way or another, state spending improves the quality of life for all Alaskan. We are used to receiving high levels of service from our government. In a recent statewide telephone survey, Alaskans from all political parties chose maintaining state services over balancing the budget for nearly all state services.I will write much, much more about the positions taken in this tab in future pieces, but for now let me briefly make three points.
First, the focus on the role of "government" as a source of jobs ("[w]ithout state funding some of those jobs will disappear") is something that one would ordinarily expect to hear from the far-left wing of the Democrat party, not a committee composed primarily of Alaska Republican House members. What happened to the usual -- and economically sound -- principle that government should leave the role of job creation -- and more importantly, picking economic winners and losers -- to the private sector, and limit taxes in order to permit the private sector to create those jobs and make those choices? This rhetoric sounds much more like that which justified the federal government's recent economic stimulus packages than anything normally associated with "fiscal conservatives."
Second, the size of the budget -- which the Committee now appears to argue cannot be cut without "hurt[ing] the economy and Alaska families" -- is a recent phenomenon. As I explain elsewhere:
Prior to FY 2008 – the first budget of the Palin/Parnell Administrations – state spending levels were relatively moderate. During FY 2004 – 2006, for example, General Fund spending was only (.pdf) $2.3 billion, $2.3 billion and $3.0 billion. From FY 2008 forward, however, state spending has exploded. The comparable numbers for FY 2008 – 2013 are as follows (.pdf): $4.25 billion, $5.0 billion, $4.23 billion, $5.1 billion, $6.72 billion and $7.6 billion. While any one year might be excused as an anomaly, the succession of six such years in a row – and the fact that the numbers are escalating – leads to serious concerns about where the state’s fiscal policy is headed.
In short, just six years after the fact, General Fund spending for this coming year alone (FY 2013) is budgeted to exceed the total amount spent in the three years from 2004 – 2006.Certainly it isn't the case that the legislatures prior to 2006 were "hurting the economy and Alaska families." Instead, what those legislatures were doing was balancing the needs of future Alaskans with those of current Alaskans. The legislatures since 2006 appear to have abandoned that long-term view and focused increasingly only on pandering to the needs of current Alaskans. The Legislature -- and the Committee -- should be concerned equally about both the current and future "economy and Alaska families." Their comments provide a valuable insight into the fact that they aren't.
Third, the last sentence from the website -- "Alaskans from all political parties chose maintaining state services over balancing the budget for nearly all state services" -- is just nonsense. Of course, current Alaskans choose to get as many government services as possible. Government services to current Alaskans appear to be a "free good" -- Alaskans don't pay for them in the form of income, sales or even significant property taxes; someone else pays the costs. As long as they don't have to pay for them, consumers always want "free goods," and the more of them they can get, the better.
Whether Alaskans want those free goods to continue isn't the right question to be asking. As the ISER studies make clear, the goods in fact aren't "free," but are being paid for by future Alaskans by depleting the savings that they will need to maintain spending once oil winds down.
Thus, the right question to ask is whether Alaskans want more -- and more -- of those goods and services now at the expense of them having access to the same level of goods and services in their retirements, and their children and grandchildren during their lives. That is the real question raised by the spending levels recent legislatures have approved.
It may be that current Alaskans planning on leaving the state in the next few years to spend their retirement elsewhere, and whose children have left the state and don't plan on returning, will continue to answer "yes." But are those the people about whom the Legislature should be concerned? I would suggest not.
If instead of asking current Alaskans whether they want to continue to receive free goods, the Committee asked whether current Alaskans want to do so at the expense of their -- and their children's -- future, my strong guess is that those who intend to remain in Alaska would provide a much different answer than what the Committee has assumed.
The simple fact is that future Alaskans can't afford the level of government services that current Alaskans are receiving. The failure of the Committee to realize that -- and recognize that deep cuts are required in the level of government services being provided to current Alaskans in order to maintain a moderate level of government services to future Alaskans -- does much to explain how Alaska has worked itself into its current position.
In its press release, the Special Committee congratulates itself on the website being "visually stunning." I don't disagree; its a bright, shinny new toy. On the substance, however, the Special Committee has muffed the fly ball. Instead of helping to explain to Alaskans that there is a need to become serious about retrenching the budget, the Special Committee instead tells them that Alaska is in the "cat-bird" seat currently, and doesn't have to -- indeed, shouldn't -- worry much about cutting the budget going forward.
Tuesday, July 17, 2012
Frustrating ...
Two news articles last week in the Anchorage Daily News caught my attention, and in combination, crystallize one of my significant frustrations with Alaska oil and fiscal policy.
The first, "State collects $170B in oil revenue over 35 years," reports on a recent study by the University of Alaska Anchorage's Institute for Social and Economic Research ("ISER"). That study, "TAPS at 35: Accounting for the Oil Revenues," concludes that "Oil-wealth spending—both revenues related to production and earnings from funds created by those revenues — [has] accounted for 90% ($159 billion) of total [Alaska] state spending since 1977. ... The share [of General Fund spending supplied by oil revenues] in 2012 was 92%—the highest it has ever been."
The second article, "Parnell administration seeks to hire oil taxes consultant," reports that "The Department of Revenue is soliciting proposals for a consultant to provide expert economic analysis. The consultant will be asked, among other things, to identify issues with the current oil and gas tax structure that might limit industry investment in the state and to make recommendations for improving the existing system."
Reading both articles together reminds that Alaska's economic present and future is tied inextricably to oil, but at the same time that Alaska also is dependent on Outside consultants for developing its oil policy. In my view, relying significantly on Outside consultants to set oil policy has been and continues to be a recipe for failure. The state's continued reliance on that source of advice is seriously frustrating.
In many ways Alaska is unique economically, politically and with respect to many of the factors that affect oil investment and development. It takes time (measured in years, not weeks or months) to learn the subtleties. It also takes total immersion in order fully to understand the significant nuances that affect Alaska oil investment and development; occasional trips to the state barely scratch the surface.
In my view, a significant contributor to Alaska's inability to develop a coherent oil policy over the last several years has been the lack of in-state expertise focused on understanding Alaska's place in the world and developing -- and explaining to its citizens -- a successful, long-range plan for continuing to attract oil investment and development based on local knowledge. Instead, Alaska has attempted to develop its approach to the industry based on a series of periodic recommendations made by a continuum of Outside consultants operating under short term contracts, some of whom have a significant understanding of the industry, but few of whom have developed anything more than a cursory understanding of Alaska.
Occasional -- and often inconsistent -- plans developed by Outsiders unfamiliar with Alaska have resulted in confused and often unrealistic proposals. Even when realistic, the proposals have lacked credibility because they are perceived to favor one side of the debate -- the side that hired the consultant -- or because the author is viewed as a short timer with an insufficient understanding of Alaska, or both.
Moreover, the authors of such recommendations have little incentive to develop more than a short term view. They have been hired by this Administration or that, or this Legislature or that, sometimes with implicit guidance about the recommendations they have been hired to develop and knowing, at the end of their contract, they will be on to the next project in another location and unburdened by living with the results of their proposals.
As a result, there has been little opportunity -- or reason -- for them to invest the time it takes to develop the long range, holistic view of Alaska necessary to develop real and sustainable solutions for the state.
Two years ago I encouraged Senator Lesil McGuire to introduce a bill to address this situation, by setting up a permanent, ongoing commission composed of a broad range of Alaskans designed to continually assess and make recommendations regarding Alaska's oil policy. Basically, I argued that if "its Alaska's oil," then Alaskans need to develop the expertise sufficient to guide its development.
She responded and the result was proposed Senate Concurrent Resolution No. 4.
That Resolution would have established an “Alaska Oil and Gas Competitiveness Review Task Force,” an ongoing, non-partisan body composed of members of the Legislature, Administration and public, with the power to hire staff and develop and monitor on an ongoing basis a long-term oil & gas policy for the state. The task force could have retained Outside experts, but their role would have been limited to educating the task force on world oil factors. The task force itself would have been charged with developing the recommendations.
The result would have been Alaskans developing the expertise and making the recommendations necessary to develop a long term oil & gas policy for Alaska. As I said at the time, "[i]f adopted — as it should be — the resolution has the potential to become one of the most significant pieces of long-term legislation passed this session."
By the end of the 2011 session, the resolution had evolved into Section 4 of the Draft Committee Substitute for S.B. 85, and in recognition of its intended long term life, the proposed body had been retitled as the "Oil and Gas Competitiveness Review Board." The purpose and intended operation of the body remained the same as it had in the earlier Resolution.
That is where the story ends, however. S.B. 85 did not make any further headway during the 2012 session and died, along with other unpassed legislation at the end of the session. Meanwhile during the 2012 session, the Legislature went on to pass the biggest General Fund budget in Alaska's history and put an even greater strain on developing a coherent oil policy.
As I have written elsewhere, "it appears that Alaska’s most recent generation of political leaders ... is leading Alaska off the fiscal cliff." Those leaders should look for ways to avoid that result; one of those ways is to develop a mechanism for creating -- and utilizing -- in-state expertise on oil policy. Continuing to rely on Outside consultants to develop the way forward for Alaska will continue to travel down a dead end road.
The first, "State collects $170B in oil revenue over 35 years," reports on a recent study by the University of Alaska Anchorage's Institute for Social and Economic Research ("ISER"). That study, "TAPS at 35: Accounting for the Oil Revenues," concludes that "Oil-wealth spending—both revenues related to production and earnings from funds created by those revenues — [has] accounted for 90% ($159 billion) of total [Alaska] state spending since 1977. ... The share [of General Fund spending supplied by oil revenues] in 2012 was 92%—the highest it has ever been."
The second article, "Parnell administration seeks to hire oil taxes consultant," reports that "The Department of Revenue is soliciting proposals for a consultant to provide expert economic analysis. The consultant will be asked, among other things, to identify issues with the current oil and gas tax structure that might limit industry investment in the state and to make recommendations for improving the existing system."
Reading both articles together reminds that Alaska's economic present and future is tied inextricably to oil, but at the same time that Alaska also is dependent on Outside consultants for developing its oil policy. In my view, relying significantly on Outside consultants to set oil policy has been and continues to be a recipe for failure. The state's continued reliance on that source of advice is seriously frustrating.
In many ways Alaska is unique economically, politically and with respect to many of the factors that affect oil investment and development. It takes time (measured in years, not weeks or months) to learn the subtleties. It also takes total immersion in order fully to understand the significant nuances that affect Alaska oil investment and development; occasional trips to the state barely scratch the surface.
In my view, a significant contributor to Alaska's inability to develop a coherent oil policy over the last several years has been the lack of in-state expertise focused on understanding Alaska's place in the world and developing -- and explaining to its citizens -- a successful, long-range plan for continuing to attract oil investment and development based on local knowledge. Instead, Alaska has attempted to develop its approach to the industry based on a series of periodic recommendations made by a continuum of Outside consultants operating under short term contracts, some of whom have a significant understanding of the industry, but few of whom have developed anything more than a cursory understanding of Alaska.
Occasional -- and often inconsistent -- plans developed by Outsiders unfamiliar with Alaska have resulted in confused and often unrealistic proposals. Even when realistic, the proposals have lacked credibility because they are perceived to favor one side of the debate -- the side that hired the consultant -- or because the author is viewed as a short timer with an insufficient understanding of Alaska, or both.
Moreover, the authors of such recommendations have little incentive to develop more than a short term view. They have been hired by this Administration or that, or this Legislature or that, sometimes with implicit guidance about the recommendations they have been hired to develop and knowing, at the end of their contract, they will be on to the next project in another location and unburdened by living with the results of their proposals.
As a result, there has been little opportunity -- or reason -- for them to invest the time it takes to develop the long range, holistic view of Alaska necessary to develop real and sustainable solutions for the state.
Two years ago I encouraged Senator Lesil McGuire to introduce a bill to address this situation, by setting up a permanent, ongoing commission composed of a broad range of Alaskans designed to continually assess and make recommendations regarding Alaska's oil policy. Basically, I argued that if "its Alaska's oil," then Alaskans need to develop the expertise sufficient to guide its development.
She responded and the result was proposed Senate Concurrent Resolution No. 4.
That Resolution would have established an “Alaska Oil and Gas Competitiveness Review Task Force,” an ongoing, non-partisan body composed of members of the Legislature, Administration and public, with the power to hire staff and develop and monitor on an ongoing basis a long-term oil & gas policy for the state. The task force could have retained Outside experts, but their role would have been limited to educating the task force on world oil factors. The task force itself would have been charged with developing the recommendations.
The result would have been Alaskans developing the expertise and making the recommendations necessary to develop a long term oil & gas policy for Alaska. As I said at the time, "[i]f adopted — as it should be — the resolution has the potential to become one of the most significant pieces of long-term legislation passed this session."
By the end of the 2011 session, the resolution had evolved into Section 4 of the Draft Committee Substitute for S.B. 85, and in recognition of its intended long term life, the proposed body had been retitled as the "Oil and Gas Competitiveness Review Board." The purpose and intended operation of the body remained the same as it had in the earlier Resolution.
That is where the story ends, however. S.B. 85 did not make any further headway during the 2012 session and died, along with other unpassed legislation at the end of the session. Meanwhile during the 2012 session, the Legislature went on to pass the biggest General Fund budget in Alaska's history and put an even greater strain on developing a coherent oil policy.
As I have written elsewhere, "it appears that Alaska’s most recent generation of political leaders ... is leading Alaska off the fiscal cliff." Those leaders should look for ways to avoid that result; one of those ways is to develop a mechanism for creating -- and utilizing -- in-state expertise on oil policy. Continuing to rely on Outside consultants to develop the way forward for Alaska will continue to travel down a dead end road.
Kim Skipper for House ...
Please join Mayor Dan Sullivan, Assemblyman Bill Starr, Scott Hawkins, Mary K. Hughes, Linda Leary, Henry Penny, Patrick Rumley and me this Thursday in supporting Kim Skipper for State House. With over 30 years of private sector accounting experience, and service as both a legislative aide and community volunteer, Kim can make an immediate impact in both understanding the numbers behind state government and working to bring down state spending. The event is from 5 - 7pm at the Petroleum Club, 3301 C Street.If you don't know Kim, please take this opportunity to come meet her; if you do, please take this opportunity to give her your support.
Tuesday, July 10, 2012
Defending Alaska's Interests ...
A story on the Alaska Business Monthly website reports on upcoming testimony by Rep. Charisse Millet and Alaska Oil & Gas Conservation Commissioner Cathy Foerster before the U.S. Senate Energy and Natural Resources Committee ("Millett to Testify to U.S. Senate Energy Committee on Neglected BLM North Slope Legacy Oil and Gas Wells"). They have been asked to testify this Thursday "on the lingering problem of the unplugged and environmentally harmful exploratory oil and gas wells drilled by the federal government within the National Petroleum Reserve – Alaska."
These are the wells that the federal government has drilled and left behind unplugged in NPRA. In some instances, the wells are leaking natural gas; in some others, small quantities of oil. Rep. Millett sponsored -- and the Alaska Legislature passed -- a resolution during the past legislative session, calling on the BLM to plug the wells properly and reclaim the lands as soon as possible.
It is rare for state legislators and regulators to be asked to testify before a full Congressional Committee in DC. It often happens during field hearings held in various parts of the country, but rare for a legislator or regulator to be asked to appear before the full committee in DC. The last legislator from Alaska may have been John Torgerson, when in the Senate.
Rep. Millett's and Commissioner Foerster's appearance indicates both the significance of the issue, and the respect they have gained for their pursuit of it.
These are the wells that the federal government has drilled and left behind unplugged in NPRA. In some instances, the wells are leaking natural gas; in some others, small quantities of oil. Rep. Millett sponsored -- and the Alaska Legislature passed -- a resolution during the past legislative session, calling on the BLM to plug the wells properly and reclaim the lands as soon as possible.
It is rare for state legislators and regulators to be asked to testify before a full Congressional Committee in DC. It often happens during field hearings held in various parts of the country, but rare for a legislator or regulator to be asked to appear before the full committee in DC. The last legislator from Alaska may have been John Torgerson, when in the Senate.
Rep. Millett's and Commissioner Foerster's appearance indicates both the significance of the issue, and the respect they have gained for their pursuit of it.
Sunday, July 8, 2012
Only half the issue ...
Richard Mauer's lead article in today's ADN ("Tea Party goes after Senate coalition") reports on efforts by the Tea Party and others to defeat incumbent Republican State Senators who, they believe, have contributed to the approaching Alaska fiscal crisis by joining the so-called Bipartisan Senate Coalition over the last two legislative sessions.
If that accurately reports on the intention of the various Tea Party groups, they are focusing on only half the problem. While the Senate has been problematic in achieving oil tax reform, the House also has been culpable on fiscal issues. As discussed elsewhere on these pages (see Alaska Fiscal Policy| Where We Have Gone Wrong), according to the University of Alaska's Institute of Social and Economic Research, the current "maximum sustainable" level of state spending from the General Fund -- the level that can be sustained indefinitely into the future even after oil runs out -- is roughly $5.35 Billion. Money spent above that level is essentially coming from future Alaskans, by reducing the amount of the "nest egg" on which future Alaskan's will be able to rely.
To put it another way, if the current generation of Alaskans choose to spend $6 Billion for a few years, then future Alaskans will have only $4 Billion available to them once oil production declines. The longer current Alaskans spend at rates above the current sustainable level, the less future Alaskans -- the current generation once it reaches retirement, our children and our grandchildren -- will have available to sustain them.
For those that think the Senate alone is creating this problem, its time to think again. For this fiscal year, the state's Operating Budget, which originates in the House, is $5.67 Billion, an amount which alone exceeds the "maximum sustainable" spending levels identified by ISER. Based on a continuation of the programs approved in recent budgets, the state Office of Management & Budget estimates in its "Baseline" Budget -- before "initiatives" -- that the Operating Budget will grow to $6 Billion in five years, and $6.7 Billion in ten.
And, its not like the House hasn't added to the size of the Capital Budget. The House was the source of the $2.5 million (reduced to $2 million by the Governor) included in the 2011 Capital Budget that is funding the "Great Alaska Shootout Ticket Spree." In a lesser reported story, the House also was the source of an additional $17 million appropriation to the UAA Sports Arena made in the final days of the 2011 session, that resulted in an overall appropriation of an additional $34 million to the Arena, rather than the $17 million initially approved by the Senate.
Clearly, there are "FINO's" (Fiscal conservatives In Name Only) in the Senate. The same problem, however, exists also in the House. The light should shine evenly on both.
If that accurately reports on the intention of the various Tea Party groups, they are focusing on only half the problem. While the Senate has been problematic in achieving oil tax reform, the House also has been culpable on fiscal issues. As discussed elsewhere on these pages (see Alaska Fiscal Policy| Where We Have Gone Wrong), according to the University of Alaska's Institute of Social and Economic Research, the current "maximum sustainable" level of state spending from the General Fund -- the level that can be sustained indefinitely into the future even after oil runs out -- is roughly $5.35 Billion. Money spent above that level is essentially coming from future Alaskans, by reducing the amount of the "nest egg" on which future Alaskan's will be able to rely.
To put it another way, if the current generation of Alaskans choose to spend $6 Billion for a few years, then future Alaskans will have only $4 Billion available to them once oil production declines. The longer current Alaskans spend at rates above the current sustainable level, the less future Alaskans -- the current generation once it reaches retirement, our children and our grandchildren -- will have available to sustain them.
For those that think the Senate alone is creating this problem, its time to think again. For this fiscal year, the state's Operating Budget, which originates in the House, is $5.67 Billion, an amount which alone exceeds the "maximum sustainable" spending levels identified by ISER. Based on a continuation of the programs approved in recent budgets, the state Office of Management & Budget estimates in its "Baseline" Budget -- before "initiatives" -- that the Operating Budget will grow to $6 Billion in five years, and $6.7 Billion in ten.
And, its not like the House hasn't added to the size of the Capital Budget. The House was the source of the $2.5 million (reduced to $2 million by the Governor) included in the 2011 Capital Budget that is funding the "Great Alaska Shootout Ticket Spree." In a lesser reported story, the House also was the source of an additional $17 million appropriation to the UAA Sports Arena made in the final days of the 2011 session, that resulted in an overall appropriation of an additional $34 million to the Arena, rather than the $17 million initially approved by the Senate.
Clearly, there are "FINO's" (Fiscal conservatives In Name Only) in the Senate. The same problem, however, exists also in the House. The light should shine evenly on both.
Friday, July 6, 2012
Want to learn more about heavy oil and Alaska oil tax policy ...
Alaska Oil| The July edition of the Alaska Business Monthly is in the stores now. It contains a strong oil & gas section this month, featuring an article on Repsol, a commentary on natural gas by Exxon CEO Rex Tillerson and two commentaries on North Slope oil, one by Mike Bradner on heavy oil and the second on Alaska oil tax policy ("Ships Passing in the Night") by ... me. The oil & gas section is not yet available online, so pick it up in the magazine rack the next time you are in Carrs, Barnes & Noble, etc.
Cathy Giessel for State Senate ...
The Problem with the Alaska Dispatch ...
In a piece published earlier this week (Alaska Dispatch: The risk of rattling the cages), the Alaska Dispatch's Editor Tony Hopfinger uses an event at a fundraiser to defend the Dispatch's recent oil reporting. In the piece, Hopfinger claims that he -- and the Dispatch -- are writing from the perspective of "Alaska Inc. ... the owner of hundreds of billions of dollars of petroleum and mineral resources."
Frankly, the article helps to explain much of what has gone wrong at the Alaska Dispatch.
In its early years, the Dispatch appeared to want to be a news source, approaching oil and other issues without bias or perspective. The result was impressive; under oil reporters Rena Delbridge and Patti Epler, the Dispatch became the go to source for information and insight into oil and political issues affecting the state.
I encouraged my firm to advertise on the Dispatch in order to support and associate with what I considered to be outstanding reporting. I described the Dispatch to friends and others as Alaska's version of Politico, a national publication that I believe is the best at reporting on politics and policy at the federal level. And I also wrote and polished pieces that I hoped were good enough for publication in what I considered one of the most important outlets for reasoned thought in Alaska.
Something happened along the way, however. With the departure of Patti Epler, the Dispatch ceased focusing on being a pure news source, at least on oil issues. Instead, it appeared to change roles and, as Hopfinger now describes it, sought to become a voice for "Alaska Inc." It no longer delivered the news in an unbundled package. Instead, the news it reported started coming mixed with editorial commentary in a way that made the reader (at least me) wonder about whether the actual news was being reported fully or fairly.
That approach might have been fine -- and even welcome -- if, as with The Economist, for example, the Dispatch brought a clear economic mind to the discussion. But it has not; instead, it has become much more like a mirror version of the old Alaska Standard, publishing, at least from its own writers, a muddled and more often than not, emotional, rather than closely reasoned view of things. Rather than Politico, the Dispatch now much more resembles the New Republic.
Hopfinger's view of the current discusion around oil taxes is a case in point.
In the article, Hopfinger argues that until the producers commit "to developing enough additional oil to make up for the billions of dollars of loss to our state treasury ... I and some on my staff will keep questioning Gov. Sean Parnell’s push to 'reform' state oil taxes."
Hopfinger does not explain in his extended piece, as would The Economist, why that best serves the interests of "Alaska Inc." Frankly, we can easily think of why that could not be the case. Encouraging continued investment, even if it resulted in reduced tax revenues to state government, could result in overall economic activity that better mirrored the current state of the industry in other parts of the US (e.g., North Dakota) and the world (e.g., Norway). While Alaska state government might not realize as much, overall Alaska GDP could be higher.
Moreover, reduced government take also could lead to the increased exploration and discovery of new resources on state lands. Alaska's current exploration tax credit policy, as embodied in ACES, is a dead end road. ACES significantly subsidizes exploration activities to be sure, but reverts to the higher rates when its time to develop anything the exploration efforts have identified.
The result is that only minor industry players have made extended use of the exploration provisions. Their hope, to be honest, is to find something that they then can sell to bigger players, in a manner similar to the hope that startup software companies have that they can sell any new ideas they develop to Google or Microsoft. That hasn't happened, however, again because the higher ACES rates would apply to any such development.
Reduced production taxes could entice more substantial players into making more substantial exploration investments, and more substantial players to invest in the development of any exploration plays the smaller companies might find.
Hopfginer's piece analyzes none of these alternatives. Instead, he -- and the Dispatch -- simply want something for nothing. They want industry to guarantee continuation of the same revenue stream to state government, regardless. In his view, the state shouldn't make any "concessions" until that guarantee is achieved. Its as if the revenue levels resulting from ACES were written on golden tablets of some sort and are, now, inalienable rights.
The available evidence suggests, however, that the result of the current ACES revenue levels will be the exact opposite from what Hopfinger claims to want. Industry investment will continue to stay at minimum levels as long as the tax levels remain the same. Production will contnue to decline, and Alaska "Inc." will continue to realize increasingly lower revenue levels.
But that argument is largely beside the point about what has gone wrong with the Dispatch. What has gone wrong is that the Dispatch has turned from what it once excelled at -- being a source for pure news -- to now requiring that its readers take a bundled dose of opinion along with the Dispatch's version of the news. The fact that the opinion is muddled only adds to the problem.
Frankly, the article helps to explain much of what has gone wrong at the Alaska Dispatch.
In its early years, the Dispatch appeared to want to be a news source, approaching oil and other issues without bias or perspective. The result was impressive; under oil reporters Rena Delbridge and Patti Epler, the Dispatch became the go to source for information and insight into oil and political issues affecting the state.
I encouraged my firm to advertise on the Dispatch in order to support and associate with what I considered to be outstanding reporting. I described the Dispatch to friends and others as Alaska's version of Politico, a national publication that I believe is the best at reporting on politics and policy at the federal level. And I also wrote and polished pieces that I hoped were good enough for publication in what I considered one of the most important outlets for reasoned thought in Alaska.
Something happened along the way, however. With the departure of Patti Epler, the Dispatch ceased focusing on being a pure news source, at least on oil issues. Instead, it appeared to change roles and, as Hopfinger now describes it, sought to become a voice for "Alaska Inc." It no longer delivered the news in an unbundled package. Instead, the news it reported started coming mixed with editorial commentary in a way that made the reader (at least me) wonder about whether the actual news was being reported fully or fairly.
That approach might have been fine -- and even welcome -- if, as with The Economist, for example, the Dispatch brought a clear economic mind to the discussion. But it has not; instead, it has become much more like a mirror version of the old Alaska Standard, publishing, at least from its own writers, a muddled and more often than not, emotional, rather than closely reasoned view of things. Rather than Politico, the Dispatch now much more resembles the New Republic.
Hopfinger's view of the current discusion around oil taxes is a case in point.
In the article, Hopfinger argues that until the producers commit "to developing enough additional oil to make up for the billions of dollars of loss to our state treasury ... I and some on my staff will keep questioning Gov. Sean Parnell’s push to 'reform' state oil taxes."
Hopfinger does not explain in his extended piece, as would The Economist, why that best serves the interests of "Alaska Inc." Frankly, we can easily think of why that could not be the case. Encouraging continued investment, even if it resulted in reduced tax revenues to state government, could result in overall economic activity that better mirrored the current state of the industry in other parts of the US (e.g., North Dakota) and the world (e.g., Norway). While Alaska state government might not realize as much, overall Alaska GDP could be higher.
Moreover, reduced government take also could lead to the increased exploration and discovery of new resources on state lands. Alaska's current exploration tax credit policy, as embodied in ACES, is a dead end road. ACES significantly subsidizes exploration activities to be sure, but reverts to the higher rates when its time to develop anything the exploration efforts have identified.
The result is that only minor industry players have made extended use of the exploration provisions. Their hope, to be honest, is to find something that they then can sell to bigger players, in a manner similar to the hope that startup software companies have that they can sell any new ideas they develop to Google or Microsoft. That hasn't happened, however, again because the higher ACES rates would apply to any such development.
Reduced production taxes could entice more substantial players into making more substantial exploration investments, and more substantial players to invest in the development of any exploration plays the smaller companies might find.
Hopfginer's piece analyzes none of these alternatives. Instead, he -- and the Dispatch -- simply want something for nothing. They want industry to guarantee continuation of the same revenue stream to state government, regardless. In his view, the state shouldn't make any "concessions" until that guarantee is achieved. Its as if the revenue levels resulting from ACES were written on golden tablets of some sort and are, now, inalienable rights.
The available evidence suggests, however, that the result of the current ACES revenue levels will be the exact opposite from what Hopfinger claims to want. Industry investment will continue to stay at minimum levels as long as the tax levels remain the same. Production will contnue to decline, and Alaska "Inc." will continue to realize increasingly lower revenue levels.
But that argument is largely beside the point about what has gone wrong with the Dispatch. What has gone wrong is that the Dispatch has turned from what it once excelled at -- being a source for pure news -- to now requiring that its readers take a bundled dose of opinion along with the Dispatch's version of the news. The fact that the opinion is muddled only adds to the problem.
Wednesday, July 4, 2012
"The Pledge," Legislative Ethics and Incumbent Legislators
An interesting item appeared in the most recent edition of The Advisor, the bi-monthly publication of the Alaska Legislative Ethics office. In an article on the second page, the office provides notice of a "New Advisory Opinion Request," specifically focused on the "signing of pre-election pledges by incumbent legislators." The subject apparently was first discussed at the June 14, 2012 meeting of the Legislature's Select Committee on Legislative Ethics. Coincidentally, my piece, "A Statute and a Pledge: A Potential Approach for Addressing Alaska’s Coming Fiscal Crisis," was published on June 17.
According to The Advisor, the question that the Committee has posed is:
Does the signing of a preelection pledge, by an incumbent legislator, in exchange for a campaign contribution or endorsement or a promise of a campaign contribution or endorsement, violate the provisions of the Legislative Ethics Act -- specifically AS 24.60.030(e)(1).That statute provides that "A legislator may not ... agree to ... take or withhold a legislative, administrative, or political action, including support or opposition to a bill ... as a result of a person's decision to provide or not provide a political contribution, donate or not donate to a cause favored by the legislator, or provide or not provide a thing of value."
The Committee states in the notice that it "anticpate[s] a meeting soon" to discuss the topic. We will watch the developments closely. It will be interesting if, in the name of ethics, the Committee protects legislators from signing pledges during their campaign that enable their constituents to know how the legislator will vote if elected.
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