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.