Yet another reason to vote against Bonding Proposition A ...

Last week, we wrote a longer piece opposing Bonding Proposition A, which appears on next week's general election ballot. The proposition asks the following question:

“Shall the State of Alaska issue its general obligation bonds in the principal amount of not more than $453,499,200 for the purpose of paying the cost of state transportation projects?”

We suggested a "No" vote because, combined with the record level of capital spending already approved in this year's state budget, the additional spending proposed by the Bond Proposition is way beyond sustainable spending levels and just too much.

For those reading this column for the first time it is worth mentioning that, according to a recent national study, Alaska currently leads the nation in debt per capita.  At a state government debt level of $31,141 per resident, Alaska far outstrips even California, which for all of its faults, carries a state government debt load of only $16,386 per resident.

Bonding Proposition A proposes to add roughly another $625 per Alaskan on top of that, bringing the total debt total to over $31,750 per Alaskan.

While we took some flack for the position, we stood behind it and, in early voting last week, put our vote where our pen was.

Now, for those reading this piece that have not yet voted, this morning's papers bring another reason to vote No.

This morning, the Anchorage Daily News reported that

A federal agency says a new, still-unreleased study examining the troubled Port of Anchorage expansion project suggests that it shouldn't go forward as designed ....

The largest item in the Bond Proposition -- totaling $50 million, or over 10% of the bond issue -- is for the Port of Anchorage.  Voters cannot vote yes on some pieces and no on others; all of the spending is tied together.

When asked to comment on the report on the port, Anchorage Councilman Patrick Flynn said, "If that is in fact the case, that means there's a lot of rethinking to do about the project."

Flynn is right, there is a lot of rethinking to do about the project.  Even if everything else about the Bond Proposition was good -- which it is not -- this development alone would justify a No vote.  Until that rethinking is done and a clear way forward identified, no further spending -- especially spending that increases Alaska's already staggering per capita debt -- should be authorized.

Bonding Proposition A -- Too Much; Unsustainable; Wrong Time.  Vote No.

Read more here: http://www.adn.com/2012/10/29/2676171/feds-say-anchorage-port-study.html#storylink=cpy

Read more here: http://www.adn.com/2012/10/29/2676171/feds-say-anchorage-port-study.html#storylink=cpy

Fiscal Policy| Hell has frozen over ...

Hell froze over yesterday.  Former Wyoming Republican Senator Alan K. Simpson, as partisan as they have ever come, endorsed Democrat Bob Kerrey in the U.S. Senate race in Nebraska.  Why?  Fiscal Policy. 

According to Simpson, "[Kerrey] will place the national interest ahead of the howling special interests and be ready to make the hard, tough choices so needed today to rein in the destructive national debt and deficit ... and do it now - Before it’s too late.”

The equivalent Alaska race this year -- Lupe Marroquin, a Democrat, running against special interest backed Republican Bob Lynn.  A creature of union donations, in his last term Lynn voted for the two biggest state budgets in Alaska's history and last year, sponsored a bill that would have made Alaska's fiscal situation even worse, by returning to the same sort of defined benefit plan that already has put Alaska deep into debt.  (Largely as a result of the underfunded status of its current public pension system, Alaska currently leads the nation in per capita debt.)

As Ted Stevens once said, "To Hell with politics, do what is best for Alaska."  Alan Simpson took that philosophy to a national scale by endorsing Bob Kerrey; its time for Alaska to live up to the mantra on its own by voting Lupe Marroquin for State House.

Another Alaska Dispatch story ...

The Alaska Dispatch yesterday ran an article under the headline "Oil companies agree: TAPS operational at least another 32 years."  The story reported on a settlement reached by the TAPS owners and the state regarding the depreciation life to be used in calculating TAPS rates.  

Since it is World Series season, a baseball analogy comes to mind.  Having reported the facts, the story then sought to turn the "single" (the story) into a "double" (a thinly disguised editorial) by comparing the settlement to other statements about the life of TAPS.

Specifically, the story continued with the following:

... the settlement seems to conflict with arguments by Gov. Sean Parnell, who has said the trans-Alaska pipeline -- the 800-mile umbilical cord that symbolizes the state's lifeblood industry -- is running low on oil and could shut down in as soon as eight years under certain conditions.  

Parnell’s state website to support his tax proposal, “Stem the Decline -- Grow Alaska,” cites a U.S. Energy Department report that says the pipeline could stop moving oil sometime between 2020 and 2035, it was a report that was widely debunked by energy experts.

Of course, the story contains no cites or links to the supposed "debunking" of the EIA's report by "energy experts."  The fact is that the EIA's report focuses on the potential economic life of TAPS, and reaches its conclusion based on the possibility that, due to Alaska's tax rates and other factors, it may no longer be economic to continue operating TAPS within the time span covered by the EIA study.  The FERC settlement does not attempt to reach the same level of economic analysis.  It is just a settlement.

And, interestingly, the Dispatch story contains absolutely no mention of Judge Sharon Gleason's state court decision late last year, which the Dipatch previously has emphasized, and which found that TAPS potentially could remain in service until 2065.  If the settlement undermines the Governor's position, one would think that it undermines Judge Gleason's as well.

But most importantly, the Dispatch article fails to address the real issue facing the state today.  That issue is not the life of TAPS, it is the production rate going through it.  As Deputy DNR Commissioner Joe Balash said at the time of Judge Gleason's decision, even "a 300,000-barrel a day throughput scenario … would be a ‘disaster,’ because at that level, the state budget would be in a ‘dire deficit."

In short, even though TAPS might continue operating, the state's fiscal situation would be crumbling around it.  For a more thorough discussion (and cites to the above quotes), see "It's the production rate ...."

Whether the Dispatch's efforts to extend the single into a double were successful likely is in the eye of the beholder.  To me, however, an old Dizzy Dean observation applies -- the Dispatch was "out by a mile."

The Promise ... and the Reality ...

Yesterday I spent part of the morning reading my local candidate profiles as a way of preparing to vote -- I intend to take advantage of Alaska's partial move to electronic voting this year and had just completed my application. The website of one local candidate -- an incumbent R -- touts that he is a "fiscal conservative" and goes so far as to assert that "With [candidate's name] We Control State Spending."

That's the promise.

I must admit to starting off somewhat skeptical of the promise in any event.  Readers of these pages will know that the last two years the Alaska Legislature -- including the House, which clearly is controlled by R's claiming to be "fiscal conservatives" -- has passed the two largest budgets in Alaska history, both of which are well above sustainable levels and, indeed, are so large they now undermine the goal of oil tax reform.

Then, last evening, while catching up on the news from the day, I read an Alaska Dispatch story which crystallized the reality.  The story is about a new baseball field recently completed in Sitka.

“Frankly, it was a third-class baseball field,” said Sen. Bert Stedman of Sitka. “Some of us thought it was appalling.” 

So he stepped up the plate and hit a home run with the development of new Moller Field, the only all-turf field in Alaska. 

Stedman was the MVP of the multimillion-dollar project, identifying the need for a new turf field, driving home the point with other legislative leaders and securing the funding through the capital budget.

My local candidate voted for the capital budget.

• "Fiscal conservative" ... 
• "With [               ] We Control State Spending" ... 
• "[M]ultimillion-dollar baseball field," "the only all-turf field in Alaska," paid for by tax dollars through the capital budget. 

It is clear that the slogan has just become words.  That's the reality.

Required Reading: Roger Marks' "Unaware of unknowables: attempts at tax reform in Alaska"

A recent article in the Oil and Gas Finance Journal by former Department of Revenue oil economist, and now consultant, Roger Marks, should be required reading for those interested in Alaska oil and gas policy.

The article -- entitled "Unaware of unknowables: attempts at tax reform in Alaska" and available here -- discusses recent efforts to change Alaska's current oil tax structure and analyzes the reasoning that has been used thusfar to turn back those efforts.

One of the critical observations that Marks' makes is the role played by the Fiscal Note provided by the Department of Revenue in support of the Governor's proposed oil tax reform bill.  As Marks explains,

In looking at the fiscal (revenue) impact of reducing taxes, the Senate used the Alaska Department of Revenue (DOR) fiscal note .... The fiscal note used the same number of barrels under all tax plans. So a reduced tax could not but show a revenue decline.

[The consequence is that] the decline in revenues from the proposal in the fiscal note was depicted by many as a "giveaway," i.e., a tax cut that would result in no beneficial stimulus to production.

Talk about shooting yourself in the foot from the start.

The other observations made in Marks' piece are equally as significant.  The piece deserves a close reading and continued understanding.

It's the production rate ...

The Alaska Support Industry Alliance hosted its second Annual Fairbanks Update this past week; I made the opening presentation.  The slidedeck from my presentation is available here.  It is an update of a presentation I gave earlier this year both before the Anchorage chapter of the Alliance, and subsequently before the Senate Resources Committee.   The context of the presentation, and the events at the time to which it responded, are more fully explained in those posts. 

Alaska Political Insider| Conversations on a sustainable budget ...

Dorene Lorenz and Mark Colavecchio, hosts of ABC Alaska's talk show Alaska Political Insider, invited me to join them last week to discuss a recent commentary on these pages, "What is Alaska's Fiscal Plan ...."  The webcast is here; the segment begins at the 31:40 minute mark.

Mark and Dorene were excellent at asking questions to flesh out the issues, details and potential way forward and I thought the discussion went well.  If you want to see a good exchange on what is, why we should -- and ways of moving toward -- a "sustainable budget" for Alaska, this is an excellent place to start.

Senator Johnny Ellis was the guest for the first segment.  I appreciate his comments about my efforts at the end of his segment, before the one in which I appear begins.