Thursday, January 17, 2013

On the Tom Anderson Show This (Wednesday, Jan. 17) Afternoon

I will be joining Tom Anderson this afternoon on the Tom Anderson Show, from 4 - 5pm, to talk about Alaska oil, gas & fiscal policy.  Its been a busy couple of weeks since the start of the year --
-- the University of Alaska-Anchorage's Institute of Social and Economic Research released an updated analysis of Alaska's fiscal policy, warning that "[r]ight now, the state [of Alaska] is on a path it can’t sustain ... [with] a severe fiscal crunch soon after 2023,“
-- the Legislature's Legislative Finance Division published its analysis of the Governor's proposed FY 2014 budget, concluding that "the legislature now faces a FY13 deficit of $410 million," and that FY 2013 oil production will likely end "below FY12 levels by more than 8%," and
-- earlier this week, the Governor filed his proposed oil tax reform bill which, while projecting significantly increased revenues in later years, projects a first year loss in revenue in the range of $900 MM.
I will attempt to put these developments in perspective and talk about what it means for Alaska -- and Alaskans.

The Tom Anderson Show is on the air in Anchorage at Fox News Talk KOAN 95.5 FM/1020 AM, and available on the web here.  Call in with your questions and comments to 907 522-1020.

Tuesday, January 15, 2013

On the Casey Reynolds Show This (Tuesday, Jan. 15) Morning at 8:15 am

I will be on the Casey Reynolds Radio Show this morning (the first day of the legislative session) to talk about the report issued yesterday by Legislative Finance, The Fiscal Year 2014 Budget: Legislative Fiscal Analyst's Overview of the Governor's Request.

The show is available locally at KFQD - 750 AM, or on the internet here.

The report is not pretty.  The report reveals that the current fiscal year (FY2013) is shaping up to be a disaster.
"Despite leaving a projected FY13 general fund surplus of $490 million at the close of the 2012 session, the legislature now faces a FY13 deficit of $410 million. ... During FY13, oil production has been below FY12 levels by more than 8%. (For purposes of comparison, the year-to-year reductions in FY10, FY11 and FY12 were 7.2%, 6.4% and 4.1%, respectively.) Reduced production accounts for about $490 million in “lost” revenue, which erased the surplus legislators thought they had left for use during the FY14 budget cycle.
Contrary to years in which higher-than-projected prices offset lagging production, FY13 prices are running $2.85 per barrel lower than the $110.45 that was projected. The result is another $410 million in “lost” revenue. There will be no debating “spend versus save” during deliberation of the FY13 supplemental budget; there is likely to be a withdrawal from savings to fill the FY13 budget gap."
The prognosis for this coming year is not much better.  Counting the $500 million the Governor has proposed be made available for "legislative priorities," (i.e., Alaska's version of earmarks), the Governor's proposed budget is the second largest in Alaska's history.

The report reveals the proposed budget is built on the same house of cards that underpinned the now-discredited FY2013 budget.  Despite the stunning fall in production this past year, the Governor's proposed budget predicts that oil production will decline only by 2.7% from FY2013, and that oil prices will be about $1 per barrel more than in FY2013 ($108.67 in FY2013 and $109.61 in FY2014).

In comments yesterday following the release of the Legislative Finance report, the Director of the Governor's Office of Management and Budget, Karen Rehfeld, claimed that the Governor was submitting a "very, very lean budget" as a starting point for lawmakers.

Its not.  Instead, the proposed budget continues to lead down the path of what Legislative Finance said in the report "could produce multi-billion dollar deficits in the near future."

More coming this morning during my discussion with Casey ...

Read more here:

Friday, January 11, 2013

"Meet Alaska" Today

Today is the day for "Meet Alaska," the annual conference of the Alaska Support Industry Alliance, focused on the current and future health of Alaska's resource and support industries.  This year's meeting, at Anchorage's Dena'ina Center, is the 30th and will provide an opportunity for both reflection on the past and perspective on the future. 

As usual, the Alliance has arranged major speakers. Former New Jersey Governor and EPA Director Christine Todd Whitman gives the luncheon keynote speech.  Patrick J. McCormick III, Special Counsel, Senate Committee on Energy & Natural Resources will follow.  Interspersed through the day are updates by ConocoPhillips, BP and ExxonMobil.  Bruce Tangeman, Deputy Commissioner of the Alaska Department of Revenue provides an overview of the Administration's thoughts on oil tax reform.  The full agenda is available here.  

Following Tangeman this afternoon, Jonathan King, from Northern Economics, and I will take on the subject of sustainable budgets in a panel format.  It won't be pretty, but it is necessary.  I will post the slide deck I use following the speech.

Wednesday, January 9, 2013

On The Mike Pocaro Radio Show with Paul Jenkins This Afternoon (1.9.2013)

Paul Jenkins from The Anchorage Daily Planet is sitting in for Mike Pocaro this week on The Mike Pocaro Radio Show, and I am joining Paul for the 4:30 pm segment today (1.9.2013) to talk about Alaska oil and fiscal policy.  Tune it at 650 am, or log on here.

Monday, January 7, 2013

Alaska Oil Policy| The Governor Gets Closer, But Still Not There

The same editorial from the Governor on oil taxes appeared Sunday in the Fairbanks News Miner, Anchorage Daily News and the Juneau Empire, albeit under different titles.  The News Miner version was entitled "Consensus grows on oil fix," the ADN version, "Governor lays out principles of oil tax reform," and the Empire version, "Oil taxes must be balanced, encourage new production."

The Governor's editorial is intended to -- and largely does a credible job of -- laying out the case for oil tax reform in advance of the upcoming session.  

The piece does not contain any specifics of the proposed legislation, however, but instead focuses on "four principles:"  
First, tax reform must be fair to Alaskans. Second, it must encourage new production. Third, it must be simple, so that it restores balance to the system. Fourth, it must be durable for the long term.
The second, third and fourth are much like points that I raised in an earlier piece on these pages ("Five things to look for in oil tax reform ...,", Nov. 23, 2012).  The Governor should be commended for making the first point explicit (I treated it as a given).

The Governor, however, does leave out of his principles one that I find important -- indeed critical:  achieving alignment between state policies and the objective of developing the state's resources.

In my view, Alaska's recent oil tax and other policies are more symptoms of a fundamental, underlying problem than the problem itself.  I have written at length about what I think the underlying problem is both in the Alaska Business Monthly ("Alaska Oil Policy|  Out of Alignment," Nov. 2012) and on these pages ("Our Oil?  Then its time for our investment," Aug. 9, 2012).  In short, it is the fact that Alaska is not positioned to see for itself what the best opportunities and paths are for developing the state's oil resources.

As in medicine, treating one of the symptoms -- by reforming oil taxes -- will not solve the underlying problem.  It may make things seem better briefly on the surface, but the fundamental, underlying problem will continue.  If it does not address the underlying problem at the same time it addresses the symptoms, Alaska will continue to attempt to drive the state's oil industry from the backseat, largely blind to the consequences.

Without the ability to understand for itself what the best opportunities and paths are for developing the state's oil resources, the state will simply be headed for the next ditch.  While Alaska could tolerate that behavior while the original Prudhoe field produced hundreds of thousands of barrels daily, making the margin for error large, the tolerance for offtrack state policies is narrowing significantly as the opportunities become smaller and nimbleness becomes more valuable.

As I have outlined elsewhere on these pages, the solution is clear and well documented elsewhere in the world.  Alaska should begin to co-invest in the development of its own resources, in order to see more clearly the opportunities and paths that need to be followed.  I have tried to lay out something of a roadmap for that effort in my most recent column in Alaska Business Monthly ("Alaska Oil Policy|  Achieving Alignment," Jan. 2013).  Sooner than later, the Governor -- and the Legislature -- should add it to the principles which they are using to guide oil reform.

Read more here:

Thursday, January 3, 2013

Alaska Oil & Fiscal Policy| On the Dave Stieren Show Today (Jan. 3)

I will be on the Dave Stieren Talk Radio Show this afternoon at the 3:30 pm segment, to discuss Alaska oil & fiscal policy.  Oil tax reform, co-investment (see my article on co-investment in this month's Alaska Business Monthly) and the Governor's proposed budget will all be on the table.  Tune in at KFQD 750 AM or online at (click on "Listen Live").  Call in if you have a question.