Saturday, November 18, 2017

Some argue accelerating the payment of oil credits is more valuable to Alaskans than coming current on the PFD. They are wrong.

Earlier this year we wrote a couple of columns comparing the legislature's treatment of the PFD and oil credits.

The first focused on whether in a then-upcoming vote the legislature would treat both according to the current Alaska statutes. Today's vote will demonstrate whether Alaska legislators believe in the rule of law (July 2017).

The second was written after the vote was taken, in which the legislature upheld the rule of law as applied to oil credits, but  effectively voted to default on the state's statutory obligations to Alaska's citizens with respect to the PFD.  The Alaska Legislature tosses out the Rule of Law (July 2017).

A recent post now appears to argue for granting a priority for an even greater level of payments to oil companies over PFD payments based on some unsupported claims about the jobs impact.

The post is circled in the following string:




The string started with a tweet from the Alaska Journal of Commerce claiming that so-called "unpaid" tax credits had played a role in "thwarting" efforts by a couple of Cook Inlet oil companies this coming drilling season. 

As with other, previous hyperinflated claims by the Journal on the subject, that's an overstatement. Webster's defines "thwart" as follows:

a :to oppose successfully :defeat the hopes or aspirations of

b :to run counter to so as to effectively oppose or baffle :contravene
Neither applies in this case.  It is inaccurate to claim that the state "opposes" the efforts of the companies.

As those who have read the applicable statutes will know, all that the state has done with respect to the two companies is to decline accelerating payments of certain "tax credits" on a faster schedule than agreed between it and the companies. 
Finally, a balanced piece on cashable oil tax credits (Aug 2017).

To claim the state's failure to accelerate future payments into the present as now sought by the companies "thwarts" the companies' efforts is the same as claiming that homeowners "thwart" a mortgage company from making additional profits when the homeowners fail to pay their full 20-year mortgage obligation all at one time.

Both are obligations due over time. The failure to pay early doesn't "thwart" anything. It simply observes the parties' original agreement.


The PFD became involved in the latest exchange when we responded that, compared to the Journal's hyperinflated oil credit claims, cutting the PFD below statutory levels -- something the Walker Administration and the legislature actually did do earlier this year -- had "the largest adverse impact" on the overall economy of any of the so-called new revenue options and was, "by far," the worst alternative for Alaska families. 

Those statements are based on analyses published last year and earlier this by the University of Alaska - Anchorage's Institute of Social and Economic Research (ISER). Short-run Economic Impacts Of Alaska Fiscal Options (March 2016)Effect of Alaska Fiscal Options on Children and Families (February 2017).

The reply to our comment attempts to dismiss the ISER analyses, but without offering any competing, professional analysis in return.

That strikes us as sort of the Alaska version of "alternative facts." On the one hand we have detailed analyses by a preeminent, non-partisan set of professional economists who follow the Alaska economy closely, and on the other we have ... rank speculation by some with a vested interest in undermining the conclusions.


Just as it is hard to give any weight to most other claims of "alternative facts," so it is with these unsubstantiated claims.

Applying the factors contained in the ISER analysis, the annual PFD cuts of the last two years have resulted in a reduction of somewhere between 3,900 and 6,250 full time equivalent (FTE) Alaska jobs. Using a consistent evaluation approach (the same one used also to measure the impact of other new revenue options), ISER has concluded that level of job loss is more than would have occurred had the resulting "new revenues" (to government) been raised any other way.

Those who claim otherwise offer no -- none, nada, zip -- in the way of professional economic analysis to support their claim.

In the post one of those advocating for accelerated payments to the oil companies tries a new tack, comparing the effect on jobs between the failure to accelerate the payments and those generated by the PFD.


Certainly, any job loss is a problem in a recessionary economy. But i
t's hard to get exorcised about the effects when the state is following its own law.

Moreover, the post overstates the potential effect of accelerating the payments.

Of the 2100 jobs lost in the oil & gas sector cited in the post, likely few -- and perhaps very few -- are tied to the state's decision not to accelerate the statutory payment schedule. Most are likely tied to other reasons, such as the wind down of the Pt Thomson project and workforce efficiencies implemented as a result of the drop in oil prices.

But even if you assume that 15% of the overall job loss could have been avoided by accelerating the payments and even if you assume the full 10:1 instate multiplier on that level implied by a recent McDowell Group study, that still produces only 3000 or so total jobs, well short of the 3,900 to 6,250 arising from the PFD cut.

There are other reasons why maintaining the current PFD is important -- the positive effect on overall Alaska income, Alaska families and poverty levels to name three. 
It's still the economy, stupid (Sept. 2017).

But even when focused only on jobs the numbers remain compelling.

We certainly agree that the state should meet its financial obligations made during the oil credit program. But those obligations have been tied explicitly since the outset of the program to the level of funds the state receives during the same period from production taxes. The oil companies and their bankers knew and accepted those limitations on the state's payment obligations going in.

There is no justification for bailing those companies out of the effects of those limitations now, especially when at the same time the state is undeniably delinquent on its statutory obligations to its own citizens. 


As the jobs numbers alone show, putting contingent oil company claims ahead of fully matured statutory obligations to Alaska's citizens is a recipe for disaster, especially in a recession.