Alaskanomics

Keep Alaska Competitive Editorial

As seen in various Alaska publications.

 

 

 

 

 

 

We thought the fight was over when voters rejected Ballot Measure 1, which sought to repeal SB 21, the More Alaska Production Act. But here we are, less than two years later, facing another battle over oil taxes.

Gov. Bill Walker has introduced legislation that dramatically changes the tax system by raising the minimum production tax by 25 percent for some — and imposing a new tax for others — and repealing anchor tax credits.

This latest tax hike comes at a time when oil prices are hovering at prices not seen since the crash in the 1980s. It comes at a time when it costs more to produce a barrel of North Slope oil than it’s worth, which has led to negative cash flows.

We are asking you to continue our fight for Alaska’s future. We need you to contact your legislators and tell them that our resource industries are the last place we should look for funding as they are all swimming in an ocean of red ink.

We have updated the KEEP website, added new background information and posted a new fact sheet that explains the situation. You will also find additional information on our Facebook page and the E-blasts we will be sending on a regular basis.

Our state is facing a massive fiscal crisis unseen in more than 30 years. We applaud the Governor and legislators who are willing to put Alaska’s long-term economic future ahead of short-term politics. There is nothing more important for our state than to solve our budget deficit and build a sustainable economic future for our state, but we can’t do it on the backs of an ailing industry that already pays most of Alaska’s bills.

Fortunately, we have the financial resources to not only survive — but prosper. What we need now is the courage to responsibly continue to drive down the cost of state government and utilize the permanent fund as intended, to fund state services. We may eventually need to pay taxes ourselves; however, the last place we should look for new revenue is to unfairly tax the very industries that drive our economic future. If we push them away, our economic future will be hopeless.

This is a time for Alaskans to support responsible fiscal policy.

Sincerely,
Marc Langland & Jim Jansen
Co-Chairs, KEEP Alaska Competitive

Alaska's Spending, Earnings on a Collision Course; oil production declines while budget grows

I have watched this year’s oil tax debate with dismay. Some of Alaska’s senators appear to be working harder to score political points than to craft wise public policy.  For more than a decade, two critical issues have threatened the future of Alaska’s economy – declining oil production and unrestrained growth in state spending. For more than a decade, Alaska’s business leaders have called on our elected officials to manage these issues through a comprehensive fiscal policy addressing both revenues and spending. Unfortunately, we continue to see the same short term thinking that limits Alaska’s economic growth and prosperity for all Alaskans.

Oil production has declined by more than a third since 2006. At the same time, unrestricted general fund spending, which is financed almost entirely with petroleum revenues, has more than doubled. These two lines are going in the wrong direction, and the longer the legislature waits to turn them around, the more difficult it will be to bridge the gap between state government’s insatiable appetite for money and funds available from fewer and fewer barrels of oil. 

I commend the governor for his vision of one million barrels per day down the pipeline – it’s a vision that attracts commitment, energizes people and galvanizes action. It’s the vision of a leader, and one that all Alaskans should embrace. Some of our legislators would rather poke holes in the vision than work to make it happen; claiming that production decline is inevitable and no state action can slow it down. Yet we have billions of barrels of oil still in the ground and skilled Alaskans who know how to produce it if the right fiscal policies are in place.

On the spending side, the governor’s current budget proposal reduces general fund spending by 2%, a very positive step in the right direction. However, some of the same senators who are dragging their feet on oil tax reform have announced that they plan significant increases in the state’s budget above the governor’s proposal.

Legislators who want to keep spending talk about oil tax reform as if the only outcome will be reductions in state government revenue. They seem to believe that all the other variables will remain the same – oil prices will stay high and production will continue at forecast levels despite an uncompetitive tax structure.  These short term thinkers don’t calculate the bounty – not only to the state treasury, but to Alaska’s citizens and small businesses – that will come with increased industry investment and increased oil production.

It’s very difficult for legislators to have long term vision – particularly in a year where 59 of 60 legislators must run for reelection. The Senate’s oil tax reform bill appears to be designed to tick the box so they can tell their constituents they fixed an uncompetitive oil tax. Unfortunately, their bill will not move the needle to drive meaningful investment to slow or stop declining production – much less meet the governor’s million barrel challenge.

Alaska’s economy is dependent on oil production and will be for many years to come. We are in the oil business, where time horizons are long, and investments made today may not pay off for many years, if at all. We need leaders who understand the business and those time horizons. We also need leaders who can plan for the future when it comes to state government spending. Instead of focusing on maximizing state government’s take in the short term, they must focus on Alaska’s people, and Alaska’s economy, in the long term.

Some of our legislators have discounted the views of Alaska’s business leaders when we have called for a competitive tax structure to attract private investment and a rational fiscal policy for public spending. If the philosophy of increased private investment and lower government spending does not resonate with them, perhaps the hopes and dreams of future generations of Alaskans will. If our leaders believe that there are plausible alternatives to our petroleum economy going forward, all Alaskans need to see their plans.

Editor's Note: This opinion piece appeared in the Sunday, April 8 Fairbanks Daily News-Miner.

Oil Production: What we can agree on

I believe that declining production is the biggest long-term risk to our economy and to state government revenues. Just slowing the rate of decline will require significant new investment by the oil industry.

Northrim took an active role in advocating for changes in the State’s tax policies in the last year, including helping to found the Make Alaska Competitive Coalition to educate more Alaskans about the critical need to increase oil production. The results of the most recent legislative session were mixed, with the Governor stepping up to propose changes to ACES and the House of Representatives passing a version of the Governor’s bill. The Senate, on the other hand, continued the divisive politics of the past, pitting Alaskans against our most important industry.

While other states must grapple with economic forces outside of their control, Alaska’s policymakers have the ability – and the responsibility – to take a long term view of Alaska’s revenues and expenses. We need to create better alignment between the State of Alaska and the oil industry.

We hope that over the next few months our leaders can return to a productive dialogue about this issue – starting with the points I believe we can all agree on:

• We need to increase oil production to support our private sector economy and state government. There is a real risk that in just a few years, production may decline to a point where the pipeline is not technically viable, and we will have no way to get our resources to market. We are closer to that point than we want to be.
• We can get increased oil production through new exploration, more development in older fields, and new technology to produce heavy oil, but all of these will require significant additional investment because the easy oil is gone and operating costs have increased significantly.
• The three major items under the State’s control that impact investment decisions are taxes, regulation, and access to resources. We need to make meaningful changes to all of these things.

If we can start from these points of agreement, we can move forward to the more difficult discussions, and decisions, that must be made soon to increase oil production. The Governor’s “million barrels per day” goal is a good one – let’s all work together as Alaskans to achieve it. 

Video Clip: Marc Langland Urges Business Leaders to Take Action

In Part 6 of Marc Langland’s speech to the NFIB, Marc calls for change in our state policies and urges business leaders to learn about the issues and get involved.

Video Clip: Marc Langland on ACES Progressivity

In Part 5 of Marc Langland’s speech to the NFIB, Marc compares ACES progressivity to the federal personal income tax brackets, and shows that ACES makes Alaska one of the least attractive places in the world for the oil industry to invest.

Video Clip: Marc Langland on ACES, a “Crippling” State Tax

In Part 4 of Marc Langland’s speech to the NFIB, Marc outlines a number of serious concerns with ACES, Alaska’s new petroleum tax scheme, which Marc believes is designed to harvest as much money as possible for state government in the short term without regard for the long term harm it does to the economy.

Video Clip: Marc Langland on Out of Control State Budgets

In Part 3 of Marc Langland’s speech to the NFIB, Marc notes that Alaska’s state budget increased 96% from FY 2005 to FY 2012, the ever-higher oil prices required to balance that budget, and the critical need for a fiscal plan for Alaska.

Video Clip: Marc Langland on State Government’s Reliance on a Single Source of Revenue

In Part 2 of Marc Langland’s speech to the NFIB, Marc talks about Alaska’s flawed government policies; first, the State’s reliance on petroleum revenue to fund 90% of the State’s general fund budget.

Video Clip: Marc Langland on Petroleum’s Impact on Alaska’s Economy

Northrim Bank Chairman and CEO Marc Langland spoke to the Alaska Chapter of the National Federation of Independent Business (NFIB) on January 11, 2011. In Part 1 of this video series, Marc talks about the importance of the petroleum industry to Alaska’s economy and the critical need to increase oil production.

Need for Leadership is Clear

Alaska’s current state budget is based on an average Alaska North Slope crude oil price of $77 per barrel.  So far this fiscal year, prices have stayed within a few dollars of that target. Production, however, is well below the 619,000 barrels per day (bpd) in the state’s forecast – with an average of 540,000 bpd in July and 459,000 bpd so far in August. These numbers highlight serious problems with our State government policies.

• The oil price required to balance the state’s budget gets higher each year because Alaska’s state budget has ballooned out of control and is not sustainable. The oil industry is carrying the primary burden of supporting state government, but government’s appetite for money is unlimited. When the oil industry can no longer feed that appetite, or is unwilling to continue investing in our state, state government will look to the Alaska’s businesses and its citizens to fill the gap.
• The administration and the legislature are not doing enough to stem the decline in oil production. Alaska’s state budget, and our economy, benefits not by high taxes on low production, but by the highest flow of oil through the pipeline. We have billions of dollars in assets lying dormant in the ground, yet our leaders continue to support policies that stifle investment in exploration and production. A barrel left in the ground gives us nothing – every barrel that is produced generates revenue for the State. ACES is a tax policy that is designed to harvest as much money as possible for state government in the short term without regard for the long term harm it does to the economy.
• The administration’s single-minded focus on the gasline, and AGIA, ignores reality. Oil is still the key to our economic future, and will be for many years to come. If and when a natural gas pipeline to the Lower 48 is built, natural gas revenues will not come close to replacing the declining revenues from oil.
• The administration’s adversarial relationship with the state’s largest industry is not productive. While this posturing may have populist appeal, it creates a negative investment climate that not only hurts the oil industry, but every small business and every citizen in Alaska that benefits from petroleum dollars circulating in the economy.

Alaska can’t afford the leadership vacuum that keeps these failing policies in place. We need to elect leaders who understand Alaska’s “Economics 101” and are willing to work with industry on a tax and regulation strategy that maximizes oil production.