Well, it’s almost time to make the call on ballot measure 1 … whether or not to repeal the current oil tax regime in Alaska. Here’s my 12 cents worth. I always approach questions like this by asking one question: What am I trying to accomplish? It must be a good approach, because my dear friend, Harry T. Crawford, does the same thing, except in his Louisiana accent he asks, “What is it you want to have happen?” Same difference. So what are we trying to accomplish with an oil tax regime? I would describe it as “to realize the most benefit to as many Alaskans as possible for the longest time possible.” If we disagree about what we’re trying to accomplish we’re almost certainly going to choose different paths, but I think my description is simple and general enough to capture a lot of agreement. The fact that it’s general leaves a lot of wiggle room, though, just like the constitutional requirement to achieve the maximum benefit from our natural resources – what exactly does that mean? I can only explain what I think it means and why I think some people are getting it wrong. While my disagreement with many people on this topic is pretty elemental, I have no intention to demonize people on the other side of the argument. The ones I’ve talked to seem to have the strength of their convictions. They seem to legitimately have arrived at different economic conclusions than I have. They seem to want good things for Alaska. I believe their model is deeply flawed, but that doesn’t mean they are deeply flawed, or that they have some dark ulterior motives. We disagree. We’re all going to vote to settle the debate. I hope we can keep it civil and go back to being on the same Alaska team when the dust settles. PHILOSOPHY 101 The basic argument is really a philosophical one. One reason it’s been difficult for me to feel comfortable with oil producers’ argument is that … it’s been more than one argument. Each time someone poked holes in their logic, or their numbers, they simply switched to a different argument (fairly smoothly, I might say). Early on, when Gov. Murkowski tried to tie his 20/20 plan to a gasline contract the primary argument was about the need for fiscal certainty. They still talk about that, but they call it durability now – at least last time I checked. Though Murkowski’s gasline deal fell through, the PPT oil tax structure passed. It was complex and burdened with a flexible web of deductions and credits. The VERY FIRST quarter it was in place it became clear the pencil pushers at Big Oil were hacking deep into what Alaskans thought would be their share of the revenues. That first year was a nightmare – more so for the people indicted and charged for corruption, of course. When Palin resurrected the original (and banished) Murkowski oil and gas team and they, along with a senate bi-partisan coalition and a large Democratic House minority crafted ACES, the tax climate, and the industry’s argument changed. The progressive element of ACES really sent a shiver down the spines of industry types. It’s not all that complicated. It’s kind of like how income taxes are supposed to work. The more you make, the higher your tax rate. People who make lots and lots of money really hate that, for obvious reasons. They still make way more money than you, but way less than they would if they paid the same rate you do. If you think it’s fair for Warren Buffet to pay the same tax rate as you, that’s fine. Interestingly, he doesn’t think so. He thinks he should pay more. ACES progressive structure was extremely aggressive at very high oil prices, which was a flaw. A lot of people were surprised when oil actually reached some of those high prices, and Alaska was rolling in dough. It’s fair to point out that the producers were rolling in dough, too. More dough than any corporation in the history of the world. But it wasn’t enough. Now, when the state suddenly has large revenue surpluses; projects are getting built and legislators (mostly Republican ones) are bringing home the pork, but oil companies are also counting money with both fists, it’s hard to argue that it’s all about money. As Gov. Parnell began his effort to revise the tax system the argument shifted again. This time it was all about the production decline curve which, by the way, is pretty normal for similar fields. But the producers described production as it is a virtue in and of itself. “You don’t want a bigger slice of the pie,” one of them told me. “You want more pie!” To show us how our evil ACES ways were killing production further they pointed to oil booms in other places – like the Bakken in North Dakota and Montana. Thing is, if oil prices had remained below about $70/bbl the Bakken shale formation would not produce profitable oil. The same high prices that were causing heartburn in Alaska were directly responsible for the Bakken boom. Oil is funny that way. Anyway, the argument for SB 21 and now against ballot measure 1 is that production is a virtue; that it will create jobs and energize the economy, and that if Alaskans repeal SB 21 our economic climate will no longer be competitive, the investment dollars will dry up, jobs will go away, oil will be left in the ground and we’ll all be sorry we were ever born. Here’s why I think that’s a bad argument. 1). Production is not a virtue. If you were sitting on an unlimited supply of oil the “more pie” argument might hold water. If your raw materials are unlimited volume is your friend, and you’ve got all the time in the world. However, if your raw materials are finite … well you’ve heard of supply and demand right? To hear the oil companies tell it, if your kid had a lemonade stand she should sell it for 25 cents a glass, but 10 cents a glass if you drink two glasses at a time. She’ll go broke and run out of lemonade in a hurry that way … and so will we. Yes, we need to do something about the production decline, but we also must earn the legitimate value of our oil while doing that. The producers have suggested Alaska is in competition with other provinces for investment dollars, and in some ways that may actually be true … but it’s not relevant. The oil belongs to you and me until it has been extracted and shipped. If we devalue it to the point that we don’t benefit from it, pumping it out faster is the WORST thing we could do. 2). More oil/new oil. When Parnell’s HB 110 was still the vehicle for oil tax revision I sat down with a new senator for an interview. I asked, “Are you concerned about how to define the difference between “more” oil and “new” oil? He chuckled and picked up my digital recorder. He held it out as if he was suddenly interviewing me. “It seems Mr. Ameduri thinks there’s a difference between more oil and new oil. We’ll see if he can explain that, but I doubt he can.” Then he put the recorder down and said, “Frank. Frank. Frank. There IS no difference. That’s a myth people want to perpetuate to confuse the debate.” I smiled and said, “OK.” By the end of that session he was sitting in his committee asking oil company representatives, “But how do we know what is NEW oil, and what is just MORE oil coming from wells you were going to produce anyway?” Ah, well, that is a big deal after all, and with SB 21 it’s bigger than ever. The problem is SB 21, supposedly based on the goal of increasing production, gives HUGE rewards for so-called “new” oil. Unfortunately, the new oil definition is pretty broad and also subjective (which is always a big red flag in tax parlance). Pretty much any “more” oil is going to be “new” oil, and over time most of the oil flowing through TAPS will be defined as new oil – and the tax rate for new oil is way, way lower than the bas rate in SB 21. It’s something like the difference between 35 percent tax rate and 17 percent … big. As I said before, more oil is great, but not if we’re getting nothing for it; especially because we only get one crack at it, then it’s gone. While the producers are getting a sweet deal on our oil, you can bet your butt they’ll produce it fast. If that still sounds like a good deal to you, stand on your head. 3) Jobs, jobs, jobs. Somewhere along the line Americans everywhere began placing “jobs” at the top of their priorities lists. Problem is, we’ve turned it into quality rather than a tangible thing. Say, “jobs,” and the world is your oyster. I’m a huge fan of labor and of working class families. I don’t like talking about jobs. I like talking about workers … you know because workers are people. Jobs are things big corporations are stuck with, and things they want to pay as little as possible for. Really. So, when somebody says, “Sure you’re not going to get much money for your oil, but lots of people are going to get jobs!” I like to ask a few questions: How many people? How many of them already live in Alaska? What kind of jobs, and how long will they last? Will they be union jobs, because that matters. The problem right now is it’s too early to tell the answers to those kinds of questions. A lot of people were working on the slope under ACES. I hear a lot of people have gone to work since SB 21 passed, too. But it’s hard to tell exactly what that means, who those workers are, and how long the jobs will last. One thing I know for sure is they won’t last longer than the oil. That’s been the missing part of the argument all along, in my opinion. The wealth generated from Alaska’s oil has been used to do a lot of good things … and more than a few stupid things. It hasn’t been used as well as it could to build an economy that can survive the end of oil. Don’t get me wrong. I want people to have jobs. I want them to have good, high-paying jobs that last a lifetime. I also want their kids to have good job opportunities, maybe in a different field. With that in mind, the real value of our oil is a complicated equation, but the most important factor is revenue. It really is. Then, of course, what we do with that revenue is critical. But the oil companies aren’t in a competition to see who can produce the most oil. They’re in a competition to see who can make the most money. We might do well to pay attention to that and ensure we get enough from our very own oil. I’m voting YES on ballot measure 1. I’m doing it because I believe our oil has a finite and measurable value, and that we should realize as much of that potential value as possible before the resource taps out. If the producers say they’ll reduce investment and production will fall, so be it. The oil isn’t going anywhere … until it does. Let’s not give away our best shot at long-term prosperity.
Posted on: Mon, 18 Aug 2014 00:55:51 +0000
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