Here’s a comment left on this site from former Ketchikan Rep. Kyle Johansen about another reader’s comment on Brad Keithley’s legislative “hit list,” and about the current fiscal situation. Get background here and here. Read here for the reference to Anchorage Mayor Dan Sullivan’s comments about the Permanent Fund.
Aside from the efforts of Mr. Keithley, his supporters and his detractors, when the dust settles Alaska will still have to make a choice in the revenue streams needed to fund future state government operations.
The fact is our deficit spending is currently approaching one billion dollars per year. A spike in short term oil prices (similar to the one experienced post the aforementioned 1999 advisory vote, and subsequent others) will release the pressure and kick the can down the road once again. Eventually, we will have to stand tall before the reality.
The real options for policymakers include increased taxes on industry (SB 21 sealed the big one for a few years, fishermen already pay off the gross and good luck with any large tax-producing mining projects going forward and gas revenue will be a meek shadow of oil revenue, if it happens at all), implementation of personal income taxes (there are simply not enough local or seasonal people), implementation of personal property taxes (the Feds own most of it, tax-free) or a statewide sales tax (a main revenue source for municipalities) OR accessing the revenue stream created by the earnings of the Permanent Fund. If there are other options, please post them and start talking about them now (and I double dog dare anybody to come up with anything other than “Increased Oil Production” Let’s just try it, come on!).
I read on this site the comments of current Anchorage Mayor and Lt. Governor Candidate Sullivan regarding the earnings reserve. Mayor Dan speaks the truth. Real choices are coming and tough decisions must be made and the dividend will be part of the conversation.
One of the “Fathers” of the Dividend program was Representative Oral Freeman of Ketchikan. I have listened to and heard of the legislative intent straight from one of the policymakers mouth (as well as from one of his staffers at the time of the 1970’s debate, Representative Mike Doogan) of how these options would eventually collide and cause a very robust conversations on state spending vs. taxes vs. dividend checks. The tension, so wonderfully crafted, is not an accident.
I trust Chairman Freeman has a wry smile as he watches it all unfold, no doubt as it should.
Stockholder, luckily the Alaska voters are smarter about petroleum taxes than you may be, or at least better informed. SB21 is in fact bringing in more money, and the outlook is for that continue. After all, the United States Air Force is bombing oil fields yet prices are down. I honestly think that most Alaska voters follow world oil prices and that is why we defeated Ballot Measure 1.
No, when I heard it said to Sen. Fin. the people at the table were the 3 producers, the highly paid head of the state agency, and Dudley Doright of TC. And the amount needed, delivered to Japan, was $24. That compares directly with the $4 being paid in CA and other part of the US.
Remember, not only does the pipeline have to be built but plants on each end of the pipe and the ships. Gas people confusingly call all that a train.
Jon,
My point is that even after passing into the “feed” stage things can go wrong. For example if BP blows out another well in the Gulf of Mexico they won’t be able to play in the AKLNG project and they will be our “Apache” exiting the scene. And who has a balance sheet like BP? You mention the First Nations problem – ask how the AKLNG right of way near and through Denali is proceeding? Again Jon we have no financial commitment to build the AKLNG line, no firm contracts to purchase the gas and no known supply of gas to sell; yet, “We have a project”? That is not a “straw man” argument Jon and I don’t understand why you can’t see that. I understand Walker has the same challenges but you “have a project”.
And again Jon, if we “have a project” in AKLNG, why do you support funding the AGDC/ASAP pipe line project at the same time? Wasn’t that sold as a “failsafe” project? With your firm belief in the viability of AKLNG why would you still support this “failsafe”? I suppose jobs for Parnell’s friends, including the President of AGDC who holds political fundraisers for Parnell, are as good a reason as any.
Jon,
Your position on SB-21 is not accurate. ACES would bring us substantially more revenue. The problem is that Exxon, BP, and COP, inflated their costs substantially and improperly because Parnell is not conducting audits. If those audits were completed, the fraud would be exposed and you would not be making those claims.
For example, if oil were at $50 dollars per barrel, Big Oil would be losing money- if we were to accept the fraudulent representations made within returns filed under ACES- and not audited by Parnell.
Lynn, two things you should know about Kittimat – 1) BC hasn’t resolved its first nations issues and 2) apache doesn’t have the balance sheet of BP, CP, or XOM.
We have a project – AK LNG – that is being led by the best in the business. Nobody knows more about how to get this project built. But your snake oil salesman wants to kick the experts out of the room and build it himself. Now that is a fantasy!!!! Walker is delusional and you don’t seem to care.
Also, did you notice I said the AK LNG project is a not a done deal? I’m not sure why you can’t get basic facts right and why you attack straw men.
and Read the post above re the PF.
This is wrong – the $4 billion in revenue came from DOR and DNR reports not from AGDC. Moreover it was not based on $24 gas. It was based on much lower prices – $17.
Wrong. SB 21 is bringing in more revenue at today’s prices than aces would have. you only start to see more revenue under aces when oil is over $110 or so. This is just a basic fact.
But more importantly walker doesn’t not have a plan to balance the budget. If he does, show it to me.
GF:
Thanks for the reference…I neglected to specify revenue projections on a gas-line should be a third-party analysis with zero (further) state subsidy or investment (strictly for comparison) When you move one lever, three gears begin to turn. It all depends on the deal struck. Although, if you believe the numbers the salesman is giving you….;-)
Obvious,
If we are going to stop deficit spending, let alone replenish our cash reserves, we need to realize sufficent additonal revenues. Assuming a level revenue stream from taxes on oil provided by SB21, the only way we can increase our income to meet this revenue requirement is to either increase the price at current levels of production or increase the number of barrels we produce; however, even if we increase production yet the price falls, we may well realize substantially less revenue on that increased production. That fact is neither specious or disingenuous.
We are in a fiscal crisis and need to have a serious discussion about that. That is my point and I want to hear this discussed at the upcomming debates.
Kyle,
$4 billion per year GF is exactly the number I heard the gas agency (the one that pays the big bucks to the execs) tell Sen. Fin. earlier this year they expect from a gas line. That is predicated on a long-term contract with Japanese utilities at $24 in current dollars. The people running that agency can expect a 20% salary increase if they can figure out a way to prop up unrestricted GF revenue by borrowing today against that claimed $4 billion annual income.
The PF corpus does take a vote of the people but it’s that corpus that is responsible for the state credit ratings, and for municipal government credit ratings to varying degrees. There is an assumption that Alaskans have a low pain threshold and will vote to get into the corpus very early in the budget cutting era, and that assumption could be correct. And don’t think that the Alaska Supreme Court might not rule that the BSA cannot be cut as the Constitution makes lots of provisions for state-paid education, using that as an excuse to access the corpus without a vote or after a No vote. The NEA will be working on that but many interest groups have their sights on the corpus through the courts.
Just for fun I will argue that the CBR and SBR do have predictable revenue streams; they will soon be zero as we pay those cash accounts down for gas lines, gas plants, huge hydro projects, roads, Medicaid, BSA increases, etc. etc. It’s that spending people defend in saying we can’t save our way out of this and we can’t cut our way out of this.
I would bet you’re right that Mayor Sullivan may understand all this. But he may also cost Parnell the election!
Lynn the point that oil would have to go to 180 a barrel to maintain state spending is specious and disingenuous. It assumes a static rate of production, which, of course, SB 21 is designed to reverse.
Well, Teeter, before you have another profanity laced rant, settle down a bit. The State of Alaska is required by the Alaska Constitution to fund education- Read Article 7 of the Alaska Constitution. It is possible to properly fund education while at the same time reducing other expenditures. It is also possible to bring on new revenues. Bill Walker was the guy who made public the report that showed a large diameter gas line could bring Alaska hundreds of billions in NEW, diversified, revenue. Bill Walker was also opposed to the give-away of our oil, (which is not only unconstitutional, but budget busting).
The first thing Alaska needs to do is elect a new governor, Bill Walker. The current guy has been a disaster. He’s massively grown state spending while at the same time allowing capital budgets to be allocated for pork barrel expenditures. The capital budget dollars must be spent on infrastructure that will increase revenue.
If we’d elected Bill Walker four years ago we would be constructing a large diameter gas line that would be bringing Alaska new revenue, jobs, and value added industry.
We would not be wasting incredible sums on outlandish salaries for friends of Sean. A few examples of the AGDC boondoggle:
Pres- $576,434
VP- $346,840
Pipe Dir. $339,927
PR $285,525
Admin. Dir. $237,936
Gas Mkt. $405,406
An. Gas M. $301,962
We would not also be engaging in corrupt deals where the HIGH bidder is selected to do a job. For example, Sean wanted the mansion painted. His pal Curtis Thayer set up a deal where the State paid around $1.5 million for the paint job. $1.5 million to paint a house! And the high bid contractor did bad work. They sand- blasted lead based paint in violation of the law. The lead contamination was spread around the neighborhood. The EPA had to get involved.
We have a governor who is not even competent enough to get a house painted without turning the project into a boondoggle.
We badly need a new governor. Bill Walker is the guy who will do an outstanding job.
Amanda, Jon K is correct in his assertion that capital spending is what drives our deficit. While operating budget cuts are possible, you can’t cut yourself into a surplus. If people understand or lool seriously at the op budget, there is just not enoigh areas to cut and provide even the basic level of services necessary to run government. I am particularly annoyed with Walker and Mallott. On one hand they are going to increase education funding and other popular budget items and they alaso are going to reduce deficit spending. I call BULLSHIT. Walker-s message if you listen closely is that of a snake oil salesman, a liar or someone who lacks basic knowledge about government. The more I listen to his message, the more convinced I am that he is all three.
It is interesting that in all these debates in a state based primarily on natural resource extraction, tax revenues generated from commercial fisheries almost always gets to skate by in any such discussion.
Commercial fisheries harvest more than 98 percent of all fish and wildlife resources in Alaska – a public resource just like oil and gas. Kyle Johansen states that fishermen already pay off the gross…
Well the tax revenues from the gross does not even cover the cost of state management of commercial fisheries let alone put anything in the coffers for use in the general fund. Then add in the cost of state infrastructure for coastal communities such as ports, harbors, airports, hatcheries that are built and maintained primarily to service the private industry of commercial fisheries, it becomes a whole lot larger deficit. Yes – commercial fisheries provide jobs – it is the largest employer of seasonal, out of state, low income jobs.
Many people were clamoring prior to the SB 21 vote that it is our oil, it is our oil, it is our oil – well the same is true for the state’s fish resources – it is our fish, it is our fish, it is our fish. Often one hears claims that coastal communities depend up the jobs provided for by commercial fisheries – yet in many of those same communities we continue to see their gradual erosion as profits are squirreled away elsewhere by private industry, leaving our communities and the state to pick up the funding slack.
Kyle,
The protection of the fund is a valid point. The legislature cannot access the principal as easily as they can the reserves; however, “constitutional protection” of the Fund balance is not certain in the face of voter intent (as you point out) and/or intervention of the courts to pay for contractual or other legal obligations.
Jon,
Once again, there are not multiple factors causing this, there is only one; we spend more than we earn. You’re position that Governor Parnell and his ilk can continue to spend pending an immediate detailed and clear alternate is disingenuous at best. So if you won’t cut spending now, then take the “double dare” of Mr. Johansen.
Folks, as you debate please consider this MOST important distinction. The “principal” or “corpus” of the Permanent Fund is Constitutionally protected. We the people MUST vote yes on a statewide General Election authorizing the use of this money. The unaudited value as of Monday was 50+billion. This is not and will not be on the table without a statewide vote. Facts are stubborn!
“Raiding the Permanent Fund” is the battle cry that rings hollow with the slightest bit of education.
The earnings from investments can be (and is) accessed with a simple 21 vote majority. This is the earnings reserve account. This is the pot of money that funds your dividend. So, “Raiding the Earnings Reserve” would be accurate but boring……..
The Constitutional and Statutory budget reserves do not have a predictable revenue stream (except the Legislature is required to repay any expenditures from the Constitutional Budget Reserve). The CBR was made whole during the high tax-high oil price times in the late 2000’s.
And while I’m here, Garand Fellows second paragraph is something that very well could become a reality.
And Jon K, i’ve never seen general fund revenue projections on gas anywhere near 3-4 billion a year….of course I haven’t checked lately. A reference would be nice.
And Mayor Sullivan understands these moving parts completely….IMO
Lynn, again you are failing to address the factors that are driving the deficits. It isn’t capital spending. Anyway, what do you cut and how much will it save?
Jon
You considered the Permanent Fund balance to be a part of our savings that perhaps we should use to offset the current level of spending? I have life insurance so by following your logic I should spend beyond my means then kill myself to realize that final income.
Speaking of gas pipelines, I just learned this last summer Apache Oil bailed out of the Kitimat British Columbia gas line project, a project which was in “Feed”. (AKNLG is barely into Pre-feed). Kitimat is on hold while Chevron looks for another partner. As I understand the situation, the Kitimat project only involved these two partners, which is not nearly as complex as our “deal” which involves Alaska as a direct business partner with three other corporations.
While the situation in Canada might encourage you Jon by possibly eliminating our competitors for gas import, I see it as an omen into what can happen even after everything looks like a “go”. British Columbia apparently didn’t lose a dime, we won’t be able say that if AKLNG runs into this situation. Apache went elsewhere when this project became untenable to them; Alaska will have to stay right where it is and I guess just start spending the balance of the Permanent Fund.
If Scott Goldsmith’s estimate presented before Senate Finance is correct and we are indeed spending our cash reserves at the rate of seven million dollars per day, that rate of deficit spending will not spend one billion dollars per year, the deficit spending will consume one billion dollars every 143 days or over two billion per year.
Kyle Johansen did not address the two factors that today create and sustain this unaffordable level of spending. First is the unwritten rule that a legislator will be kicked out of the majority caucus (and rendered politically ineffective) if he or she does not sheepishly vote for whatever bloated budget the legislators creates. Second is the refusal of the Governor to line item veto budget items as necessary to control spending. This last year Sean Parnell did not veto one penny from yet another unsustainable budget.
Now we are promised more revenue by increased oil production and/or yet another gas line. These are only promises yet many are willing to bet the farm on these promises and “kick the can down the road” once again. The reality is that revenues from the extraction of any non-renewable resource will eventually end and we need to finally deal with that fact.
Today, Alaska crude is selling for around $100/bbl. Oil prices are in general decline. The “vote no on one” supporters point out we are realizing more state revenue now at lower oil prices than we would have under ACES.
Brad Keithley has pointed out the problem with unsustainable spending and this has apparently embarrassed the current Governor and therefore I understand a motive to discredit Mr. Keithley. Earlier this week, when Brad Keithley was attempting to get a word in edgewise during his on-air indictment for moral turpitude by Parnell supporters Dan Fagan et. al., Mr. Keithley mentioned that at current production levels we will have to realize a price of $180/bbl to offset this budget deficit. So the solution to more revenue from oil has to be an unrealistic increase in production or an almost doubling of selling price – neither of which is likely to happen before we consume our remaining cash reserves at this rate of spending.
As to generating sufficient revenue to pay for this level of spending, we can now ignore reality and “hope” for another oil or gas line project, increase taxes on oil and gas, increase taxes on other resources, increase taxes on ourselves, spend the body of the Permanent Fund, incur additional bonded indebtedness, or began to reduce/eliminate the individual PFD to use the Permanent fund earnings on state spending. Mayor Dan Sullivan, perhaps inadvertently, has broached this subject of diverting more or all Fund income for state spending and now, as Kyle Johansen suggests, it should be a topic of conversation among all elected officials and those running for public office. It is indeed time to have that “robust conversation”.
If Alaska does not invest in itself, it will surely be dependent on the Permanent Fund. A regional electric grid with (God forbid) an export line to Canada and the North American grid as an example of self investment would
1. Create many construction and then maintenance jobs (We all saw who the highest paid employees of Anchorage were, MTA lineman)
2. Attract private sector, lower 48 investment in Southeast to build clean, green, renewable electricity from wind, hydro, tidal, geothermal.
3. Lower the cost of living for those living in Southeast.
4. Attract industry with low cost power (especially if Southeast ever develops in rich mineral potential)
5. Process more of its local natural, renewable and non resources locally.
Good observations Kyle.
I have different numbers for current account arithmetic consideration. First, at today’s ANS prices ($94 – $95), the 2015 deficit will be about $2.4 billion. Second, adding the PF corpus and cash on hand requires subtracting the public pension unfunded liabilities and state GF debt to derive a useful and true number. The case can be made that most municipal debt should also be subtracted. Third, a NG pipeline if built would bring $3 billion to state unrestricted revenue only if the Far East was willing sign a long term contract to pay $24 today for what can be bought in CA or NY for $4, and many are skeptical about that. Indeed, there is absolutely no hint that anyone is willing to sign such a contract, and no Alaskan should be surprised. Send Joe to see the sights of Japan or to see the Pope, and in either case he will return with the same good tidings and best wishes – in the form of a memorandum if you like.
The good news for conservatives is that a state income tax would bring in no more than the rounding error to state revenue estimates. (The race is not worth the candle.) As a matter of fact it would this year bring in, net of collection costs, just about the same amount that will go directly to the IRS from the 2014 PFD. Six hundred new state employees would be required to collect an income tax. (So the question becomes; how much sense does it make to pay 600 bureaucrats to collect $400 million while at the same time paying 300 other bureaucrats to hand out $2 billion, $400 million of which is immediately paid to the IRS?) A state sales tax makes much more sense from the standpoints of economic input-output and required bureaucracies, but the road through the debate is long and hard.
First we will have substantial reductions in services, especially payments from state GF to political subdivisions. (I hope reporters ask any politician claiming he can balance the budget exactly what programs will be eliminated.) Courts will be major players. The sooner those reductions begin the softer will be the landing. At the moment it’s easier (but more costly by far) to talk about what we will do with all the money that will roll in from a gas line than it is to talk about what Alaska will do for a future economy. Yes, talking about finding a state economy in Bitcoin and internet cafes is silly, embarrassingly so, but at least we don’t have to pay anyone hundreds of millions of dollars a year to do it.
It won’t be pretty. People will try to run off with everything that isn’t nailed down; get mine and leave Alaska is an ethic and a creed it seems. Politicians will try to sell debt against everything that is nailed down, and in some creative ways that has already been going on for many years; for instance, Governor Knowles did that and that is what today we call the PERS and TRS unfunded liability (yes, Martha, debt grows when left unpaid).
I apologize for dragging on so long. I expect I am right with my arithmetic and modest predictions because state fiscal matters are pretty simple arithmetic and human nature seldom surprises me.
OT: Amanda any updates on the Palin brawl? Why is APD taking SO LONG to bring charges or a report? Maybe the Alaska State Troopers need to get involved? Bring in Trooper Wooten? At least the AST is not on the take of the palin grift.
Really its been almost TWENTY days and everyone is worried about the PFD and not a mafia gang of thugs roaming & punching people out? Especially considering they were the Former first family??? Thanks, Amanda!
We need to prepare for the weather that’s coming, not the weather we want.
We’ve had our spring and summer. It won’t be our last, we’re resilient, but Alaskans ought to be thinking about how we’re going to pack in for winter. An Alaska without oil is inevitable in five, ten or one hundred years and we should prepare for that reality.
We will eventually see a mass exodus of big oil jobs and big oil revenue. It will be better for us if it’s gradual but there are no guarantees we’ll be so lucky. Property values will crash and tumbleweeds will tumble. But someone in Portland or New York or Guam will see this as an opportunity and move north to build something new.
We’re all connected by the internet these days and many jobs can be worked remotely. They say small business is big business and I like that notion. The cafes and bookstores and laundromats are the spackle that hold an economy together. I’m not sure if we can replace an elephant with a thousand mice but maybe our anchor tenant will emerge as something we’ve nurtured rather than conjured. Maybe we can raise our own elephants instead of trying to poach them from other states.
I’d like to see us exploring new technologies like Bitcoin, a public ledger which has the potential to reshape global commerce. I’d like to see us economize our infrastructure rather than recklessly expand it. We should be taking a lead alternative energy research and implementation and encouraging more communities to grow their own food. The lettuce on my porch is delicious and I can’t eat it fast enough.
We shell out ridiculous amounts of money for risky projects and we provide incentives for industries like reality television that have little stake in our actual reality. We ship our poop to Oregon. We’re the result of colonization and, in many ways, still behaving like a colony.
My hope is that when the big legs start falling off our economic stool, we’ll figure out how to stand up on our own.
Good post. One point to correct: While AK LNG is very, very, very far from a sure thing, if it does happen it is projected to generate $3-4 billion per year in revenue.
The other point to consider is that the state’s savings, from the Permanent Fund, the constitutional budget reserve, statutory reserves, to others is somewhere around $70 Billion.