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Rehabilitating the Truth On Oil Taxes, Avoidable School Cuts, Record UA Foster Youth Enrollment


Would You Like Some Facts With Your Hyperbole, Sir?

It hasn’t surprised me to hear some of the claims on the oil tax debate this past year.  The implication is that those who didn’t support the Governor’s $2 billion giveaway (which allows companies to take our tax dollars and spend them outside Alaska if they wish) are happy with the status quo.  Horsepucky.  Hey, did you know there is no computer spell check for horsepucky?  Well, that’s not important.  Anyway, no one in the Legislature voted for the status quo.  NO ONE.

I wish talking heads with political agendas would just tell the truth.  Fake renditions of our work and votes in Juneau these past years – two years during which the Governor and his allies wouldn’t open their eyes to alternate, better ideas – serve the public poorly and, I think, reflect some hidden agendas of those who’d mislead you.

Here’s an undeniable truth.  The Governor’s oil tax reduction will cost the state roughly $20 billion in lost revenue over the next decade.  Will it bring new oil on line?  Well, first of all, new projects take four – ten years to come on line, so we will lose much of that money during that time.  That will cause teacher, construction, and other job loss ripples throughout the economy.

The real question is, will it bring in more revenue over the long term than we lose?  Very doubtfully.  Why?  Because oil companies invest based on geology.  They will invest where the best rocks are.  We have good rocks.  Some places like Libya and Iraq have blockbuster rocks. 

The real problem with the Governor’s bill?  It explicitly allows companies to take the roughly $2 billion in tax breaks, and spend that money OUTSIDE ALASKA.

That’s not how Exxon would write a bill if it was their oil.  A smart company, or a smart sovereign state, would require, in writing, that companies commit to do work they want as a condition for tax breaks.  I first offered this concept as an amendment to the Governor’s bill, which my Democratic colleagues voted for on the House floor.  When it didn’t gain enough votes, I wrote it as a stand-alone bill so we could continue pushing the debate on smarter oil tax reform. The work we want, in exchange for reasonable incentives – reasonable as in, incentives that won’t run through our savings.

Requiring Alaska Investment as a Condition for Tax Credits

We offered increased tax credits to reduce company tax bills IF they invested in new exploration; if they increased their expenditures on wells in existing or new fields, and if they built the processing facilities they need (and that are expensive).

Until 2006 we had a near 0% production tax – even lower than the Governor proposes.  Did that attract investment?  No.  At that time oil prices were skyrocketing from a norm of $18 per barrel to $60 per barrel.  With a near 0% tax, and a pretty good promise that any new field would pay a 0% production tax, production was declining at the same rate as it is today.  Simply telling companies they can have low taxes and spend their Alaska profits in other countries doesn’t work.

Today we have near record highs in investment, employment, and new exploration.  But we can do better.  And we need to “entice” our partners in the oil industry to invest more.  But that requires rules, not just an unrealistic hope, wing and a prayer.

The Senate took a different, but nice approach.  The bipartisan Senate majority proposed a 10 year tax reduction for new fields.  Like all the other good ideas floated during session, the Governor and his House GOP allies said no.  Thank you to Reps. Austerman and Seaton for not joining their party in the House, and voting against the Governor’s poorly crafted bill.

The Majors Admit They Won’t Engage in Needed
"New Exploration" Under the Governor's Bill:

As a side note, Conoco is proceeding with new development in the National Petroleum Reserve, under current law – something I wrote the Federal government to ask them to speed up with a permitting process that initially blocked the development.  And they are working on more development in their Kuparuk field.

But when asked about whether they would engage in new exploration of new fields - something we need over the long term, two of the three majors (Exxon and BP) said they wouldn't likely do any new exploration if the Governor's bill passed.  Conoco, tellingly, hasn't said.  And just so no one plays word games, the majors are and will continue to do new work in existing fields, whether under current law or a new law.  But they aren't doing new work in new untapped fields, and won't. 

Here is the Exxon and BP testimony in response to questions I asked them about whether the Governor's bill would lead them to explore the new, untapped fields we need to get into production.

Testimony to the House Finance Committee Spring 2011

Dale Pittman, Exxon Mobil, Alaska Production Manager

Gara: “…can you tell me how many exploration wells Exxon has drilled on the North Slope in the last 10 years?”
Pittman: “…I think the answer is zero.”
Gara: “…why should we believe that reducing taxes is going to cause you all of a sudden to do your first exploration well since 1992?”
Pittman: “…I can’t promise you it would lead to increased exploration.”

Claire Fitzpatrick, BP Exploration Alaska, CFO

Gara: “…BP doesn’t do what was referred to as traditional exploratory wells…?”
Fitzpatrick: “If your question was are we intending to do more exploration, it is not in my current plan.”

New School Year Starts With Harmful School Cuts: We Could Have Avoided Them

Education gives all children the chance to succeed, if it's a quality education.  A quality education requires quality teachers. 

I have consistently voted to require classroom funding to keep up with the cost of living, or inflation.  Increasing class sizes harms student achievement.  Unfortunately, classroom funding has fallen behind inflation.  The state has put lots of money into the retirement system debt, and into rural schools and special needs under a law we passed that sought to rectify underfunding in those areas.  Meanwhile, the per-student dollars we send under what's called the "base student allocation" - the money that goes to general classrooms - has fallen far behind inflation.  What's the result?

In Anchorage some of the key impacts of these cuts were:

  • The closure of Summer School this year, increasing the chances of failure by students we want to succeed;
  • The elimination of 120 teacher positions - increasing class sizes and threatening student achievement;
  • The reduction of needed counseling and career services; and
  • Cuts to support positions.

Good Foster Care News

As you may know, we’ve worked hard to add to the number of UA scholarships and job training funds that are available to foster youth, who go to college in 1/3 the numbers of other Americans.  This year, with that help, we have a record number of foster youth and alumni at the University of Alaska.  Thanks to Amanda Metivier who has helped our office on this effort, and to the Legislature for allowing these reforms to pass.

There will be a newsletter blackout 30 days before the General election.  I'll try to update you again before then.  As always, let us know if we can help.  Enjoy the fall - and hope it stops raining!

Best Regards,

Les Gara

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