ALASKANOMICS blog: May 19, 2016
'Money for Nothing and the Checks for Free ~ with apologies to Dire Straits'
As seen in the Alaska Journal of Commerce
By Andrew Jensen, AJOC Managing Editor
I want my, I want my, I want my PFD.
With apologies to Dire Straits, the demagogues in the Democrat ranks are back in their comfort zone after dismantling oil and gas tax credits they once championed under ACES by winning over enough squishes among a Republican-led Majority that now exists in name only.
Alaska has a new House majority full of Garas and Guttenbergs that are apparently capable of coming up with an endless series of convoluted matrices of tax levers creeping ever upward but who can’t or won’t read the daily production report from the Department of Revenue.
Most of the public obviously doesn’t know it — and Gov. Bill Walker, his commissioners and his fellow Democrats sure aren’t going to point it out — but North Slope production increased this fiscal year for the first time since 2002.
With the fiscal year nearing its end June 30, production will be in the range of 520,000 barrels per day compared to 501,500 barrels per day in 2015.
Not only is that a 4 percent increase in the midst of a historic price collapse over the last 18 months, but it is only 2 percent less than the 531,100 barrels per day produced in fiscal year 2014 when the average price was $107 per barrel instead of the current $42.
In the last three years of ACES while the price averaged $105 per barrel, production declined by 11 percent from 600,000 barrels per day to 531,600 barrels per day.
In the first three years of Senate Bill 21, production has declined 2 percent while the price has averaged $74 in the same period.
To hear Walker and Sen. Bill Wielechowski tell it, though, we didn’t get anything out of Senate Bill 21 that passed in 2013.
One thing we didn’t get was the 5 percent annual decline that took place in six years of ACES.
Had the 5 percent ACES decline continued, production would have averaged 455,000 barrels per day this year instead of the current 520,000. That’s an additional 64,500 barrels per day, or 23.5 million barrels for the year that all generate a 12.5 percent to 16.6 percent royalty.
In calendar year 2015, the state collected $715.3 million in royalty payments (plus 5.1 million barrels of royalty oil) and for fiscal year 2016 will collect some $1.1 billion in petroleum income from an industry that is losing billions.
It is patently dishonest for Democrats and Walker (but I repeat myself) to continually assert that the state is losing money from oil tax credits when the state is taking in more than a billion dollars this fiscal year.
Wielechowski was at it on Twitter claiming everyone in Alaska is on the hook for $1,000 apiece to fund the oil tax credits already earned by companies and owed by the state. Never mind that nearly every penny in unrestricted general fund revenue, in savings accounts, and the Permanent Fund was generated by the North Slope producers who can never pay enough as far as the Democrats and the new Republican members of their cohort are concerned.
It’s funny, but Wielechowski did not have a problem in fiscal year 2012 when the credits under ACES totaled $716 million and the funds appropriated for the Permanent Fund Dividend were $564 million.
In fiscal year 2013, ACES credits totaled $918 million and the PFD appropriation was $576 million. In two years that’s a half-billion more in credits than PFD payments.
Where were the Democrats then? They were defending the credits as evidence ACES was working while ignoring the fact production declined by 7 percent or more in three of the previous four fiscal years.
Walker won’t stop his mantra that the dividend checks are going to go away without adopting his plan to tap the Permanent Fund Earnings Reserve, but that’s exactly what’s going to happen to the PFD if the Legislature elects to fund it according to his proposal with royalty income from a resource destined to decline more rapidly under their assault against the industry they demand pays the state’s way.
The message the House and Walker just delivered to the oil and gas industry is that the state is going to raise taxes now and then even further as soon as prices reach a level that would allow the companies to begin recouping the billions they’ve lost in the last two years and the billions they’ve invested since SB 21 passed.
No sane company would attempt to increase production or investment in such an environment.
That won’t matter to the anti-oil Democrats in the Legislature or the Governor’s Mansion. They’ll just keep singing the same tune.
That ain’t working; that’s the way you do it.
You get the money for nothing and the checks for free.
I want my, I want my, I want my PFD.
Northrim Bank launched the Alaskanomics blog to provide news, analysis and commentary on Alaska’s economy. With contributions from economists, business leaders, policy makers and everyday Alaskans, Alaskanomics aims to engage readers in an ongoing conversation about our economy, now and in the future.