December 13, 2013 (Issue 9)
A $2 Billion Goof
• "$2 billion revenue shortfall sparks oil tax debate" — Anchorage Daily News
• "Oil Tax Revenue Expected To Decline By $2 Billion" — Alaska Public Radio
• "Alaska Revenue Forecast Shows Unanticipated Multibillion-Dollar Deficit" — Alaska Dispatch
Translation: We, the State of Alaska, have $2 billion less in oil revenue this coming year than we thought.
A Port Alexander taxi ride! A snapshot of life in a boardwalk community. The taxi driver is Ryan Martin, whose family (including his super cute son, pictured) was wonderfully generous to host me for the four-day stay in PA.
So, how in the world did that happen?
Well, partly because we just passed an epic tax cut for oil companies (SB 21). It'd be convenient if simplistic to stop there, and while SB 21 is a big part of the story, it's by no means the whole story.
For the comprehensive and complicated explanation we'll have to get a little wonky.
We (Alaska) tax the profit oil companies make on our oil. The more profit they make on our oil, the more taxes we collect; and if the oil companies aren't making crazy profits on our oil, they pay way less taxes.
This system is called a profits-based tax. Both the owner of the resource (Alaska) and the producers of the resource (BP, Conoco, Exxon) share in the pain and gain.
Over the last seven years — ever since Alaska adopted a profits-based tax in 2006 — oil companies have claimed that Alaska oil is increasingly more expensive to produce and therefore increasingly less profitable. Incidentally, this means BP, Conoco, and Exxon pay billions less in taxes to Alaska.
Circling back to this unexpected $2 billion shortfall: Governor Parnell has explained away the shortfall by emphasizing a couple of smaller contributing factors, including less oil in the pipeline (3% decrease) and lower oil prices (5% decrease).
He's not wrong! Both decreases are real, but saying the 3% and the 5% decreases add up to $2 billion is the kind of math that would earn an F from my high school teacher Mr. Langbauer. (I would know.)
The major reason for the $2 billion shortfall is that oil companies are saying that their expenses have skyrocketed — meaning they're making less profit and owe less taxes to Alaska. (Surprise!)
In 2007, the first year of our profits-based tax, oil companies said their expenses averaged $15/barrel. Everything above $15/barrel was profit and therefore taxable. (For context, Alaska oil sells at $108/barrel.)
But expense numbers have curiously and rapidly climbed: to $20/barrel in 2009, to $26/barrel in 2011. This year, oil companies say their expenses have soared to $41/barrel.
Why So Skeptical?
I'm skeptical because this has already happened before. Twice!
1980s: The way Alaska oil taxes work, the more the transportation of oil costs, the less taxes oil companies pay. Throughout the 1980s, oil companies artificially inflated the transportation costs of Alaska oil.
After making five passes, Rob Murray safely landed the Beaver in 30-knot winds at Port Alexander. Flying with good pilots is cheaper than taking out a life insurance policy; Rob and Harris Air exemplify safe flying, for which I am continually grateful.
The transportation figures continued to be manipulated by oil companies and the State of Alaska finally took the oil companies to court — and won billions in back taxes.
2012: You know how you pay property tax if you own a home? Now imagine your home is worth billions of dollars and creates tens of billions in annual revenue and is called the Trans-Alaska Pipeline ("TAPS"). Whether a modest house or one of the largest single pieces of infrastructure constructed in human history, every year you pay a few thousandths of its value in property tax.
Oil company own TAPS and pay property tax to municipalities (Valdez, Fairbanks, North Slope Borough) through which TAPS crosses. Just like property taxes with your house, the less TAPS is appraised, the less property taxes oil companies pay.
Oil companies swore up and down that TAPS was worth $850 million. Unamused municipalities said TAPS was $12 billion (more in line with previous appraisals). The oil companies and municipalities went to court to duke out the huge difference in numbers.
After a lengthy legal battle, Judge Sharon Gleason ruled that TAPS was worth $10 billion. The oil companies had to pay up.
That's why I'm skeptical. Fool me once, fool me twice...
A $12.4 Billion Budget
Gov. Parnell released next year's (FY 2015) budget yesterday. It's $12.4 billion. The budget deficit is at least $1.1 billion (see: graphic from Alaska Public Radio), but when all is said and done, it'll surely be more than a $2 billion deficit. Basically, we're eating up our savings the way a Stellar sea lion eats a pink salmon: ravenously.
Major budget inclusions for District 34: repaving the Hydaburg Highway; replacing Sitka's Transient Float; some road work in Sitka; a new ferry berth in Haines (for the new Alaska-class ferries); and buildings for the Angoon and Kake ferry terminals.
More on the budget once we, the legislature, get our grubby hands on it.
Rep. JKT Media Management
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Representative Jonathan Kreiss-Tomkins