Gov. Bill Walker’s proposal to triple the state’s jet fuel and aviation gasoline taxes by 2018 was met with a chilly reception by some of Alaska’s largest air carriers. If enacted by the Legislature, the proposed taxes in House Bill 60 and Senate Bill 25 would raise up to $80 million more per year by increasing state taxes on all motor fuels — gasoline and marine diesel as well as aviation fuel. Alaska Airlines regional vice president Marilyn Romano said the company’s own calculations indicate that Alaska Airlines alone would pay 45 percent of all new taxes collected if either HB 60 or SB 25 pass the Legislature.
As Winston Churchill once said, “There is no such thing as a good tax.” You might not be surprised to hear that consumers ends up paying for increases to motor fuel taxes in the end. Researchers at the National Bureau of Economic Research found in “both federal and state diesel and gasoline taxes [are fully passed on] to consumers… [and] are reflected immediately in retail prices.”
Following public backlash against a new proposed studded tire tax, Sen. Cathy Giessel, R-Anchorage, has scaled back her proposal. Giessel’s original legislation would have increased the state user fee to $75 a tire, up the current $5 fee, or $300 for a set of four instead of the current $20. In a new “sponsor substitute” introduced Wednesday, Giessel is now calling for a $50 tax instead — or $200 for a full set, which would come on top of a $2.50 fee for all tires – studded or non-studded.
Taxes, taxes, and more taxes. Anchorage Democrat Les Gara debuted his bill, called the “Fair Share for Alaska’s Oil Act,” on Wednesday, calling for an increase in the state’s current minimum oil tax, from 4 percent up to 10 percent, as oil prices rise.
Headlamp is disappointed as Rep. Gara had just acknowledged in his constituent newsletter that taxing the oil industry more would not solve the budget problem. On February 13, 2017 Gara penned the following: “I want a much fairer share for our oil, but that’s not a deficit-eraser unless we adopt taxes so high they ensure oil companies lose billions a year.” Headlamp notes that Gara’s bill has not yet been read across the House floor, and therefore technically does not exist or have a bill number.
Permanent fund dividends are at risk if the state doesn’t get its fiscal house in order. According to Legislative Finance Director David Teal, by 2027, whether Alaskans receive Permanent Fund dividends each year would depend on annual Fund earnings. The House Finance Committee will hear public testimony on the proposed income tax and Permanent Fund bill (HB 115) on Friday.
Punish the producers seems to the mantra in Juneau. Robert Dillon, Vice President of Communications for the American Council for Capital Formation, writes that increasing the tax burden on the government’s number one source of revenue when the industry is struggling with declining production, increased regulatory costs, and falling profits is likely to collect less, not more for the state’s treasury.
Staff at the EPA have been told that President Donald Trump is preparing a number of executive orders related to the agency which will be signed once the new administrator is confirmed. Trump has promised to cut U.S. environmental regulation as a way to bolster the drilling and coal mining industries, but has vowed to do so without compromising air and water quality.
The Alaska Gasline Port Authority (AGPA) wants federal regulators and state proponents of a large natural gas pipeline project to conduct a new assessment with Valdez as the terminus for the pipeline. AGPA is seeking this despite a determination made in 2013 that the Alaska LNG Project will terminate at a port facility in Nikiski. North Slope producers have purchased about 650 acres of land in Nikiski to site the massive natural gas liquefaction plant and marine export terminal. AGDC is now negotiating an access agreement for the producers’ property and the key LNG export permits tied to the Nikiski location.
Tax hike idea gets a turbulent reception from big airlines
Juneau Empire, James Brooks, February 15, 2017
Anchorage GOP Sen. Giessel scales back her fee hike for studded tires
Alaska Dispatch News, Nathaniel Herz, February 15, 2017
Reserves, dividends would be gone in 10 years without action, lawmakers told
KTOO, Andrew Kitchenman, February 15, 2017
New bill from House lawmaker would hike minimum tax on oil industry
KTOO, Rashah McChesney, February 15, 2017
Increasing Taxes on Alaska Oil Producers Might Not Go Well
Real Clear Energy, Robert Dillon, February 16, 2017
U.S. EPA staff told to prepare for Trump executive orders -sources
Reuters, February 15, 2017
Port Authority resurfaces seeking Valdez route
Alaska Journal of Commerce, Elwood Brehmer, February 16, 2017
Group unveils video and intent to sue Hilcorp for Cook Inlet natural gas leak
Alaska Dispatch News, Alex DeMarban, February 16, 2017
A big AK HEADLAMP shout out to Rick Boyles for his piece in the Juneau Empire countering false claims, presented in Juneau as “facts,” during the debate over HB 111 – this year’s version of oil taxes.
Morning Headlamp – Oversized State Government Threatens Long Term Fiscal Stability & State Infrastructure Projects
With oil hovering at $54 a barrel, Alaska has burned through $13 billion of savings over the past four years and is facing a $3 billion shortfall for the year that starts in July. An emergency fund is projected to run dry in mid-2018. Without a long-term fix, S&P Global Ratings warns that it may downgrade the state’s bond rating again, which would raise borrowing costs for projects such as a natural-gas pipeline aimed at reviving the economy. State Revenue Commissioner Randall Hoffbeck has called for a “quantum shift in people’s thought process,” which takes into account a legislative plan for a state income tax and reductions in Permanent Fund Dividends checks for state residents.
Headlamp would posit that a “quantum shift in people’s thought process” should equally apply to those in state government who have been resistant to cost saving reductions and reforms that realign the scope of government to fit our long-term revenue streams.
Office of Management and Budget Director Pat Pitney warned against deep cuts to the state budget because it would shift the state’s fiscal crisis to local communities, a burden she said could result in higher local property taxes while speaking at an event in Fairbanks. Pitney highlighted state spending on education, school construction debt reimbursement, school transportation, public employee retirement accounts and the state’s community revenue sharing program, which directly sends state revenue to the cities and boroughs.
Reducing and restructuring state government does not necessarily mean slashing services. It means delivering these services in innovative and more cost-efficient forms. It’s odd for an administration that last year introduced a litany of taxes on all Alaskans, to warn against reducing the size of government under the auspice that new taxes will necessarily follow.
State Sen. Mike Dunleavy, R-Wasilla, has launched a petition and campaign against efforts to fix Alaska’s budget deficit with money that would otherwise go to residents’ Permanent Fund dividends. Dunleavy this week has been advertising his website, SaveYourPFD.com, which asks visitors to sign a petition “If you believe you are the best person to decide where the other half of your PFD should be spent.” The question was a reference to last year’s veto by Gov. Bill Walker of roughly half the $1.4 billion set aside by the Legislature for dividend payments.
Alaska Oil Bust Threatens Life of Few Taxes and Dividend Checks
Bloomberg, Romy Varghese, February 15, 2017
Alaska budget director warns against deep cuts
Fairbanks Daily News Miner, Matt Buxton, February 15, 2017
PFD fraud detection program falls short of promised savings
Alaska Dispatch News, Nathaniel Herz, February 15, 2017
Wasilla lawmaker launches online PFD-restoration petition
Alaska Dispatch News, Nathaniel Herz, February 15, 2017
State outlines costs for income tax implementation
Juneau Empire – AP, February 14, 2017
Lawmakers grill Alaska’s gasline corporation on its budget
KTOO, Rashah McChesney, February 14, 2017
Cue the debate
Craig Medred, February 13, 2017
Keeping the oil industry healthy
Rick Boyles, Juneau Empire, February 13, 2017
Anchorage State Senator Cathy Giessel said she wants to raise the “user fee” to cover the steep costs of re-paving roads. To do so Giessel introduced Senate Bill 50 last week. It would bring the total tax on four studded tires to $300, up from the current rate of $20. Early estimates peg the number of Alaskans using studded tires at 12%. Yet, the Alaska Department of Transportation & Public Facilities (ADOTPF) estimates that road repair due to rutting for a two-lane stretch of road costs 1 million dollars per mile.
Under the proposed statewide income tax bill, Alaskans would have a choice when they apply for their annual Permanent Fund dividend: whether or not to set aside money to pay for their next year’s state income tax liability. Employers have the option to deduct the proposed state income tax payments from workers’ paychecks. But if workers prefer to pay with PFDs, they could ask their employers to deduct less money each pay period.
More local push back and public testimony opposed to passing an Arctic National Wildlife Reserve (ANWR) drilling resolution has threatened a nearly 25 year tradition of the Alaska state legislature calling for Congressional action. Rep. Dean Westlake, is chairman of the House’s Arctic committee. His district covers the North Slope and includes the refuge, he doesn’t dispute that the environmental concerns of some of his constituents are important, but his district desperately needs an economic boost. And he’s looking toward an industry that has provided that surge to the North Slope.
According to a report from the Department of Energy, U.S. shale oil production will increase to more than 6 million barrels per day in the coming decade, making up most of total U.S. oil production. But a report by the Energy Information Administration now says tight oil production will flat line after 2026 as drillers move into less productive oil fields and well productivity decreases.
Canada faces a “jobs mirage” as projects cycle on and off through the downturn in oil prices. Workers in Northern Alberta face year-long layoffs and uncertain work schedules as prices remain low.
Lawmaker would boost Alaska studded tire fee to $75 each from $5
Alaska Dispatch News, Nathaniel Herz, February 14, 2017
Bill offers new option for PFDs: paying state income taxes
KTOO, Andrew Kitchenman, February 13, 2017
Renewed fight, but old arguments for lawmakers wanting to open ANWR for drilling
Alaska Public Radio, Rashah McChesney, February 13, 2017
Are shale’s days numbered?
FuelFix, David Hunn, February 13, 2017
Despite Black Shoots in Oil Patch, Canada Faces a Jobs Mirage
Bloomberg, Greg Quinn, February 13, 2017
Days after introducing a plan to increase production taxes on Alaska’s oil industry, the Alaska House Majority unveiled a plan to close the remainder of the multi-billion dollar deficit by implementing a state income tax and tapping into Permanent Fund earnings. H.B. 115 would require Alaskans to pay a state income tax equal to 15 percent of their federal liability and make it so that 4.75 percent of the overall Permanent Fund’s $56 billion value is drawn annually from the earnings reserve account and put into the general fund. Two-thirds of the draw would go to government operations, and one-third would be spent paying dividends to Alaskans.
Headlamp would encourage the House Majority to remember what happened last session when legislators tried to implement taxes before they made a legitimate effort to reduce the size and scope of state government. GRIDLOCK. How does the Majority even know the size of the “gap” they have to fill if they haven’t completed the operating and capital budgets yet?
Alaskans are near the midpoint of their window to apply for 2017 Permanent Fund dividends. Last year, more than 643,000 Alaskans received $1,022 dividends, reduced from an original total of $2,052 after Gov. Bill Walker vetoed part of the legislative transfer of money meant to pay for them. Walker said at the time that the move was necessary to preserve the future of the dividend, but was criticized by the state House’s Republican majority for taking “money from Alaskans’ pockets.”
Alaska lawmakers are examining their own budgets as they prepare to ask their constituents for a reduction in their Permanent Fund Dividend and to bear an income tax. Lawmakers have faced persistent questions about their own spending on travel and salaries, even as some legislators have called for steeper reductions to Gov. Bill Walker’s executive branch agencies amid the state’s budget crisis. House Rules chair Gabrielle LeDoux initially proclaimed a limitation on staff and salaries, however, many in the majority, including Rep. LeDoux have ignored those limitations.
House Democrats introduce income tax, plan to tap Permanent Fund earnings to close deficit
KTUU, Austin Baird, February 10, 2017
Haven’t applied for your Permanent Fund dividend yet? Get it done, state says.
Alaska Dispatch News, Chris Klint, February 13, 2017
Alaska lawmakers eye their own budget for reductions
Alaska Dispatch News, Nathaniel Herz, February 13, 2017
Deficit-cutting plan from House majority uses income tax, Permanent Fund earnings
Alaska Dispatch News, Nathaniel Herz, February 12, 2017
A summit hosted by the Alaska Gasline Development Corporation (AGDC) is scheduled for March 1 to March 6, in an attempt to entice commercial customers to support its $45 billion Alaska LNG project. The summit is expected to cost about $200,000, though the state is trying to secure corporate sponsors to help share the tab. About 15 officials from roughly 10 companies in Japan, Korea and Singapore are expected to attend, with guests staying at the Alyeska Resort in Girdwood.
Headlamp notes that absent from the summit is any mention of Alaska’s highly capable support industry – the industry and companies who will actually build the pipeline should the project ever come to fruition. Asking an industry that has laid off 3,500 workers to commit to sponsorship levels of $2,500-25,000 (in hopes of mingling with potential project investors) shows an astonishing ignorance of, or disregard for, what is happening in the economy.
Korean natural gas company KOGAS, the 2nd largest global buyer of LNG, is “interested” in participating in American shale gas projects. South Korean demand for LNG is currently declining in the short-term due to increased electricity output from nuclear and coal-fired power plants. The country is the world’s second-biggest LNG importer after Japan. The country currently imports approximately 30 million tons of LNG a year.
Alaska gas line agency to host $200,000 summit for potential customers
Alaska Dispatch News, Alex DeMarban, February 10, 2017
Oil tax debate reignites in Alaska Capitol yet again
KTUU, Austin Baird, February 10, 2017
State coffers won’t cover cost of cleanup if oil companies walk away
Alaska Public Radio, Elizabeth Harball, February 10, 2017
South Korea’s KOGAS says interested in U.S. shale gas projects
Reuters, Jane Chung, February 10, 2017
Headlamp’s Bad Bill(s) of the Week today come to us from Representative Louise Stutes of Kodiak. HB 87 “Conflict of Interest: Board of Fisheries/Game” and HB 88 “Board of Fisheries Membership,” both make the list because (say it with us now) they don’t solve our financial situation nor do they strengthen the private sector.
HB 87 would allow those with a conflict of interest to deliberate on issues before the boards. For those paying attention, the Board of Fisheries and Board of Game are rife with politics and often generate major rifts within the public (see sport fishing vs. commercial fishing interests on the Kenai Peninsula or pro-predator control advocates vs. anti-predator control groups). According to her sponsor statement, Representative Stutes wants to “allow members to deliberate on subjects for which they have a declared personal or financial interest…” She goes on to say that “allowing members with expertise in particular fields to deliberate will help the Boards make more informed decisions and lead to stronger fisheries management statewide.”
Headlamp wonders about areas of the state that aren’t represented on the boards. Are they going to get a fair deal? Or will members be able to influence the decisions to benefit their area or pocketbooks? The only good thing we see about this bill is that it has a zero fiscal note. Like usual though, Headlamp would ask readers to consider the time and resources the Legislature will spend to debate what promises to be a contentious issue.
This bill is pretty much the polar opposite of Representative Grenn’s HB 44 – of which Stutes is a co-sponsor. Headlamp wonders how the House Majority can put forth such contradictory policies. Why is transparency demanded of one resource industry and not others?
HB 88 would add two additional members to the Board of Fisheries. A seemingly benign piece of legislation, as the size of boards consistently change over time. However, Headlamp wonders what the impetus was for the bill, not to mention what the financial costs would be? The Board holds meetings throughout the state in communities such as Kodiak, Homer, Sitka, Valdez, and Anchorage – with Board member travel, lodging and per diem paid for by the State. The fiscal note for this bill is $85,300. At a time when we’re trying to trim the budget, Representative Stutes is trying to increase it. Headlamp says no.
At the end of the day, the biggest reason HB 87 and HB 88 are here this week is because they aren’t moving the state forward. Headlamp continues to be frustrated by the lack of leadership in Juneau. If legislators can’t prioritize the needs of the state during a crisis, what hope do we have?
Good public policy will never be crafted by our legislators in Juneau. That is, until elected officials follow the right process.
The basic elements of developing comprehensive, effective public policy include the following elements juxtaposed against the efforts behind HB 111 – the new oil tax bill introduced yesterday. As a side note, HB 111, if passed, would be the 7th change to Alaska’s oil and gas tax regime in 12 years.
- An extensive inventory phase for gathering data vs. “We haven’t really modeled this legislation.”
- A search for alternative solutions vs. “Honoring a perceived commitment.”
- The preparation of a plan vs. “This is tough medicine.”
- A subject-oriented scope (policy that encourages continued exploration and development activity and provides revenue to the state) vs. a problem-oriented scope “We have a budget gap to fill!”
- A long-term vision (at least ten years) vs. “This year’s version of oil taxes.”
- An apolitical approach to the process of implementation vs. Introducing legislation that only some members of a committee, and the media, have seen.
Unfortunately, the quotes above came from the mouths of those who crafted HB 111. We wish we were making them up, but they’re as real as it gets.
Democrats in the Alaska House of Representatives introduced a proposal Wednesday to raise oil taxes and limit cash payments and credits – igniting a debate on industry contributions toward reductions of the state’s ballooning deficit.
Headlamp was surprised to hear that the bill, HB 111, was shared with the media before it was shared with Minority members of the House Resources Committee. So were the Minority committee members.
Alaska regulators are concerned that “paltry” surety bonds from companies responsible for plugging and abandoning non-producing wells leave the state at risk. According to testimony from the Alaska Oil and Gas Conservation Commission’s Chair Cathy Foerster to the House Resources Committee, “Should a North Slope operator leave without plugging all of their wells, I’m not sure $200,000 would even pay for the engineering study needed to plan the plugging operations, much less any of the actual plugging costs.” Large and small operators are required to post a $100,000 bond on their first well, and an additional $100,000 bond for all other wells that might be drilled.
House bill would change Alaska oil tax credit system
KTUU, February 8, 2017
Alaska House Democrats introduce oil-tax bill to heated debate
Alaska Dispatch News, Nathaniel Herz, February 9, 2017
State agency says ‘paltry’ bonding for oil operators puts Alaska at risk
Alaska Dispatch News, Alex DeMarban, February 9, 2017
In the Administration’s own words:
DOR Commissioner Randy Hoffbeck:
“There are some people who can’t get their head around it. There are some people who think there is enough money out there that we can go get it from the oil industry again. The numbers just aren’t there. Part of it is that it’s just a reality check of 30 to 40 years of a free ride. People are having a little trouble adjusting to the reality is the oil industry is not going to be able to support everything anymore. It’s taken a little while for people to get their head around it,” from a Petroleum News Interview on January 22, 2017.
Tax Division Director Ken Alper says the proposed bill (similar to last session’s SB 5005) hasn’t really been modeled and would make it more difficult for projects to come on-line.
Hear his statement during the House Resources Committee hearing on February 1st by clicking here. The pertinent clip is at 7:43 pm of the hearing, and goes until roughly 7:45pm.
Headlamp encourages our readers to keep these statements in mind when the co-chairs of House Resources roll out their new oil tax bill today.