John Havelock: Cliff is still there, but oil tax cut isn't the answer

commentApril 5, 2013 

With the passage of Senate bill 21, the multi-billion dollar Alaska oil tax reduction now seems assured. The House majority and the three oil companies for whose benefit the bill was adopted, eagerly await the bill's arrival in the House where its adoption is safe. Two deeply conflicted senators, employees of one of the benefiting oil corporations, provided the key votes, leaving the Alaska public with an extra measure of disgust for a Legislature that so easily allows waivers of conflicts of interest.

An additional aspect of the politics accompanying adoption of the measure, according to a widely circulated rumor, has it that key House support was secured by the governor's agreement not to oppose a controversial gas pipeline project.

The proposed gas pipeline in question is profoundly uneconomic. The multi-billion cost to the state is huge compared to the benefits said to accrue to the consumer at a price that is anybody's guess. The promises made to win public support minimize that cost. No gas is committed to the line without a profit so the gas owners and pipeline construction companies win anyway.

At a recent University Young Republican forum, Anchorage Chamber of Commerce President Andrew Halcro, well-known business leader Dave Harbour, publisher of "Northern Gas Pipelines," and university economist scholar Scott Goldsmith continued an earlier discussion organized by Commonwealth North on the future of the Alaskan economy. The meeting was a fountain of gloom.

The apparent public indifference to upward spiraling spending, largely to finance vast public works, together with the public anathema greeting any revenue suggestions, guarantees that Alaska will run off a fiscal cliff in seven to 12 years. Predictions in past years to the same effect were brushed aside when oil prices shot up to over a hundred dollars a barrel. No doubling of the price is around the corner to save Alaska's budget again. Forget also another Prudhoe Bay.

Though some hesitant sentiment on the panel supported the bet that oil tax reduction might result in improved oil revenue even in the absence of any commitment by the three industrial giants, all agreed that spending was going up and oil revenue would decline anyway. The speculative increase in oil revenue simply modifies the rate of oil revenue decline.

Meanwhile, state spending, led by earmarks and giant capital projects, climbs up to the inevitable cliff, each year's step surpassing the past, promising a hair curling recession as we step past the top. The last steps will involve the quick drain of budget reserves followed by an attack on the Permanent Fund Dividend and the Fund itself. Within the political community, no fiscal plan has been proposed that would lead the state to a reasonable fiscal future. The generations that put the money away and the generation for whom the money was intended are both betrayed by today's fiscal irresponsibility.

One reason: Tax increases, an essential part of any fiscal plan, are the third rail of Alaska politics. A majority of the public believes the state can blissfully sail on in this no-tax environment enjoyed by no other state. Maybe most of these folks are prepared to scoot to a warmer climate when the state goes down anyway.

There is some hope. It can be expected that a citizens' committee will organize a referendum drive in the next few weeks to repeal the oil tax reduction bill. At the same time, watch for recall petitions to take shape challenging some of the legislators who seem too eager to give away the state's oil tax revenue.

Referendum may be the easy part. Getting a long-term fiscal plan in place will be much tougher. In particular, the construction industries will have to surrender years of endless expansion in exchange for a more modest, long-term, sustainable capital program. The additional revenue requirements put one in mind of President Obama's effort to raise revenue while crafting cuts. At least he has tax loopholes to close. But first things first; let's see if initiative and referendum can do their job.


John Havelock, attorney general to Gov. Bill Egan, served on Gov. Jay Hammond's Growth Policy Council.

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