Paul Jenkins: Cheers for the oil tax cut; now slash state spending

commentApril 20, 2013 

The Legislature, minus its tiresome and vocal tax-and-spenders, must be congratulated for passing its version of Gov. Sean Parnell's oil tax reform. It was a welcome and long overdue move that should return Alaska to the competitive oil exploration and production arena.

Now comes the hard part for fiscally tough-talking lawmakers: Walking the talk and cutting state spending to a sensible level we can afford. Conservatives must live up to their billing. They must lead. Our luck, after all, is running out; our current fiscal health is only as good as it is because of happy accident -- not design.

The current tax, foisted on Alaska in 2007 and euphemistically dubbed Alaska's Clear and Equitable Share, is robbery, siphoning $2 billion a year too much from North Slope industry shareholders. It takes far too much for the state when oil prices are high, adding to a potential marginal tax rate above 90 percent. That makes investing in Alaska as appealing as a grease sandwich.

Because of ACES, investment by major companies on the North Slope to produce new oil is off, production is slipping and throughput in the trans-Alaska oil pipeline -- which pays for about 90 percent of state spending -- is drying to a drizzle at about 6 percent a year. Alaska stands to bank hundreds of millions of dollars less next year because of lagging production and we already are sinking into the red. North Slope investment and many jobs that do exist are linked to infrastructure and maintenance because of ACES' generous cash tax breaks for such work.

The only things saving Alaska from the next bust are luck and high oil prices. That could change in a heartbeat.

Along with the new tax that wipes out ACES will come reduced revenue for Alaska. The state's tax take will fall by $1 billion or so annually for awhile to spur investment and production. The theory is that increased revenues from burgeoning production will alleviate the shortfall. In the meantime, Alaska has about $17 billion squirreled away in savings, not including the Alaska Permanent Fund, to help pay bills for the next few years as production ramps up.

Now is the time to control state expenditures. Spending as if there is no tomorrow while waiting for new revenues from increased production is fiscal suicide. The Bush tax cuts, after all, were a great idea but uncontrolled spending at the same time was not. Take in less; spend less. How hard can it be?

Parnell proposes a five-year fiscal plan -- a great idea with the anticipated revenue decline -- and a spending cap of $6.8 billion in unrestricted general funds for the next fiscal year, about $1 billion less than this year.

It sounds good, but is about $1 billion more than what the Institute of Social and Economic Research says is sustainable. ISER correctly concludes Alaska needs to "save more and restrict the rate of spending growth." The state can afford only about $5.5 billion in spending. Revenues exceeding that should be earmarked for savings.

Part of our problem is crapshoot budgeting. We guess at oil prices and then guess at a budget. It contributes to our history of government by sheer panic and benign neglect. It has governors yanking out their hair, or proclaiming, as former Gov. Steve Cowper did when oil prices plummeted, leaving him $900 million in the red, "All bets are off."

Surely, there is a better way, perhaps some sort of forward-funding approach so we could know ahead of time how much government can spend. There have been other suggestions. The late Roger Cremo would have channeled all natural resources income into an investment fund outside the Legislature's reach. An averaged percentage would have been withdrawn annually to underwrite government to avoid boom spending and bust budget cuts.

Then, there was the ballyhooed Percent of Market Value plan that would have pulled a sustainable percentage out of Permanent Fund earnings annually for dividends and to help fund government.

Other ideas get lip service, but then are forgotten. None of them sits well with those who want government to fund their fantasies or buy your vote. They want to overturn ACES reform to tax and spend like drunken Democrats at Alaska's expense.

Fiscal conservatives must walk the talk -- or watch Alaska again stumble into a financial quagmire.

Leaders, after all, must lead.


Paul Jenkins is editor of the AnchorageDailyPlanet.com.

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