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Tim Bradner: Major decisions remain for Alaska legislators

Tim Bradner

There's just a week and a day to go for legislators in Juneau, and several multibillion-dollar decisions remain to be made.

Should we reduce oil taxes to rekindle our flagging petroleum industry? Should we take more steps of commitment toward three big infrastructure projects?

The three projects are the state sponsored "in-state" gas pipeline from the North Slope, the Knik Arm bridge and a big hydro project on the Susitna River.

Legislators are like anyone else. They have mental energy for only so much, and to give thoughtful consideration to all of this in a 90-day session, along with the budget and all those constituent issues, is asking a lot.

The oil tax change is the only issue that has received intense, and deserving, scrutiny. A final decision on this has to be made in the next few days.

I believe the oil tax question is best looked at as an investment. We know the resource is there, we know the capabilities of the companies and we know the current tax has problems. But like any investment, there's risk.

The oil tax change, intended to stem our decline in oil production, would cost $500 million in state revenue in 2015, rising to about $900 million in 2018, the Department of Revenue says. By 2018 we should see increasing oil production, consultants have told the Legislature.

In judging this, lawmakers must weigh the alternative, the course we're on now. If we stay on that track, Prof. Scott Goldsmith, a University of Alaska Anchorage economist, has calculated that our state will be broke in 10 years, with only the Permanent Fund left.

Interestingly, what hasn't been talked about a lot in the debate is that we're now giving industry a tax break close to a billion dollars a year, and which isn't getting us very much. This is the 20 percent capital investment tax credit Gov. Sean Parnell wants to do away with and replace with the proposal now before the Legislature.

The governor thinks the new idea will work better because it encourages production, where the current capital investment credit just links to spending, including spending on maintenance.

It's too simplistic to say one incentive just replaces the other, but the fact that we're now giving a big tax break and not getting a lot tells me it's time to try something different.

On the other big questions, the in-state gas pipeline, Knik Arm bridge and Susitna hydro, legislators are being asked this year to tweak these projects and do incremental funding of a few hundred million dollars in total, taking one more step down the road on each.

What lingers in my mind is that we haven't been able to stand back and look at all of these dispassionately and in a unified way. All of these projects have their constituencies and their individual champions in the Legislature, each of whom is jockeying for money.

I see the vision behind all of them: The Knik Arm bridge could reshape transportation and land use in Southcentral Alaska -- at an estimated cost of $700 million, plus unknown millions more for road connections on both ends. The bridge would be the first major surface transportation infrastructure we've built since the Parks Highway in the 1960s.

Susitna, if it is built, would provide a very long-term, stable source of power. The current estimated cost is $5.3 billion. Few people remember that the Bradley Lake hydro project near Homer seemed very expensive when it was built in the 1980s but now provides the cheapest power in our "Railbelt' electrical grid.

As for the in-state gas pipeline, it's a daring concept and an important option in case the big industry-led gas project fails us once again. On this, we really should be prepared to do something ourselves if the big guys won't. The current estimated cost is $7.8 billion.

Do these last two tie together? They do, and here's how: Susitna provides electricity to keep the lights on, while gas shipped through the pipeline is used for home and building heat, and natural gas for manufacturing. They complement each other.

The big question is whether we can afford all of these. Let's not take it at face value that these projects will be self-supporting. How often have we seen the promoters' numbers go wrong?

We should be prepared for bailouts. Maybe that's not bad, if the public benefits are great enough and we can afford it.

Our money stash isn't limitless, though, so we need to look at these things with our eyes open and understand the risks.

I think we should take those incremental steps this year but also set up a mid-course assessment of them, perhaps by an independent panel with enough political clout to outweigh the maneuvering constituencies.

A panel of former governors, assisted by unbiased people doing analysis, like the university or a well-regarded consulting firm, might work.

Let's not be afraid to stand back occasionally and take a hard look at where we're going on all this.

Tim Bradner writes on business and economics topics for Alaska publications. From 1970 to 1984, he worked for BP, a major North Slope oil company. Some of that time was spent as a lobbyist for the company in Juneau.


Tim Bradner
Economy