Monthly Archives: August 2012

Why we write …

This page started out primarily as a one stop source for oil & gas news of interest to Alaska.  That continues to be a focus, with the curated news feeds down the lower right side of this page doing the bulk of that work.   Over the past year, however, the commentaries on the left hand side of the page, and the shorter “Observations & Updates” headlined on the upper right, and printed in full here, increasingly have focused also on fiscal issues.

The reason is that, in Alaska, oil and fiscal policy are inextricably intertwined, given Alaska’s reliance on oil revenues to run the state.  A recent video from the website Understanding Alaska’s Budget does an excellent job of explaining.  As the video explains at the beginning, “Alaska is at a crossroads.”  We write hopefully to help shed some light on the factors that go into deciding which path to follow from here.

Alaska Budget Cutting: Its Not Rocket Science …

The FY 2013 Enacted Budget (click on to enlarge)

As this page has discussed on other occassions, Alaska state government spending has rocketed out of control over the last six years. Fueled by increased revenues resulting from the passage in 2007 of substantial revisions to the oil tax structure (called “Alaska’s Clear and Equitable Share” or “ACES”), state General Fund spending has grown from an average of $2.5 billion in the years before the passage of ACES, to $4.5 billion in the four years following, to now, most recently, $6.72 billion for FY 2012 and $7.6 billion for FY 2013.

With those increases, state spending far exceeds sustainable levels. The University of Alaska Anchorage’s Institute of Social and Economic Research (“ISER”) most recently has estimated the state can sustain General Fund spending in the range of $5.6 billion indefinitely (this is up slightly from $5.3 billion estimated the year before). Spending above that level — as has occurred the last two years — comes out of the pocket of future Alaskans. As ISER puts it, at increased spending levels “[t]he fiscal burden [on future Alaskans] will grow every year ….”

As importantly, the increased spending levels also have put in jeopardy something else that is critical to Alaska’s future — reversing the decline in oil production. Based on testimony by the Director of the state Office of Management and Budget at the end of this spring’s Special Session, enacting the Governor’s proposed tax reform would send the state budget into an immediate deficit. The reason is not because the proposed tax reductions are too generous. Instead, the reason is that spending levels have risen so high that there is no longer room to accommodate the reduced revenue levels tax reform would require. Continue reading

A pop quiz (updated) …

Which state Senator said yesterday about this year’s state budget, “we have actually done a very good job managing Alaska’s spending. … We got it right.”  Senator French?  Senator Wielechowski?  Nope, guess again.

The answer is Senator Lesil McGuire during yesterday’s Alaska Live with Bernadette.  Why is that conclusion wrong?  Read almost any commentary on this page in the last three months.  For starters, read the commentary that follows this.

[The entire interview with Senator McGuire is available here.  The portion dealing with the budget begins at minute 48:05.  A transcript of the relevant portions follows.  In reading the following, it is important to understand that the Capital Budget is managed by the Senate Finance Committee, of which Senator McGuire is a member; the Operating Budget is managed by the House.  Bernadette is asking about the Capital Budget.]

Bernadette:  Let me ask you, with the budget.  Would you agree, I mean there were comments that came out, obviously from Representative Bill Stoltze Continue reading

The most important slide in this election … and why I have contributed to Mike Dunleavy and Jeff Landfield

Toward the end of the Special Session earlier this year, the director of the state’s Office of Management & Budget (“OMB”), Karen Rehfeld, was asked to testify before the House Resources and Energy Committees about the impact on the budget of the Governor’s proposed oil tax bill introduced at the beginning of the Special Session.

One of the slides from her presentation is the most important in this year’s election.  The slide shows four lines.

The first – in red – is OMB’s forecast of revenues under the status quo, before the potential implementation of “HB 3001,” the Governor’s proposed oil tax bill.

The second, in blue, is the level of state spending from the General Fund as projected in OMB’s FY 2013 10-year plan.

The third, in green, is OMB’s forecast of revenues in the event the Legislature passed HB 3001.

The fourth, at the bottom in black, shows the projected deficits each year in the event the Legislature had passed HB 3001. Continue reading

Our Oil? Then it is Time for Our Investment

(Reprinted from the Juneau Empire, Aug. 9, 2012Alaska Business Monthly website, Aug. 9, 2012; Alaska Dispatch, Aug. 9, 2o12Ketchikan Daily News, Weekend Ed. Aug. 11-12, 2012Fairbanks News-Miner, Aug. 12, 2012)


Alaskans are fond of saying “it’s our oil” when talking about the North Slope. Yet we as Alaskans have never invested in the development of “our oil.”

Instead, from the beginning of the North Slope oil era, Alaska has effectively outsourced responsibility for investing in the development of its oil to independent companies – the “producers.”

Under the lease form used since statehood, the producers have agreed to pay an up front bonus (the source of the $900 million received by Alaska in 1969) and bear the entire amount of the investment required to develop the lands. In exchange, the state contractually has agreed – since it is entirely the producers’ money – that the producers largely can set the pace and amount of subsequent investments they make once oil is discovered. Continue reading