Category Archives: Thought Pieces

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

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)

AN OP-ED BY BRAD KEITHLEY AND REBECCA LOGAN

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

Alaska Oil Tax Policy| Ships Passing in the Night (from the July 2012 Alaska Business Monthly)

Recently, I agreed to write a bi-monthly column on oil & gas issues for the Alaska Business Monthly.  This is the first column, originally published in the July 2012 print edition and available online here.  

Alaska’s approach to oil and gas taxes has taken a number of twists and turns over the last several years. The latest twist may largely be the result of ships passing in the night.

Background

Shortly following her election in 2006, Gov. Sarah Palin proposed a set of changes to the then-existing tax structure. She termed the package “Alaska’s Clear and Equitable Share,” or “ACES.”ACES changed a previous package of modifications which had been enacted in 2006.

Although he supported ACES at the time it was passed, late in his campaign for his own term in 2010 Gov. Parnell began generally to talk about what he then termed as the need for “tweaks” in ACES. Following his election, Parnell proposed a set of changes, which was introduced in the Alaska House of Representatives and subsequently referred to as “HB 110.” Continue reading

A Statute and a Pledge: A Potential Approach for Addressing Alaska’s Coming Fiscal Crisis

Recently, I wrote a piece entitled “Alaska Fiscal Policy| Where We Have Gone Wrong.” In it, I analyze state spending levels since the beginning of the Palin/Parnell Administrations, compare that to what is sustainable given the state’s financial and natural resources and conclude that “Alaska’s most recent generation of political leaders … is leading Alaska off the fiscal cliff.”

This is the closing paragraph: “It is ironic that a Legislature and Administration that claim to be ‘fiscal conservatives’ have painted the state into this fiscal corner — but the fact is that is exactly what they have done in the last six years. Going forward, reverting to truly ‘sustainable’ spending levels is essential if Alaska is going to return to the right track.”

Some readers responded to the piece by asking what can be done to bring state spending within sustainable levels. This piece is part of the answer. Continue reading

Alaska Fiscal Policy| Where We Have Gone Wrong

In March, the University of Alaska Anchorage’s highly respected Institute of Social and Economic Research (“ISER”) published a paper entitled “Managing Alaska’s Petroleum Nest Egg for Maximum Sustainable Yield” (.pdf). The paper is the continuation of an effort started last year (.pdf) by ISER’s Scott Goldsmith to determine the appropriate level of annual state government spending, if the objective is generally to maintain a consistent, inflation adjusted level of state spending over time.

The purpose of ISER’s effort is much the same as retirement planning for an individual. In retirement planning the goal is identify the maximum level of annual spending from an individual’s retirement account that will allow the generation of a relatively consistent stream of annual income for the rest of the retiree’s life. The ISER study is designed to determine the level of spending that is prudent in order to ensure that future Alaskans continue to receive the same level of government goods and services that are available to current Alaskans.

ISER’s terminology – “maximum sustainable yield” – is derived from the Alaska Constitution. Article VIII, Section 4 of the Alaska Constitution provides that “Fish, forests, wildlife, grasslands, and all other replenishable resources belonging to the State shall be utilized, developed, and maintained on the sustained yield principle, subject to preferences among beneficial uses.” Continue reading