An engaged Alaskan democracy

Four-way face-off say who wins and loses in the tax and dividend fight

Alaska Dispatch News, Charles Wohlforth, January 13, 2016

Any Alaska budget solution will hurt or protect people in four main groups. In any fair solution, all four have to sacrifice.

The state’s budget math doesn’t work without capping dividends and using Permanent Fund earnings. But we also need an income tax, budget cuts and repeal of oil tax credits. There is no fair solution without a hit to people with each of these interests.

Where you fit in the four-way tug-of-war depends on how much money you make, how old you are, how many kids you have and what industry you work in.

The guy who explained this situation most clearly to me is the only one I’ve met who seems able to rise completely above it. Cliff Groh, a lawyer who attended Harvard, has been studying Alaska’s fiscal and economic situation for decades as a hobby. He gives lectures and has helped put on more than a dozen public forums on the subject. Since May, he has done nothing else, without pay.

He calls the four-way fight the “Groh Square.” That name is his nerdy attempt to wring humor out of this dry stuff. He also sometimes lectures in an Abraham Lincoln costume.

But he refuses to give his own opinion. As the chairman of Alaska Common Ground, a small nonprofit dedicated to educating Alaskans about policy choices, Groh speaks only in favor of knowledge.

“What I often call for is for people to actually understand what the choices and trade-offs are, rather than having them assumed,” he said.

In Alaska, this is revolutionary talk. We’re in the habit of making decisions based on slogans. Groh is asking us to think.

Read the rest of the article here.

As scientists worry about climate change, US public doesn’t

Most Americans know the climate is changing, but they say they are just not that worried about it, according to a new poll by The Associated Press-NORC Center for Public Affairs Research. And that is keeping the American public from demanding and getting the changes that are necessary to prevent global warming from reaching a crisis, according to climate and social scientists.

As top-level international negotiations to try to limit greenhouse gas emissions start later this month in Paris, the AP-NORC poll taken in mid-October shows about two out of three Americans accept global warming and the vast majority of those say human activities are at least part of the cause.

However, fewer than one in four Americans are extremely or very worried about it, according the poll of 1,058 people. About one out of three Americans are moderately worried and the highest percentage of those polled — 38 percent — were not too worried or not at all worried.

Despite high profile preaching by Pope Francis, only 36 percent of Americans see global warming as a moral issue and only a quarter of those asked see it as a fairness issue, according to the poll which has a margin of error of plus or minus 3.7 percentage points.

“The big deal is that climate has not been a voting issue of the American population,” said Dana Fisher, director of the Program for Society and the Environment at the University of Maryland. “If the American population were left to lead on the issue of climate, it’s just not going to happen.”

Linda Gebel, a 64-year-old retired bookkeeper who lives north of Minneapolis, has read up on global warming.

“Everybody’s life would be totally disrupted,” Gebel said. “It will cause famines and wars, huge problems. I don’t know why people wouldn’t be worried about it.”

And yet because she lives in the middle of the country — joking that she’ll be “the last one who will be submerged” — Gebel added she doesn’t “feel worried personally. I’m not sure this is going to happen in my lifetime, but I worry about my children. I worry about my grandchildren.”

The “lukewarm” feeling and lack of worry has been consistent in polling over the years, even as temperatures have risen, said Anthony Leiserowitz, director of the Yale Program on Climate Change Communication.

“The issue hasn’t quite boiled up enough so that people have put it on the top of things they want to focus on,” Princeton University climate scientist Michael Oppenheimer said.

One issue is how big, yet distant the problem seems and how abstract it can be, Fisher said. It can cause people to put off worrying about it.

Renata Schram, a 43-year-old customer service representative in Sturgis, Michigan, says she believes global warming is real and is mostly caused by people, but she is only moderately worried.

“On my list of things that worry me today, global warming is kind of low,” she said. The world’s violence is a far more pressing issue, she says.

“Usually when we hear about global warming everything seems so distant,” she said. “The sea levels are going to rise but I find it difficult to find a prediction that tells you how many years exactly.”

White House science adviser John Holdren said climate contrarians emphasize how large the problem is, essentially telling people “the result (of warming) is too scary, so let’s not believe it.” He said these groups have been “incredibly effective in sowing doubt” about global warming.

For his part, Myron Ebell, a policy expert at the conservative American Enterprise Institute, said the elites on the coast may be concerned about global warming but people in the heartland who dig stuff up, grow stuff or make stuff are used to the vagaries of extreme weather. “They don’t see it as much of a problem” because it isn’t, he said.

Not so, said scientists.

“We are all vulnerable to the impacts,” climate scientist Chris Field of the Carnegie Institution said. “If you are a farmer in Illinois or if you work on a railroad in Alabama or are a miner in West Virginia, there are impacts that are going to affect your life, your health and what you’re going to pay for things in the grocery store.”

Scientists, however, aren’t communicating their worries well, figuring that issuing more reports and data will convince people, said climate scientist Katherine Hayhoe of Texas Tech, who reaches out to the evangelical Christian community. Success lies in finding common ground in humanity, she said.

“More facts are not going to fix the problem,” Hayhoe told a meeting of top climate scientists last week in Washington. “Nearly every human on the planet has the values they need to care about climate change. We just need to connect the dots.”

Read the article here.

Alaska’s Fiscal Forum Marked by Urgency and Options

Devin Kelly, Alaska Dispatch News, September 19th, 2015

Bill Popp and Mark Foster offered diverging viewpoints on the state’s fiscal outlook at the Wendy Williamson Auditorium at UAA Saturday, Sept. 19, 2015.

Dueling messages of optimism and stark urgency about the scale of Alaska’s budget deficit, and tangible ideas for how to tackle it, factored prominently into a Saturday forum about the state’s fiscal future in Anchorage.

Economic experts and Alaskans with budget proposals shared a stage with a giant scale and wooden blocks meant to illustrate the difficulty of balancing the state’s budget. Scenarios involving new taxes, Permanent Fund dividend deductions and multiyear budget plans were considered against the backdrop of political realities.

The overriding message was the urgency of a looming crisis. But Gunnar Knapp, director of the Institute of Social and Economic Research at the University of Alaska Anchorage, also said the forum fits into an ongoing conversation.

“We’re not going to have one meeting and it’s all going to be blazingly clear,” Knapp said.

If trends continue, the state will face a deficit of about $3 billion next year, and savings are limited.

In what was billed as a debate but ended up being more of a discussion and a question-and-answer session with the audience, two local business experts offered somewhat diverging views on the state’s fiscal future. Bill Popp, president and CEO of the Anchorage Economic Development Corp., offered a more bullish outlook framed around optimism; Mark Foster, chief fiscal officer at the Anchorage School District and a longtime business consultant, was a bit more bearish.

Popp pointed to record employment in the oil and gas industries and ample opportunities in developing renewable and nonrenewable resources. He said optimism, or the belief that the state can rise above its challenges, will be key to navigating the crisis. But he also said the state should demand its leaders to act fast to find a way forward.

Foster’s word of choice was “confidence.” While employment is high, Foster said, the state’s gross domestic product has been declining. He said the state needs to show the world that it can quickly enact fiscal reforms and broker deals in the Legislature to avoid the “potential spiral” that could occur if the state’s bond rating starts dropping.

“I think that will precipitate a confidence challenge that will be very difficult to overcome,” Foster said.

In his opening comments, Popp said there’s a general attitude the state is revisiting the oil crash of 1986.

“It’s not 1986,” Popp said. “We face a government problem that has all the potential in the world of going over into the private sector.”

The best way to indeed recreate the 1980s, Popp said, is to do nothing. Or try to cut the way to a solution, he said.

Foster noted that while there are parallels to 1986 in terms of the rapid decline of oil prices, the 2015 economy is “more tightly linked and more sensitive.”

One audience member asked what advice Popp and Foster would give to the state’s youth. Popp’s was “don’t leave” — and if you do, promise to come back. Foster suggested running a mock legislative session — one that involves different groups asking for their departments or programs to be spared from funding cuts.

On the stage at lunchtime, 15-year-old Felicity Bidwell watched as Knapp spun the oil prices wheel. It landed on $60 a barrel, or $1.5 billion in revenue. Knapp moved white wooden blocks that represented the state’s reserve savings.

Asked how she’d balance the budget from there, Bidwell pointed to green wooden blocks, each representing $100 million.

“A sales tax AND an income tax?” Knapp said, widening his eyes and smiling.

Later, Bidwell, whose mother is a member of Alaska Common Ground, the public policy group that organized the forum along with ISER, stared at the blocks representing ways to cut spending. Bidwell said she’s concerned about the state’s economic future, but shrugged a bit. She said she didn’t plan on being in Alaska forever.

Detailed proposals for balancing the state’s budget, complete with charts and projections, were another part of the forum. Four Alaskans whose ages spanned three generations — Gary Wilken, Brad Keithley, Liz Medicine Crow and John Havelock — compiled plans that were outlined in presentations. Then organizers took a straw poll on which plan seemed most acceptable to audience members.

Most people favored a plan proposed by Havelock that included getting rid of oil tax credits, setting up an income tax and a seasonal sales tax, raising or establishing taxes on alcohol and sugary drinks and drawing on Alaska Permanent Fund earnings “only as necessary” up to 50 percent. Havelock also proposed fixing the Permanent Fund dividend at $1,650 with cost-of-living adjustments.

Later, the four came back on stage and talked about the difficulty of reaching a compromise on the proposals.

David Teal, director of the state’s legislative finance division, said he was surprised by the apparent willingness of the audience to pay an income tax or give up part of their PFD.

“I’m not sure how prevalent that attitude is among the crowd that isn’t here,” Teal said.

He noted that those taking part in the budget balancing game were hesitant to make deep cuts, a hesitance shared by the governor and the Legislature.

“It’s so easy to say, ‘let’s cut 5 percent,’” Teal said. “But identifying that 5 percent is not. So the focus tended to be ‘where do you get the money?’”

Rep. David Guttenberg, D-Fairbanks, said he didn’t hear anything new as far as ideas for balancing the budget, but appreciated how the forum incorporated real data. Senate Majority Leader John Coghill, R-Fairbanks, said he found it helpful to hear the range of ideas and immediately see how the audience received it.

Anchorage psychiatrist Dr. Ron Feigin said people throughout Alaska should have the information that was being presented. He said he had been familiar with the scope of the problem, but the size of the blocks and scales helped bring it home.

“I could live with almost any of the proposals,” Feigin said. “As a voter, I just hope the Legislature listens.”

Budget-balancing game jazzes up fiscal forum

Alex DeMarban, September 17, 2015, Alaska Dispatch News

Gunnar Knapp, director of the University of Alaska Anchorage’s Institute of Social and Economic Research (ISER), teases former State Revenue Commissioner Pat Galvin with a pie chart reflecting crude oil prices projected by the state two years ago, on Thursday, September 17, 2015 at ISER. Current projections are reflected in the chart behind, and are significantly lower now than just two years ago. Galvin was participating in a test of a game that requires participants to take on the role of the state Legislature, having to balance the budget and get re-elected by the audience each round. The wheel is spun at the beginning of each round, giving the “Legislature” varying amounts of revenue from oil.

With possible economic calamity facing the state — and many Alaskans seemingly not grasping the threat — the brains at a university think tank and a home-shop craftsman are jazzing up the talk of taxes and cuts with a homemade game that will be unveiled Saturday during a forum about the state’s looming fiscal and economic crisis.

The audience interaction the game is meant to help people understand the depth of the state’s budget deficit and its rapid reduction in savings, organizers said.

“We face this paradox,” said Gunnar Knapp, director of the Institute of Social and Economic Research at the University of Alaska Anchorage. “We face some really tough decisions as a state, but on the other hand, the topic is enough to put most people to sleep.”

Thus the game, conceived of by Knapp, to give people the chance to balance costs and revenue using a giant scale and wooden blocks each representing $100 million. There’s a roulette wheel to spin as well, illustrating Alaska’s dicey dependence on oil revenue that rises and falls with the price of the global commodity.

The free forum [1], from 9 a.m. to 4 p.m. at the Wendy Williamson Auditorium at UAA, will also feature some of the usual economic experts and state officials with their hands at the wheel.

“The event is part reality show and part public broadcasting,” with a mix of fun and serious people talking, said Cliff Groh, chairman of Alaska Common Ground, the event organizer along with ISER.

“I’ve moderated several of these forums over the years, and this is an attempt to be different and engage people at a time when the problems are so big they have to be addressed,” he said.

As part of the event, a handful of volunteers will play the game on stage in a morning segment. They’ll decide, for example, whether to remove blocks representing sectors like education and health care, or to add weight by instituting an individual income tax or tapping the reserves of the $51 billion Alaska Permanent Fund. The game will also be open to the general audience during an hour-long break at noon.

Booing and cheering will be encouraged in an effort to highlight the political tension involved in each adjustment, said Knapp. The audience will vote to keep or retain the person who comes up with the approach they prefer, to underscore the dilemma faced by lawmakers.

As the pile of blocks representing Alaska’s savings dwindles, it will soon be game over — “you will visually get that you can only play this game a few more times the way we’re playing it right now,” said Knapp.

This spring, the Legislature will face the same questions for real, with an expected $7 billion in savings available to help balance the budget deficit. If trends continue, that deficit will be about $3 billion next year. With no sign of relief on the horizon, mainly in terms of high oil prices, experts fear the savings will be gone in less than three years.

The game — built by Ian Laing, former special assistant to former Revenue Commissioner Pat Galvin — won’t be the only excitement.

In a late-morning segment, four Alaskans will present their own fiscal plan on how to close five years of annual deficits. The audience in a straw poll will rank the proposals.

In the afternoon, that group — former state Attorney General John Havelock, consultant Brad Keithley, former Sen. Gary Wilken, and Liz Medicine Crow, president of First Alaskans Institute — will try to hammer out a compromise on stage.

Also, facing off in a debate following lunch will be Bill Popp, president of Anchorage Economic Development Corp., and Mark Foster, chief financial officer of the Anchorage School District.

Participating state officials will include John Coghill, Senate majority leader and a Republican from North Pole, Democratic Rep. David Guttenberg from Fairbanks, and Revenue Commissioner Randy Hoffbeck.

Groh said the event will help the public understand there are no easy answers.

“I’m calling out anyone who has ever said this is simple, or peanuts, or doesn’t take any work,” Groh said. “They need to come and try their hands at this.”

Alaska doesn’t need federal help to put fiscal house in order

Kenneth Rogoff, September 4, 2015, Alaska Dispatch News

When President Barack Obama arrived in Alaska at the end of August, he found the majesty and beauty of the Arctic. He witnessed the character of Alaska’s adventurous and individualistic people, and the challenges they face in stewarding a land in delicate environmental balance that is also rich in natural resources.

The president also found a state that faces a rather unique budget crisis, with Standard & Poor’s 500 Index threatening to downgrade Alaska’s credit rating [2] if the state doesn’t manage to put its fiscal house in order. He will surely be pressed for help. He should stay clear of this issue, and make decisions based on the state’s and the country’s long-term interests. On fiscal issues, Alaska has all the tools it needs to help itself.

Alaska is not an Illinois and it is certainly not a Puerto Rico. This is a state with relatively high per capita income, even after one adjusts for a high cost of living resulting from Alaska’s climate and geography. This is state where the fiscal problem is that the state cannot figure out how to manage its assets, not that it cannot figure out how to pay its debts.

Alaska has a sovereign wealth fund slightly in excess of 100 percent of state GDP, more than enough to cover both state debt of about 20 percent of GDP (even including local debt) and unfunded state pension liabilities. There is no state income tax and no state sales tax. The overall state tax burden in Alaska is the lowest of the 50 states. On top of all this, Alaska ranks near the very top of all states in federal spending per capita.

The profound fiscal crisis in Alaska comes from a collapse in oil revenues that account for up to 90 percent of the state’s unrestricted general government revenues. Mostly because of sharply lower oil prices, but also because of credits and falling production, state oil revenues have dropped by roughly 80 percent since 2012. Out of total state spending of $8,000 per resident, only $3,000 is covered by revenues, with the other $5,000 basically coming from the state’s Constitutional Budget Reserve fund.

State leaders face enormous political resistance to any kind of new tax, and there are extremely strict limits on how much the state’s wealth fund can be used to cushion the oil revenue shortfall. As a result, the state is madly cutting expenditure, thereby severely aggravating the downturn already caused by the oil price shock. This is an extreme strategy which makes no sense. For one thing, 60 percent of the state’s agency operation budget is spent on education, health and human services. The people of Alaska are its most important long-term resource, and Alaska is very lucky to be one of the states to which people want to move. Dealing with a revenue shortfall solely through precipitous spending cuts is an act of desperation that bankrupt economies are sometimes forced into. It is not sound economic stewardship for a state that has better fiscal fundamentals than most. S&P 500 has rightly argued such an approach is not politically viable, and would require an implausible downsizing of Alaska’s government.  More likely, the agency says, Alaska will need to pursue a mix of spending restraint and revenue enhancement.

It’s not as if there aren’t plenty of leading thinkers in Alaska who understand the issues. Gunnar Knapp, director of the Institute of Social and Economic Research at the University of Alaska Anchorage, has traveled the state, giving presentations and laying out options.

One option Alaskans need to dispense with is wishful thinking. The state has been making budget plans based on a long-run rise in oil prices to over $100 a barrel. Yes, oil prices are very volatile and might reach this level, but they could stay below $50 for a long time also. No doubt, many in the state figure new drilling in previously protected wilderness will be a panacea. Setting aside the irony that a state suffering more than most from global warming wants to rely even more on fossil fuel production, the future revenues are highly uncertain in size and timing, especially if oil prices stay anywhere near current levels. Wishful thinking would be fine, except that the longer Alaska waits, the worse the options become.

There is certainly scope to manage the sovereign wealth fund somewhat more aggressively, at the very least the amount in excess of the state’s debt. Other resource-dependent countries like Norway try to strike a balance between risk and return. It would probably behoove Alaska to look at other sovereign wealth funds and how they are managed.

The state cannot rely on good luck alone, and certainly not on smoke and mirrors. With a growing population and shrinking revenues, the time has come to put the state’s finances on a more normal footing by starting to collect taxes like other states that don’t have oil revenues and don’t have any Permanent Fund earnings. By providing more stability and predictability, Alaska will still be able to continue to attract the kind of remarkable individualists it has in the past, and it will certainly have a better chance to make itself into a more diversified economy.

President Obama rightly engaged Alaska citizens and leaders about its future. But as for the fiscal crisis, he needs to let Alaska help itself.

Kenneth Rogoff is a professor of economics at Harvard and former chief economist for the International Monetary Fund. He is the cousin of Alaska Dispatch News owner and publisher Alice Rogoff.

Alaska’s Financial Dilemma

Dermot Cole, Alaska Dispatch News, August 23, 2015

An ominous statement from Standard & Poor’s [2]and the stubborn slide in oil prices should leave no doubt in anyone’s mind that the state needs to be looking at new revenue sources now, instead of waiting until the easily accessible financial reserves are gone.

Legislators who are predicting that only spending cuts will happen in 2016 —  and that significant actions are unlikely because it is an election year — should realize that continued inaction accelerates the arrival of a real crisis.

I take it as a positive and encouraging sign that the House Finance Committee meets Monday at 10:30 a.m. in Anchorage [3] to hear reports from the Walker administration and the Institute of Social and Economic Research to update lawmakers on presentations [4]that have been made across the state. If oil prices remain close to where they are today, the state may need another half-billion dollars or more from savings this year to pay for things like schools, road work and jails.

We have a chance to do something about this in an orderly fashion, but the window of opportunity is closing.

Legislators should be making plans now for hearings and public sessions this fall to involve the public in what will be a difficult transition.

The challenge is to transfer the generalized discussion of spending and taxation to the specific — how much of a cut is going to be made to particular programs and what new taxes would cost for individuals and industries.

S&P, the ratings agency, said if state government fails to institute big changes in spending and revenue in the next year, look for the bond rating to slip, a sign that anyone lending money to Alaska should expect a higher interest rate because of increased financial instability.

“Relying solely on spending cuts to close the fiscal deficit would necessitate that lawmakers oversee a dramatic downsizing of the scope of state government in Alaska,” the report from S&P said. “It’s more likely, in our view, that policymakers will need to pursue a mix of sustained spending restraint and some form of revenue enhancement.”

The agency warned that if new revenue is not in the mix, expect a decline in the state bond rating in the years to come, which is a red flag that should wake everybody up.

The state needs other sources of revenue, including new taxes, some Permanent Fund earnings and revisions to the oil tax system. The best bet for a solution that works is a combination that spreads the pain as widely as possible.

Focusing on just one or two elements is sure to spark enough opposition to kill anything that lets one or more groups off the hook. A plan that looks only at raising oil taxes, or only capping Permanent Fund dividends, or only instituting an income tax is going to create multiple coalitions of opposition. Plus, the underlying arithmetic makes it clear that nothing but a combination of unpopular actions will come close to filling the gap and doing the least damage to the economy.

The prevailing attitude in the Legislature is that spending cuts are the only thing that need to be addressed at this moment, but that ignores the reality of the $3 billion hole in the budget. Lawmakers trying to delay facing the difficult choices are increasing the economic threat.

Most of the money going to pay for general fund government operations — everything from schools to State Troopers — is coming from savings. Alaska has nearly $60 billion in the bank, but unless elected officials readjust the system, we run the risk of stumbling into an economic collapse. The Constitutional Budget Reserve could be gone within two or three years, which would leave the Permanent Fund earnings reserve as the only sizable account to pay for government.

Last spring the state predicted that oil prices [5] would be about $66 a barrel this year and higher after that. But oil prices now are about $20 per barrel below that amount. If these lower prices continue, state revenues will not be the $2.2 billion predicted in the spring, but closer to $1.7 billion or lower.

Statewide polling shows that Alaskans are ready to debate the specifics of increased revenues and the consequences of decreased spending. For elected officials, this is no time for procrastination.

Poll: Alaskans prefer new revenue over deep cuts

Alex DeMarban: Alaska Dispatch News: August 13, 2015

Alaskans favor a combination of new revenue and spending cuts to help the state survive a fiscal crisis brought on by low oil prices and waning production, according to a poll released Thursday by the Rasmuson Foundation.

The results seem to be at odds with key Republican lawmakers who say their constituents prefer deep, aggressive cuts before new revenue is generated to help Alaska survive a $3.5 billion budget gap.

The statewide poll, conducted by Strategies 360 of 1,206 registered voters in Alaska, found respondents prefer generating new revenue over deep spending cuts to essential public services such as education, roads, police and health care.

The poll found Alaskans prefer, in the following order:

• Tapping a portion of the earnings of the $52 billion Alaska Permanent Fund.

• Introducing a statewide sales tax.

• Capping the annual dividend check sent to most Alaskans.

• Reducing tax credits to the oil industry.

Last on the list, by a strong margin, was a personal income tax. But even an income tax was preferred over deep cuts to essential services — by more than 2 to 1.

In a response showing support for a balanced approach to addressing the budget crisis, 42 percent wanted equal measures of new revenues and cuts. Twenty-five percent wanted mostly spending cuts or only cuts. Another 25 percent wanted mostly new revenues or only new revenues.

The poll, called the “Alaska Attitude Survey on the State Fiscal Climate,” was commissioned by the Anchorage-based Rasmuson Foundation as part of a statewide campaign on creating a fiscal plan.

In June, the foundation took a stand on some of the issues in the poll in a white paper, which said spending cuts alone would not close the fiscal gap.

The $60,000 poll was conducted in July. Its unusually large sample size — Alaska polls usually reach no more than 1,000 respondents, while many number only in the hundreds — gives it a margin of error of 2.8 percent, meaning it was likely to be representative of the opinions of Alaskans at the time it was conducted.

The poll found most Alaskans are aware and anxious about the fiscal crisis, a problem brought into high profile after oil prices cratered from about $100 a barrel last summer to around $50 today.

The foundation over the last two weeks has shared the poll results with elected officials.

The state is currently drawing on savings built up when oil prices were higher. Ed Rasmuson, the foundation’s chairman, said if the state continues to draw 85 percent of its revenue only from the oil industry, it will be broke by 2019 even if oil prices jump back to $100 a barrel — something many analysts don’t expect.

“These results show that Alaskans are ready to have the difficult deliberations about the sustainability of our state,” Rasmuson said in a prepared statement. “And now our elected leaders need to lead. The Governor and Legislature have the unenviable responsibility to make decisions that are going to be unpleasant, but necessary.”

Rep. David Guttenberg, D-Fairbanks, a member of the House Finance Committee, said the poll overlooked an important revenue-generating option: Reforming the oil-production tax. He said he’d prefer a broad solution that could include changing the oil-production tax, additional cuts and other money-raising measures.

He said he supports an income tax over a sales tax as part of a broad plan, because it would capture income from the state’s large nonresident workforce [5] that arrives in Alaska seasonally or for recurring, multiweek stints.

“There is so much income leaving the state on all those jobs, it is amazing,” he said. “I don’t like an income tax, but it’s one of the answers and we can put in clauses that cancel it out when we don’t need it.”

Cassandra Stalzer, communications director for the Rasmuson Foundation, said a production-tax overhaul was not part of the poll because the diverse group that discussed what to include –such as economists, business representatives and lawmakers – sought solutions that would make a large dent in the deficit and be accomplished within a year’s time.

Given that Alaska voters approved the current oil-production tax last summer — after a long and contentious debate — organizers of the poll felt an overhaul of the system would not happen within a year.

“We are not trying to protect the oil industry,” Stalzer said.

The foundation, criticized by one side of the political spectrum for not including a production-tax overhaul, was also taken to task by the other side for not advocating for deeper cuts.

Sen. Anna MacKinnon, a Republican and co-chair of the state Senate Finance Committee, said constituents in her Eagle River district continue to prefer cuts over revenue discussions.

With the state in a $4 billion dollar hole, the revenue solutions alone won’t close the gap, so more cuts are “mandatory,” she said.

She said she’ll continue to focus on reducing the state budget by corralling the three biggest expenses, K-12 education, health and social services, including Medicaid, and debt service that includes pension obligations.

“We’re in the middle of a process to right-size government and bring up the confidence level of the people of Alaska that we are investing the money (properly),” she said.

But she said she’s looking forward to hearing new revenue options once Gov. Bill Walker submits an economic plan [3], something expected in this fall.

“I’m waiting for that to come out, not to fire at it, but to fully explore it,” she said.

Rep. Dan Saddler, an Eagle River Republican and vice-chair of the House Finance Committee, said he’ll continue looking to cut unnecessary services created when oil prices were high, before looking for new revenue.

He said he was doing just that on Thursday. As chair of the finance subcommittee on health and social services, he and other members of the subcommittee were touring the agency in hope of finding programs that could operate more efficiently.

He wouldn’t say what state programs are not needed.

“I’m not going to say ‘X’ program or ‘X’ division is not critical,” he said. “I don’t make that decision as an individual. That’s a decision we will make as a Legislature.”

The poll also weighed in on Alaskans’ views of the “overall job performance” of their elected officials.

Fifty-three percent of Alaskans said they totally approve of the governor’s job. Fifteen percent totally disapproved.

Thirty-two percent said they totally approve the Legislature’s job performance. Forty-one percent said they totally disapproved.

S&P drops Alaska’s bond rating

Jeannette Lee Falsey: Alaska Dispatch News: August 18, 2015

Another one of the three major credit rating agencies lowered its outlook for Alaska to “negative,” citing the high likelihood of sustained low oil prices and lawmakers’ aversion to opening up the state’s most promising sources of revenue.

In a report released Tuesday, Standard & Poor’s Ratings Services warned that if left unchecked, Alaska’s fiscal problems could lead to a future credit downgrade. A credit downgrade often serves as a red flag that an investment opportunity carries higher risk and therefore could raise the state’s cost of borrowing.

Standard & Poor’s believes budget cuts alone cannot fix Alaska’s fiscal problems and suggested that Alaska’s politicians could avoid a downgrade by raising revenue.

“Relying solely on spending cuts to close the fiscal deficit would necessitate that lawmakers oversee a dramatic downsizing of the scope of state government in Alaska,” the report said. “It’s more likely, in our view, that policymakers will need to pursue of mix of sustained spending restraint and some form of revenue enhancement.”

Aside from introducing state sales and personal income taxes and tapping the portion of the Permanent Fund not protected by the state constitution, Standard & Poor’s floated the ideas of capping annual dividend payouts from the Permanent Fund or eliminating tax credits intended to spur oil exploration or development.

The agency recognized that its proposals, which have been fixtures of public dialogue since oil prices began falling last year, are contentious.

“It would be a significant political achievement for the state’s lawmakers to reach agreement on any one of the fiscal reforms mentioned above,” the report said.

Standard & Poor’s pointed out that the state’s “extraordinarily large budget reserves,” which have thus far covered the state’s spending deficits, won’t last forever. If lawmakers do not start correcting the state’s fiscal imbalance within the next year, a lower rating would be likely, it said.

Moody’s, another credit ratings agency, revised its outlook [2] for Alaska to negative in December 2014.

Alaska must do a thorough, independent review of the oil tax regime

John Havelock, Alaska Dispatch News, Opinion, July 25th, 2015

In a time when all Alaskans must suck it up and face a reinstatement of an income tax, it is also a time to do a thorough review of the appropriate tax structure for oil and gas.

The oil industry can’t be blamed for avoiding taxes. It’s the American way. But if the Alaskan public is not to be spun around a cylinder on a spiral ridge by artful corporate tax dodgers, the technically educated in the state government and their community colleagues had better pencil down hard.

The moment is in the realization that the current model for state financial survival won’t work, as we have lately been reminded by the powerful credit-rating agency Moody’s. The governor’s conference on the fiscal situation earlier this summer in Fairbanks left the same impression, though it went easy on the variable role of oil taxes.  Perhaps the conferees were more accepting of the notion, beloved by the Big Three (ConocoPhillips, BP and Exxon Mobil), that the voters’ narrow rejection of the referendum proposing to repeal SB 21, the bill which established the current tax regime, ended all discussion of the oil revenue contribution.

Even if you accepted the notion that a bill passed only by the votes of legislators who were also oil company employees didn’t need a new look; even if you were not bothered by the enormous sums that were spent by the Big Three, directly and indirectly on advertising, much of it misleading, to assure the defeat of the referendum, new evidence should change your mind. Recent information reveals that the production and discovery rebates of the bill have already taken hundreds of millions from state revenue with no showing of a state benefit. Surely this requires a new look at the whole oil tax situation.

Of course the industry giants are filing state tax returns. Is the state working a prompt, thorough audit? Unlikely. Human resource talent for these jobs is scarce. State audit budgeting is tight — hmmm. On the other side, fiddling with returns to minimize taxes, also very American, employs many accountants.

The record of the industry for avoiding Alaska’s taxes actually due is phenomenal. Many billions of dollars have had to be recovered by the state in annual audit demands and litigation, mostly settled, but when did an oil company settle without thinking it was getting a better deal than the judge would give it?

In a time when the rest of us are being asked to scrape up new revenues out of service cuts and to spend savings, surely many factors suggest a fresh look at oil taxation. Prudhoe Bay and neighboring fields are still surprisingly profitable to the Big Three as indicated in reports required to be filed with the federal Securities Exchange Commission. Those that can spread their profit sources add a chunk from enhanced pipeline profits, another from shipping and another from refining. We want them to profit, but as the Alaska Constitution states, the development should be “for the maximum benefit of the people.” That means that the profit must be reasonable under the circumstances.

“Reasonable” is a pretty flexible word. Higher profits make sense if there is a high-risk investment. If the state assumes a big chunk of that risk, then a high profit margin makes less sense. Established fields, with known or easily predictable levels of production (with all costs deductible) do not require a high-profit, low-tax regime. If a buck’s to be made, the oil will be produced. If it takes more investment to maximize production, those costs are largely deductible. The oil will still be produced though there is an argument that new costs deserve an extra profit reflecting the time value of the extra money required to be invested.

Yes, the calculation of a fair profit is more complicated than that, and the calculation is variable depending on specific ground conditions. But the state’s problem is that it has not recently made an attempt to make the calculation. In a time when all Alaskans must suck it up and face a reinstatement of an income tax, (deductible, as are oil taxes, from the federal tax of course), it is also a time to do a thorough review of the appropriate tax structure for oil and gas.

John Havelock, as the state’s attorney general, negotiated a new tax regime with the major oil companies in a 1973 special session. 

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Alaska’s economy tepid, but not in recession yet, economists say

Jeannette Lee Falsey, June 24, 2015, Alaska Dispatch News

Is Alaska’s economy in a recession?

With oil prices low for more than a year and resulting state budget cuts [2], it’s a question on the minds of many Alaskans.

One economic consultant, Gregg Erickson, declared in a recent report commissioned by the Alaska Mental Health Trust Authority titled “The Great Alaska Recession” that the state is in the midst of a “major” recession.

But in a phone interview with the Alaska Dispatch News, Erickson appeared to change his mind.

“The numbers don’t say we’re in a great recession,” Erickson said. “Maybe we should have couched these conclusions in less dramatic language.”

Other Alaska economists agree there’s no recession. Not yet, anyway.

That Erickson could simply declare the existence of a recession, with little data to back up his claim, underscores the fact that the definition of a recession is somewhat subjective. There is no set standard — as there is for measuring earthquakes — for decisively assessing shakiness in an economy.

Read the article here.