We’re here

Walking into the special session on oil taxes is, for me, like walking into a bar fight that’s already in progress. Everybody’s had w-a-y more to drink than you have and they’ve already chosen up sides and started slugging. I suppose that’s inevitable. Forty-seven of the 60 legislators just did oil taxes last year, in a regular session and two special sessions. So the scars are still fresh. They aren’t happy to be back here doing that again. Somebody described it like being in the movie “Groundhog Day,” in which Bill Murray had to relive the same day over and over again until he got it right.

I sympathize, but the fact is that was then and this is now. I hope my colleagues will be able to face the new questions in front of us on their merits, and not treat them as simply a continuation of last year’s donnybrook. I hope that, but I don’t expect it.

The Experts Speak

As a powerful member of the powerful Legislative Budget and Audit Committee, I spent eight hours with Dr. Pedro Van Meurs and Daniel Johnston on Thursday. They were two of the main consultants on the writing of the current Petroleum Profits Tax. And I took away a couple of things I think are important.

First, the state of Alaska can increase its taxes without affecting oil industry investment. Our “government take” – the part of oil profits the federal and state governments get – is somewhere in the 60 percent range. Lots of countries take 90 percent or more of profits and the industry still invests there. So this simple-minded threat the industry is using – raise our taxes and we’ll invest less – is just that, a threat.

Neither Van Meurs nor Johnston said we should increase taxes. Just that we could increase taxes without sending Exxon off to invest its spare change in Libya or wherever.

Second, that there is no reason we couldn’t have a two-tiered tax policy, one tax for the big, producing fields and another for exploration and development.

Third, that it’s possible – maybe even easy – to let the industry have too much money as an incentive to invest. The companies might have made the investment anyway, and what we give them is just gravy. Or we may offer so much incentive to invest that they do things they shouldn’t to lower their taxes – so called “gold plating.”

So, at least according to these consultants, we could have different and higher oil production taxes than we do, and maybe should because we’re not getting anything for the money we’re leaving on the table.

Finally, it’s becoming clear that the decision on taxation can’t be made objectively, because we just don’t know enough – enough about how the industry makes investment decisions, about what, say, leaving $500 million a year on the table gets us, about what the future holds. I’m disappointed about that, because I’d prefer a nice, clean you-do-this-and-you-get-that decision on a big, important issue. But I’m not surprised we don’t have that. The truth is we’re all guessing. Some guesses might be better informed than others, but they’re guesses just the same.

The committee starts

We start this afternoon in the powerful House Special Committee on Oil & Gas, of which I am a powerful member. We’re the House’s first cut at the oil production tax, and according to the schedule I’ve got we’re going to be working every day until we send the bill along to the next committee. Just like the AGIA bill, we’re not going to have the time to dot every I and cross every T before we have to move the bill. But, hopefully, we can improve it.

What’s going to happen?

Nobody knows really. But if somebody was holding the last doughnut hostage, here’s what I’d guess to get it released into my care.

There are a number of legislators who don’t want to change the current tax. They say it’s too soon to make changes, that investment is more important than getting more money for the government and so on. Their play is going to be to try to pass just the parts of the governor’s proposal that deal with things like auditors and information sharing, but not change the tax itself.

There are a number of legislators who like the governor’s proposal, as is where is.

There are a number of legislators who want to change the form of the tax and, maybe, get more money. They say a net tax is too easy for the oil companies to game, that a gross tax will work just fine, at least on the big, producing fields, and so on.

There are a few legislators who don’t know what to think yet.

(I’m in group four, trending toward group 3. I haven’t heard anything so far that makes me think we shouldn’t raise oil taxes. I’m of the opinion that if we can, we should, and then save the surplus because we’ll need it soon enough.)

It doesn’t look like any of the groups that have a position have enough votes to pass their plan in the House and the Senate. So two of them are probably going to have to get together to make anything happen. The group that’s most capable of moving enough to do that is the governor’s group, because the governor can make a decision and make it stick. I’m not saying there are legislators who will just rubber-stamp whatever she puts in front of them, but it’s clear that there are legislators who support her and are inclined to follow her. So, at least right now, it looks to me like the ball is in Sarah Palin’s court.

Oil industry lobbying

Here’s a new wrinkle in the oil industry’s attempts to pay the state as little as possible in oil taxes. They are apparently recruiting friends and constituents of legislators to call them up and tell them not to change the tax. I haven’t had any of those conversations yet– can it be that the industry doesn’t have that many allies in Spenard? – but I expect I will. I’m looking forward to them, as soon as my schedule lets up enough to make and take telephone calls.

Bumfuzzled? Who’s bumfuzzled?

I am, or I was, yesterday when Van Meurs said Alaska has a reputation in the oil patch for being confrontational. Here’s the exchange as it was reported in the Anchorage Daily News:

Anchorage Democratic Rep. Mike Dorgan said he was "bumfuzzled" by Van Meurs' statement that Alaska is considered too confrontational with the oil industry.

"Is the problem that we're striking Exxon Mobil's fists too vigorously with our face?" he asked.

Now people are asking me what “bumfuzzled” means. To be honest, I haven’t been able to find it in the dictionary, but I believe it’s a word and that it means confused or perplexed. And I am. We’re confrontational? What’s that make the industry, with its lap dogs running insulting ads and its spokespeople giving us daily doses of “my way or the highway?”

More to come. Stay tuned.

Regards,