Nov 5: Kohring, Taxes and Exxon. An emotional bonfire

It has been said that timing is everything in life and politics. We are witnessing that theory play out here in Alaska with the timing of current events that are impacting both lives and politics.

From the recent guilty verdict of yet another Alaskan lawmaker convicted of corruption, to the release of third quarter oil company profit figures during a debate over oil taxes to the Supreme Court’s recent decision to review Exxon’s appeal of punitive damages, everyday there is yet another reason to worry about our ability to hold factual discussions versus emotional ones.

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On Thursday, former seven term Republican State House Representative Vic Kohring was found guilty of three counts of corruption. This is a 14 year lawmaker who was caught on FBI tapes, not only illegally accepting wads of cash, but also boasting that he could get re-elected short of “killing someone”.

Kohring was exactly right when he trumpeted his invulnerability. This is a guy who consistently got re-elected as a conservative darling, even though his personal actions were far from conservative.

While Kohring espoused an almost religious position on cutting government, you’d be hard pressed to find a legislator who lived off of government more than Kohring.

In 1999, with state government facing $9 per barrel oil and a billion dollar budget deficit, Kohring was a strong voice in the media calling for a dramatic reduction in government spending. However during that same year, Kohring set an all time record for the most interim per diem claimed by a lawmaker.

In fact, his $11,000 dollars he claimed for 1999, penciled out to show he claimed every day including Christmas. When the figures were released in January 2000, he argued that his record compensation was due to his constituents needing government help. This however, was in direct contradiction to his claims that his constituents needed less government.

For years, Kohring availed himself to every opportunity to claim government cash but yet would return home to the Mat-Valley and write scathing opinion pieces on the legislature’s inability to control state spending.

In a 2003 column published in the Valley Frontiersman, Kohring stated that Alaska was beginning to resemble the USSR with all of its government programs. So how many times did Kohring vote against the operating or the capital budget during his thirteen years? Not once.

Again, for over a decade the voters of the Valley never held him accountable. Instead they based their votes on the emotional appeal from a self proclaimed conservative whose conservatism was limited to any government spending that didn’t take from his own wallet. In 2006, the same year he was being video taped taking illegal cash payments, he billed the state for over $100,000 in reimbursement. Emotion over rational thinking, until the law – not his constituents – caught up with him.

Over the last few weeks, major oil companies have been releasing their third quarter profit figures for 2007. Highlights include Exxon making $9.4 billion, down a billion over last year. Conoco-Philips making $3.7 billion, down two hundred million over last year and BP reporting profits of $4.4 billion, down almost two billion over last year.

These profit and loss figures have again added emotional fuel to the fire for some looking to significantly raise oil taxes in Alaska. But while these hefty profit figures along with the recent testimony from competing oil & gas consultants that Alaska’s legacy fields could afford to pay a higher taxes, many still continue to be blinded by emotion while failing to consider the economic rationale about needing to encourage future investment.

Large profit margins on legacy fields are acceptable to address, especially in times of record high prices. However given the harsh reality of declining production and the expensive reserves left on the North Slope, steep tax hikes won’t stave off what threatens to be a rough landing for a state that relies on oil taxes to open the doors of state government everyday.

The one thing that worries me the most about the state's numbers is that they don't have a good track record. During the debate over AGIA, the Department of Revenue rolled out ROI projections that showed the natural gas pipeline profitable at just about any cost. Today we know those numbers were not only based on false assumptions but at odds with every tenet of responsible economic forecasting.

In the House Resources Committee on Thursday, Rep. David Guttenberg (D-Fairbanks) questioned the industries commitment to re-invest in Alaska. Guttenberg claimed the industry had done little to reinvest to stop declining production during the years under the ELF tax structure.

This drew a strong response from BP’s Tom Williams who previously worked for the state’s oil & gas division back in the late 1980’s when ELF was adopted.

There are significant investments that were made during that time period, Williams said. He listed of a few of the larger ones including gas treatment plants and redesigning systems to account for the changes brought about by free falling oil production. Even in his factual response to Guttenberg’s emotional assertion, Williams didn’t have the time to give a full scorecard of investment during the nineties.

In a speech on Thursday to the Alaska Resource Development Council, former Governor Tony Knowles spoke at length about the partnership between his administration and the oil & gas industry during the ELF years. Knowles mentioned such projects as Badami, Northstar and Alpine, projects that were all under taken during an environment of $8 per barrel oil.   

But this environment has become little more than us against them. Many lawmakers who are trying to stoke the anger of the public during a perfect storm of emotional public policy debates, continue to make comments that attempt to paint the oil industry as faceless profiteers that provide little to the everyday Alaskan.

The assertions that big oil profits only profit the big guys couldn't be further from reality.

Aside from the fact that Exxon is the second largest investment holding by the Alaska Permanent Fund Corporation – which means every Alaskan getting a PFD check wins – the state wins by collecting a corporate income tax on profits. Higher profits equal higher income tax revenue for the state.

More importantly, in a recent report entitled “The Distribution of Ownership of US Oil and Natural Gas Companies” published in September 2007 by Robert Shapiro and Nam Pham, the emotional appeal of faceless corporate giants crushing the average Alaskan is pure and unadulterated nonsense.

Their report based on SEC data on the ownership of U.S. Oil and natural gas companies shows that 70% of the shares of these companies are held by institutional investors (Ak Perm Fund Corp eg.) especially asset management companies, and predominantly on behalf of middle-class American households who on shares through mutual funds, pension funds and retirement accounts.

Individual investors who manage their own portfolios and are not company insiders account for almost 30% of all industry ownership, which again includes significant numbers of middle-cass households holding IRA and other personal retirement accounts.

Furthermore, the report states that although the last three years of strong profits, this follows more than a decade in which real oil and natural gas prices declined and the industry’s profits and returns lagged those of the rest of the economy.

In closing, Shapiro and Pham state, “The data strongly suggest that most of those profits go to the industry’s majority shareholders, who are middle-class U.S. Households with mutual fund investments, pension accounts, other personal retirement accounts, and small personal portfolios.”

Once more, emotional rhetoric clouds the facts about who profits from oil industry profits.

Finally, one of the most emotional discussions in Alaska over the last fifteen years has surrounded the civil litigation regarding punitive damages over the Exxon Valdez oil spill. In 1994 a jury awarded plaintiffs five billion in punitive damages and subsequent appeals over the last decade resulted in that award being reduced to $2.5 billion.

On Monday, the United States Supreme Court agreed to decide whether Exxon Mobil Corporation should pay the $2.5 billion in punitive damages.

Exxon’s decision to exercise their legal right to appeal has caused anger among Alaskans beyond those who are plaintiffs in the suit. Many have advocated forbidding Exxon from doing business in Alaska, including participating in any natural gas pipeline project.

However, the case of Exxon Shipping v Baker, is a civil case. The state has no direct role in the case as all outstanding claims the state had against Exxon as a result of the 1989 spill have all been settled. (The state just exercised its right to the re-opener for $100 million in damages)
 
And while it might feel good to demand that Exxon be prohibited from doing business in Alaska, the potential of such a suggestion being adopted is both legally and economically unrealisitic.

While many remain angry about Exxon’s continued appeals, we shouldn’t forget that we live in a country based on the rule of law and the right to due process which include legal appeals. You would think at least a lawyer in the Alaska Legislature would recognize this as a basic tenet of our system of justice.

However, when it comes to this particular case, many appear willing to abandon the same legal protections that separate us from the most tyrannical governments in the world to score points against Alaska's least favorite corporate citizen.

After the announcement that the Supreme Court would hear Exxon’s appeal, State Senator Hollis French a former prosecutor and vocal advocate of due process, seemed to anchor his belief that Exxon should no longer be afforded due process to the their profit margins.
In an interview with the Juneau Empire, French stated, “they could pay of the punitive damages, at least the principal, in less than a month.”  Ditto with a recent Homer Tribune editorial where they also argued for an end to the case based on current Exxon profits. “The puny penance that the oversized oil corporation is being asked to pay is less than one month of their net profits.”

Last Tuesday after the Supreme Court's announcement they would review Exxon v Baker, Governor Sarah Palin called Exxon's appeal "a collective kick in the gut to all Alaskans", implying Exxon should just accept the ninth circuit court of appeals ruling and pay the bill while foregoing its legal rights.

However Palin on Friday reinforced the hypocrisy of the Exxon issue when after disagreeing with the Alaska State Supreme Court after they over turned a law she supported because it was  unconstitutional, Palin immediately demanded her Attorney General ask the high court for an appeal hearing.

So why doesn't the governor simply accept the court's ruling and just live with it, like she expects from Exxon? Because this is would deny the governor and Alaskans their consitutional right to due process.  

While there is little argument that the spill has had lingering impacts on Alaska and the plaintiffs involved, eliminating constitutional rights to due process is a very dangerous and foolish road to travel.

Let's face it, no Alaskan is going to stand up and defend Exxon, but this isn't about Exxon. It’s about acknowledging a legal system, rooted in 200 years of history that provides the same level of protections and rights for all defendants based on established rules of law not on emotion or profit and loss statements.

With timing being everything in life and politics, lets hope we will get to a time when our discussions will be based on a more honest and less politicized approach when dealing with critical public policy issues, instead of simply stoking the flames of anger and misinformation for political gain.

Alaskans will all be better for it in the long run.