Stating the obvious. Ignoring the consequences.

January 24, 2012: A few years back I bestowed upon State Sen. Bill Wielechowski (D-Anchorage) the exclusive distinction of being one of the buzz saw boys. This was due to his profound ability to walk face first into a proverbial saw blade by spouting off inane anti-business propaganda.  

Wielechowski, who has been one of the most vocal critics of reforming a investment killing tax structure that he helped create, has continued (just like his partner in economic destruction Sen. Hollis French) to pepper his opposition to tax reform with arguments that actually make the case for tax reform.

In his latest missives against tax reform, Wielechowski was quoted in the Petroleum News as saying, "The State of Alaska is not a business, but when it comes to oil tax reform, it ought to act like one, I don’t think there are too many businesses that would agree to multibillion-dollar tax breaks with no assurances in return."

First lets dispel his frequently repeated notion that no assurances have been given about what investments would occur if lawmakers reform oil taxes.

Last April, ConocoPhillips CEO Jim Mulva committed to the gas partial processing plant at Prudhoe Bay in exchange for ACES reform. That’s 50 new wells and 80 million barrels of new oil. It’s an investment of about $2 billion dollars. He committed to more satellite wells at Alpine.
 
In November at the annual Resource Development Council conference, (which Wielechowski and French were no-shows), Conoco-Phillips Alaska President Trond-Eric Johansen reaffirmed that commitment, and promised increased drilling activity and more satellite development at Alpine and Kuparuk, if production taxes were made more competitive.
 
At the same presentation Claire Fitzpatrick, Chief Financial Officer, BP Exploration (Alaska) also committed to joining ConocoPhillips with development of I-Pad, along with expanding development at acreage representing more than 5 billion barrels of un-recovered oil. She said BP was “poised to invest billions of dollars in new projects that will result in billions of barrels of new oil from known sources.”

Three weeks ago while addressing the Meet Alaska conference (which again Wielechowski and French were no shows), BP President John Minge stated he believed their was at least $5 billion in projects that could be launched with tax reform.

Minge also dispelled Wielechowski's contention that record employment on the North Slope means more oil development is right around the corner. "Only one in six employees on the North Slope work on developing more oil. The rest are in operations, maintenance and repair," he told the crowd of business leaders.

In addition, one of the independents that Wielechowski and French have touted as proof the state's tax regime is attractive, has all of their assets for sale and have opened their data room to prospective buyers. The company feels it cannot financially make a go of developing their leases.

But more importantly, while Wielechowski is right in saying Alaska should act like a business when managing its assets, his statement belies the sad fact that Wielechowski has no business experience. None, nada, zippo.

According to Wielechowski's published biography, over the last twelve years he has held two jobs: a labor lawyer for the State of Alaska and a labor lawyer for the I.B.E.W union.

In short, Bill Wielechowski knows as much about managing a corporate risk profile as my four year old grandson knows about thermonuclear physics.

But even ignoring the lack of any relative experience other than collecting a government and union paycheck, Wielchowski's contention that the state must view tax reform through the prism of the business world, makes the case for tax reform.

Since Wielechowski and French joined together to raise oil & gas taxes to the highest levels in North America, investment in new oil production has dropped off a cliff compared to what was predicted after the massive tax hike. During that same time frame the cost of government has soared.

Just a month after the tax hike as approved by the legislature, Wielechowski, French and other high tax advocates clung to the delusion that investment would not suffer and oil production would sit at 674,000 barrels per day in 2011. The actual production number turned out to be 603,000.

In addition, with the soaring cost of state government that Wielechowski has unabashedly supported during his five years in the legislature, without meaningful tax reform Alaska will need $142 per barrel oil in just a few years to balance the state budget.

Just think, if residents in Fairbanks and rural Alaska are frustrated with heating prices with $100 per barrel oil, imagine what they'd feel if oil did reach $142 per barrel. 

To add insult to injury, the state's revenue forecast predicts that if current decline trends continue, we'll be in deficit territory by 2015.

Looking at the numbers and the potential impact on the economy, anyone with a scintilla of business management experience would recognize that something must be done to generate more development.  

But Wielechowski doesn't possess any business experience. His only professional experience has been living off direct wages from being on the government dole and working for an organization that depends on increased government spending for their members.

Even his transparent attempts to portray himself as a saver of Alaska's wealth is nothing more than papering over the fact that he is financially vested in continued government spending. Hence his refusal to reform taxes.

At the end of the day, Wielechowski is right about the state needing to act like a business when it comes to tax reform. Unfortunately, he doesn't possess the desire nor the business acumen to recognize that our business is going to go broke without tax reform.

Just a few days later, Wielechowski released a press statement trumpeting the importance of the state's capital spending.

"New non-partisan research shows Alaska’s healthy capital budgets have created 107,993 direct and indirect jobs across Alaska since 2007.  These jobs are in the areas of new construction, maintenance and repair, and remodel and reconstruction, as well as indirect jobs throughout the general economy," his statement read.

He's right. Over the last two years alone lawmakers have funded capital budgets that have pumped almost $5 billion dollars, or an average of $7,000 per every man, woman and child into Alaska's economy.

However the capital budget largesse has been made possible by high oil prices and high taxes that has allowed lawmakers to live on borrowed time in the face of declining oil production.

Last year during a legislative fly-in, Senate President Gary Stevens (R-Kodiak) boasted to visiting business leaders that thanks to hefty capital budgets the economy has remained stable. This prompted one of the business leaders to question what other economy has survived by killing private investment while simultaneously increasing government spending. 

Combine Stevens and Wielechowski, and you have a virtual John Maynard Keynes wrapped in an Alaskan flag.

Ironically, their recognition that the capital budget plays in key role in aiding Alaska's economy, highlights the importance of having the revenue to spend on state construction projects. The question for these two is clear; how is Alaska going to make those investments when expenses outstrip revenue?

If state government spending trends continue along with declining oil production, by 2015 the state will have to dip into savings to afford a capital budget.

In fiscal year 2012, the state legislature spent over $5 billion on the operating budget along with $2.8 billion on the capital budget for a total of almost $8 billion. If annual operating budget expenditures continue to increase at 4% per year, by 2015 the state will need $6 billion in revenue to just pay for operating expenses, excluding any capital budget money.

Alarmingly, the Department of Revenue projects unrestricted oil revenues in 2015 will be $6.3 billion. That would leave a $300 million available for capital budget spending, which compared to 2011 would be 95% less in nominal dollars.

Combine the diminished revenue to invest in capital projects, with the associated stress on the economy from a contracting oil & gas industry and you have a double punch to Alaska's economic gut.

Looking ahead, the impending collision between lower state revenues and higher state expenses will jeapardize the same capital budget spending that Wielechowski touts as a critical economic driver.

Wielechowski's anti oil & gas industry absolutism and his inability to connect the economic dots will be the thorn in the liver of Alaska's economic future. It's clear once again that his arguments against tax reform continue to make the case for tax reform to protect our ability to invest in ourselves. 

It's to Alaska's detriment that lawmakers like Bill Wielechowski and Hollis French continue to state the obvious while ignoring the consequences.