Wednesday's drive by shoutings...

                  Random thoughts about recent news...

Teal colored glasses...

David Teal, Director of Legislative Finance is as close to a state budget god as you can get. For over a decade Teal has been counseling state lawmakers on the state of the budget, and last month he came before the House Finance Committee armed with a warning for legislators.

If government continues to expand as it has, even with relatively modest capital budgets, by recent standards, the state could be running deficits by fiscal year 2015, Teal told lawmakers on January 24, 2012.

Over the next four weeks, even after hearing the warning signs of an approaching fiscal storm due to declining oil production, state senators have proceeded to propose millions in new government spending.

From increasing education funding by $500 million over the next few years, to providing schools lunches, to offering vouchers for heating Alaskan homes and allocating more money for college scholarships, senators don't seem to be interesting in curtailing spending and they're only one third of the way through the legislative session.

While there are pros and cons for each one of these proposals, adopting three new entitlement programs plus a huge investment in education equates to guaranteed higher state spending every year. As I said earlier this year about new entitlement programs; in for a penny, in for a pound.

I hate to be a downer...but with declining production, deficits projected by fy15 and little action on substantive changes to attract investment, how are you going to sustain this new spending? 

The geezer amendment...

The first real disagreement between legislative bodies in Juneau this session was over financial reporting requirements.

A few years ago, ethics and reporting rules were tightened in the wake of the VECO scandal. For years the Alaska Public Offices Commission was chronically under funded by lawmakers seeking to constrain the campaign enforcement agency. The result was a lack of staff, technology and board resources.

After the election in 2006 and the mandate from voters to clean up the capitol, lawmakers rushed to lead us into an era of complete transparency. However last week the senate attempted to exempt themselves from one of the new APOC reporting requirements.

The amendment called the "geezer" amendment by Senate President Gary Stevens, would have allowed current state senators to avoid having to file their APOC reports online and would have allowed them to continue submitting them manually.

The House said no. Good for them. 

The current state senators, almost all who have spent a significant amount of time in politics, should not be exempt because they're more comfortable submitting their financial reports chiseled on a stone tablet.

I'll repeat myself and this time I'll say it slower...

One of the problems with ACES, International oil & tax consultant Pedro van Meurs told state senators last week, is that the state needs a separate natural gas tax structure in place so producers could work the economics of a gas pipeline.

First, let me put the landscape of state senators attending this hearing into perspective.

Of the seven senators listening to van Meurs testimony on the need for a gas tax structure last week, most of them voted for both creating AGIA in 2007 and subsequently voted to grant the license to TransCanada - without a gas tax structure.

One of the many criticisms of AGIA was the lack of a gas tax structure so producers could model their economics. Lawmakers including French, Wielechowski, Thomas and Stevens were all warned by the producers back in 2007 and 08 that the lack of certainty on a gas tax was a non-starter.

During committee testimony back in 2007, Exxon's Marty Massey told lawmakers that he had to know what the tax rate was and how long it was good for. In order for me to evaluate the project, I have to know my tax rate so I can run the economic modeling, Massey said. "If not, it can change...it can all change," he added. 

However, lawmakers and the Palin administration never wanted to create a competitive gas tax structure because they never wanted the producers bidding on AGIA. The best way to scare off bids from the big three was to leave a insurmountable hole in their ability to evaluate the economics.

Subsequently the AGIA contract that lawmakers passed marrying us to TransCanada, prohibits the state from improving tax terms that helps a comparable sized project. Under AGIA if the state were to offer a gas structure that the producers took advantage of and built their own natural gas pipeline, TransCanada would be eligible for treble damages.

In defending the lack of a competitive tax structure in AGIA, Galvin himself warned one lawmaker about trying to make it more competitive. Don't do it, don't think you're going to get cute and walk right up to that line, Galvin told former lawmaker Rep. Ralph Samuels (R-Anchorage) during the debate over granting TransCanada the AGIA license in June of 2008.

Last week, International oil & gas expert van Meurs told lawmakers the same thing many of us told them as early as 2007; you need to set a competitive gas tax structure to attract investors. 

Meanwhile, a handful of state senators (French,Wielechowski, Stevens, and Thomas) who ignored this advice five years ago from the producers before committing Alaskans to TransCanada, sat quietly around the table.

 

If I could save time in a bottle...

At a Senate Majority press availability last week Sen. Bert Stedman (R-Sitka) said he doubted the senate would have enough time to address all of the needed changes to the ACES oil tax structure.