Wednesday, August 13, 2014

Prop 1 Boils Down To: Who Do You Trust?

This truck was parked outside the Bear Tooth when I came out of the  Alaska Dispatch News and UAA sponsored debate on Prop. 1. 

It seemed to sum up the question that voters have to answer to vote on this.  Do they trust the oil companies that worked hard to pass SB 21 (that Prop. 1  would overturn)?  Or do they trust those who are saying SB 21 is a giveaway to the oil companies?

Wielechoski and Croft

Speaking for Prop 1 (to repeal SB 21 and return to ACES) were Senator Bill Wielechowski and former Senator and University Regent (when the Board hired Mark Hamilton) Chancey Croft. 

Smith and Hamilton

Opposed were Mark Hamilton,  President Emeritus of the University of Alaska and Doug Smith, CEO of Little Red Services.

It cost $15 a head to get in, but the theater was full.

The debate was moderated by Steve Johnson, speech professor and director of the amazing UAA debate program.  And much of the proceeds were to support the UAA debate program.

Even though this was probably the debate with the most well prepared presenters I walked out still scratching my head over the facts.  Wielechowki went through a history of broken oil company promises and asked why we should trust them now.  Hamilton said it wasn't about trusting the oil companies, but about trusting facts.

But what are the facts?  Both sides cite facts that support their position and both sides say no one can predict the numbers when the facts don't support them.

  • Did state oil revenue go up under ACES?  Both sides agree it did.  
  • Will SB 21 raise our oil production to 1 million barrels a day as the governor predicted?  Both sides agree that isn't going to happen, but the No side says SB 21 will produce more oil than ACES.
  • Would a return to ACES destroy incentives to develop more oil in Alaska?  The two sides disagree strongly here.  The No folks say the high taxes when prices are high scare away oil companies and at low oil prices SB 21 brings in much more.  The Yes folks say the high taxes in ACES are paired with high tax write-offs that spur new production.  
  • Did ACES cause oil companies to leave Alaska for North Dakota and other states?  The No folks make this argument strongly.  The Yes side say it wasn't the taxes but the lower costs of extracting shale oil in locations closer to markets. [I heard that in other places, they didn't actually say that tonight.
  • Will ACES or SB 21 give Alaska more revenue in the future?  That's where both sides differ greatly.  It depends on whether oil prices stay above a certain level and how much production there is.  And no one can predict that.  

Doug Smith said SB 21 should be given a chance and if, in a few years, the predicted new development doesn't happen, then he will be right in front of the line to get the legislature to change the law.  But with oil companies helping to elect legislators, is that really going to happen?  However, if Prop 1 passes, I guarantee that ACES will be amended in the next session to deal with some of the tax issues when oil is at a very high price.

Other issues that came up:

The Yes side raised the ethical issue of two legislators who are highish level Conoco-Philips employees who recused themselves, but were then told they had to vote and ended up voting in favor of SB 21. Without their votes it wouldn't have passed. The No side said these were honest and honorable men and wouldn't have voted against the state's interests and that not voting disenfranchises their constituents.
The Yes side countered with:  Can you see an oil company employee going back to his Conoco-Philips bosses and saying, "I thought it through and decided against saving you $600 million a year"?
Now, I suspect that an oil company employee probably thinks that changing to SB 21 is a good idea anyway and that their constituents knew they were oil company employees when they elected them.  On the other hand, if legislators who had this kind obvious sort of conflict-of-interest were not allowed to vote on issues they had a direct vested interest in, then voters would know that if there were a lot of oil bills, then a particular candidate would not be able to vote.

Both sides agreed that ACES earned more revenue for the state than SB 21 would have in the last few years - though they didn't agree on how much more.  And they completely disagreed on what would happen in the future.  And since that depends on the price of oil and the amount of oil, we can only guess on that.

It was pointed out that the oil companies very legitimately work to maximize their profits and that bargaining with them requires state negotiators to be doing the same thing for Alaskans.  The Yes folks didn't think having a former Conoco-Phillips attorney/lobbyist act as the state's negotiator was a good sign. 

Wielechowski said that the Norwegian Fund which began in the late 1990s now has $900 billion while our Permanent Fund, begun well before, only has about $51 billion.  Smith countered that Norway continues to tax its citizens at a high rate and uses only a tiny percentage of the fund each year.  He personally didn't want to pay that kind of tax.

But I thought about that.  Since Norway is a country.  Leaving it means changing one's nationality.  Alaska is but one state in the United States and a large percentage of oil company employees either moved to Alaska from other states or commute from their home states to work in Alaska.  Having a state tax and a large fund for the future would weed out people coming to Alaska to make a quick fortune and leave from those who plan to stay.  It would also weed out people who come to Alaska to get the Permanent Fund dividend.  Personally, I'd rather have people here who plan to stay and who are interested in investing in Alaska's future.

There was more, but you get the gist.  I agree with Mark Hamilton that we should focus on facts, to the extent that we can.  The historic facts seem to say that ACES was a better deal for the state than SB 21 would have been - even if people disagree on how much better.  Looking to the future, the facts are more slippery.  It depends on a number of things:
  • the future price of oil
  • the amount of oil produced
  • the cost of recovering Alaska oil compared to the cost of recovering oil elsewhere
  • the impacts on large and small producers
  • the impacts on old and new fields

In my mind, it really does boil down to Who Do You Trust?  The 'facts' are too complex for most voters to determine, and too dependent on assumptions about the factors listed above for anyone to know with certainty. 

Should the public trust the oil companies who had behind-closed-doors meetings with Gov. Murkowski to come up with PPT which crashed when the FBI found Bill Allen paying legislators to vote for the oil bill?  Who send huge profits out of the state each year?  Who were unwilling to make any promises in exchange for the huge tax cuts they got  in SB 21?  Who are spending millions to defeat SB 21?

Or should they trust those Alaskans who are working on their own time with their own money and who stand to gain no more than any other Alaskan?

There are well known and respected people on both sides.  Some of the difference in opinion can be traced to different world views - Republicans tending to trust business more than government and Democrats leaning the other way.  But the key players on the No side are oil companies, oil industry related companies, and their employees.  Their payoff from the tax cuts are immediate.  

Doug Smith said we should give it a chance (which reflects the latest oil company ads and is far different from the governor's certainty when he was pushing this in the legislature) and come back in three years if it isn't working.  I think the odds of that happening are pretty slim.  After the last round of redistricting we're likely to have strong Republican majorities at least until the next census data in 2020 and redistricting, and they're not going to repeal SB 21.  But, if Prop 1 passes, there's no doubt in my mind that ACES will be on the table for changes in Juneau next session. 

What I think everyone should agree on, is looking at what Alaska will do when the oil runs out.  We've been kicking that barrel down the road since the oil began to flow.  Both sides pointed out that our (Republican-controlled) administration and legislature have spent wildly the last couple of years.  And since we don't have $900 billion, or even $100 billion, in our Permanent Fund, we need to start thinking seriously about the future.

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