Wednesday, October 10, 2007

Alaska's State House Majority Leader And Oil Legislative Expert Ralph Samuels "Slams" Sarah Palin's ACES Proposal

Alaska's House Majority Leader Ralph Samuels (pictured at left), considered the legislative expert on oil & gas issues, strongly encouraged Anchorage business leaders today to speak out against a higher tax on the oil industry proposed by Gov. Sarah Palin. Full story on KTUU Channel 2.

Samuels, a former president of the Anchorage Chamber of Commerce, urged members of the group to get involved with legislators before the October 18th special legislative session on oil taxes to be held in Juneau. And he did NOT equivocate: "I would almost get on my knees and beg you all as individual citizens of this state to get active. Tell your politicians to think of the economy over the long term," said Samuels, R-Anchorage.

Samuels questions Palin's plan, known as Alaska's Clear and Equitable Share, or ACES. He said that increasing the Petroleum Profits Tax from 22.5 percent to 25 percent, as the governor proposes, could kill oil field investment and bring back the economic crash of the mid-to-late 1980s. According to Samuels, the crash was so bad that one out of every 12 homes in Alaska was in foreclosure.

Click HERE to view 46-page ACES draft bill in PDF format. Previous post on this subject HERE.

Samuels has not seen eye-to-eye with Governor Palin on most oil & gas issues. He was the only legislator to vote against Palin's Alaska Gasline Inducement Act, or AGIA. And unlike other oil-friendly lawmakers, there's not been a hint of scandal associated with Samuels.

Rep. Samuels is the third prominent Alaskan in the past three days to criticize ACES. During this past Sunday, the Anchorage Daily News printed columns by both former State Representative and Independent gubernatorial candidate Andrew Halcro and KFQD's conservative talk show host Dan Fagan, both critical of ACES. While Halcro and Fagan significantly differ on social issues, they both sent the same message on Governor Palin's oil policies.

Halcro's primary concern, as expressed in his column, is the impact a higher PPT could have on the investment climate. He notes that production has dropped from a peak of 2.0 million barrels per day in 1988 to 699,000 barrels per day now, and the remainder of the oil, being more difficult to extract, will require greater investment. Halcro also reminds us that Alaska already has the highest oil taxes in North America at a time when production is declining and the cost of state government is skyrocketing.

Halcro also shows that the state's own numbers indicated that the existing PPT, a 22.5 percent tax rate with a .025 per barrel bonus tax for every dollar over $40 per barrel, is working. According to an April 30th, 2007 report released by the Department of Revenue, figures show capital investment has doubled, tax revenues increased a billion dollars and most all of the $150 million the state initially claimed to be shorted has been reconciled. The report goes on to state, "Accelerated spending relating to the development of new petroleum fields has also contributed to our increased cost estimates." Halcro believes that the ACES plan promotes short-term revenue gains at the expense of new investment.

Dan Fagan preaches a similar message. In his column, he first lauds the governor for "framing the debate brilliantly", in which those who oppose her idea are represented as "anti-Alaskan". Fagan claims a spirit of McCarthyism has entered her side of the debate.

Fagan cites Alberta as an example of how it should be done. To get more cash out of companies developing oil sands in Alberta, the provincial government LOWERED royalty rates. What happened? Within three years, Alberta's oil sands revenue increased 12-fold. Lowering royalty rates made oil sand development a better investment.

Fagan reminds us that the pipeline is now only a third full and emptying at a faster rate every day. The producers have not yet decided to drill for the oil needed to extend the life of the pipeline. It's fork-in-the-road time for us and our partnership with the oil industry.

And Dan Fagan takes serious issue with the state's spending spree. He points out that NONE of the $1 billion tax increase last year and the additional billion the governor wants this year will go toward the Permanent Fund. He also points out that our state government has doubled in the past five years under Republican leadership, and that we keep turning back to our one taxpayer to feed our big-government addiction. As a result, we are about to raise taxes on them for the third time in as many years. The message being sent to the oil industry: "We can't control spending; you are on the hook for our lack of discipline; if you don't like it, take your investment dollars elsewhere". And the problem is, they might just do that.

While Dan Fagan's credibility may be a bit tainted by the fact that he has been such a relentless shill for the Highway Route for the natural gas pipeline, which would bypass most of Alaska and take the gas south, and which would also not guarantee us any gas from the North Slope fields for our own use, Andrew Halcro has plenty of credibility, considering he runs the Alaska franchise for Avis Rent-A-Car. Halcro understands first-hand what it's like to meet a payroll and keep customers and shareholders alike happy.

Opposition has also come from the Voice Of The Times (click HERE for column written by former House Speaker Gail Phillips), owned by VECO, as well as the Alaska Oil & Gas Association and the Alaska Support Industry Alliance. With so many red flags tripping simultaneously, lawmakers appear to be backing away from approving ACES at the upcoming October 18th special session. One lawmaker, Rep. Craig Johnson, believes the session will be little more than an information-gathering exercise, and that ACES will not be approved.

The Palin Administration will be holding town hall meetings to push ACES, beginning this Friday (October 9th) in Fairbanks. The road show moves to Wasilla Saturday and Anchorage Sunday, with other locations yet to be specified next week.

Analysis: There are simply too many objections from too many credible people. Consequently, I continue to predict that ACES will not pass in its present form at the upcoming special session. In addition, the legislative disagreements are just too great.

Particularly objectionable is the idea of "retroactivity". No tax should ever be retroactive. BP already paid a penalty for their carelessness in maintaining the pipeline; it is unfair to impose yet another penalty upon them.

Disallowing tax deductions for "unscheduled maintenance" also seems capricious and presumptive. Who makes the judgment as to why the "unscheduled maintenance" was necessary? This provision imposes a presumption of guilt; because BP was negligent before, they will alwsys be negligent. BP has no market incentive to continue being negligent in infrastructural maintenance.

The retroactivity and the tax deduction issue will have to be resolved before the industry will sign on to this proposal. In addition, the governor must make it explicitly clear that once the tax is set, it will remain set for the foreseeable future. The industry MUST have some degree of tax stability as an incentive for continuing investment. However, Governor Palin is not quite as dogmatic as Dan Fagan portrays her; she's likely to agree to any compromises which do not disturb the core element of her bill.

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