Saturday, November 20, 2010

Taxoholism: Federal Natural Gas Coordinator Larry Persily Suggests An Alaska State Income Tax As A "Gesture" To Prospective North Slope Pipeline Builders

Taxoholism is a political disease that can and does cross party lines. Recently, the Republican-dominated Anchorage Assembly approved another smash-and-grab raid on the pocketbooks of Anchorage smokers, passing a 75 cents per pack increase on the cigarette tax. The "respectable" conservatives and moderates all voted for it; only the three most liberal members of the Assembly opposed it.

But Democrats remain the primary taxoholics. Most Democrats never met a tax they didn't like. One of those is longtime Alaskan Larry Persily, who currently serves in the Obama Administration as the Federal Coordinator for Alaska Natural Gas Transportation Projects. On the strength of having worked for more than a decade on oil and gas issues for three Alaska governors and the Alaska State Legislature Persily was appointed to the position in December 2009. He is quite knowledgeable on oil and gas issues.

On Friday November 19th, 2010, Persily appeared at the University of Alaska-Fairbanks (UAF) and discussed natural gas pipeline issues with students. His lecture was entitled "Alaska Gas Pipeline: Facts and Fiction, Dollars and Sense". Persily noted that although the North Slope pipeline prospect faces huge challenges, Alaska could boost its chances with some unconventional thinking. Unfortunately, Persily's taxaholism wriggled its way to the surface when he proposed an idea that had been rejected even during the Tony Knowles Administration when oil was hovering at around $12 per barrel:

A state income tax or a vote to use Permanent Fund earnings for government spending, Persily said, could represent a “gesture” to potential builders that would improve the project’s chances. Those builders, he said, are surely worried Alaska could hike natural gas taxes once a pipeline is built. A more diverse revenue stream could alleviate those fears, he said.

“(It) would be a signal to them that they’re not the only pocket (paying taxes) and that we’ll take care of ourselves,” he said.

A "gesture"? You've got to be kidding me. We're going to pass a state income tax merely as a "gesture"? And at the same time we receive individual PFD checks from the state? Has Persily forgotten that one of the reasons we dumped the state income tax was to induce more people to move up here to help build our state? Since we have a harsh winter climate and a limited surface transportation network, we need to offer additional inducements to get productive people to move up here, Specifically, the type of people who can create jobs and diversify our economy. The lack of a state income tax serves as one of those inducements.



Persily's other idea, to use Permanent Fund earnings, is more promising. Despite the popularity of the individual PFD, which people have been conditioned to believe is an entitlement rather than a bonus, the original intent and purpose of the Permanent Fund was to help maintain basic government services during lean times, and to provide us an opportunity to invest in big-ticket projects during fat times. Recently-defeated Democratic gubernatorial candidate Ethan Berkowitz touted his Alaskan Ownership Stake, a component of which was the "Own A Piece Of The Pipe" proposal centered around a proposed natural gas pipeline to give Alaskans direct ownership over our own wealth. This proposal remains worthy of further discussion.

"Gestures" alone will not induce producers to accelerate the natural gas pipeline project. It will take the promise of profitability to spur progress. At this point, natural gas supplies in the United States are already high and increasing, in part because of the growing use of "fracking" (hydraulic fracturing) to exploit natural gas deposits trapped in rock. However, fracking is still an evolving technology, and there have already been complaints about the process contaminating local water supplies. Some local Canadian governments want the process banned in their areas. Continued complaints about the side effect of fracking are likely to trigger restrictions on the process, which in turn would make Alaska's natural gas more valuable again.

Finally, before we start proposing a state income tax as a "gesture" to the producers, we ought to find out about the results of the respective open seasons recently conducted by TransCanada and BP-Conoco. Both entities reported lively bidding.

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