Budget and Tax Concerns up North

ANCHORAGE--The economic recession and associated, lower energy prices are taking a financial toll on Citizens in both northern Canada and Alaska, as elsewhere.  Yesterday, the Alaska Senate Finance Committee Chairman, Dave Donley, and former Alliance president, Bill Stamps offered two significant presentations on this sensitive subject.  Northern Gas Pipelines pays attention to such fiscal matters since, in addition to regulatory policy, tax and budget matters weigh heavily on the minds of potential northern investors, including those considering gas pipelines. (CALGARY, CBC  - Premier Ralph Klein says more cuts might be needed if revenues stay low.  "If the revenue stream is, as of budget time in 2002, as it is today, then we will have to find about $300-million in additional expenditure cuts." In October, the Alberta government sliced $1.3-billion from this year's budget.    *     DAWSON CITY, Whitehorse Star – Jack Layton, the president of the Federation of Canadian Municipalities, has a message for the communities of the nation: they’re being short-changed by the senior levels of government when it comes to financing.  “I’m really just trying to underline for our municipal colleagues that our financial situation compared to the federal and provincial governments is untenable. It’s not sustainable and it has to change.”     *     Yellowknife, NNS - City day-care facilities will have to wait until February to see if there will be any new money for them in the territorial budget.  ...Minister Jake Ootes, who is responsible for day cares, said he wants to give more money to subsidize low-income people who need to use the service.)                 *****See our commentary*****

“… our twin economic anchors in Alaska of oil and government appear unsustainable in the long-term." Bill Stamps, 12-13-01

Stamps (Photo, 12-13-01) complimented Governor Tony Knowles' policy that, ”Alaska is open for business”, saying it has produced new lease sale programs partly accounting for “… interest from new, large producers and several independents” like Anadarko, and an aggressive capital and spending program announced recently by Phillips Alaska Petroleum Company.  He also mentioned exciting new activity in the Cook Inlet area.  “Unocal has gone from trying to sell their property twice in recent years,” he said, “to doubling their exploration activities for oil and gas and they are experiencing very good success.  Phillips is drilling around Anchor Point, Marathon recently brought Wolf Lake on line in the Kenai National Wildlife Refuge, Forest Oil is spending millions of dollars and has put the first new platform in Cook Inlet in over a decade, Agrium bought the chemical plant in Nikiski, and BP built a pilot GTL plant in Nikiski.  Unocal and Marathon announced the formation of the Kenai Katchemak Pipeline LLC along with Enstar and Homer Electric to provide natural gas services to the southern end of the Kenai Peninsula and new supplies for South-central Alaska.”

Then, he cautioned that, “… our twin economic anchors in Alaska of oil and government appear unsustainable in the long-term.  And in the near-term, fallout from September 11^th – and the national recession – has cast a cloud over our entire economy.”

Referring to a subject we have covered here in some detail, he said, “Our state budget is now over $900 MM in the red.  We are facing another budget short fall of almost a billion dollars – similar to where we were a couple of years ago before oil prices shot up and bailed us out again.  (Governor Steve Cowper applied this fiscal reality to gas line planning in our 12-12-01 report.)

This short fall means we will have to draw down our Constitutional Budget Reserve to less than $2 billion by the end of the fiscal year and with a projected draw of $1.3 billion in 2003, Alaska will empty our budget reserve account in less than three years.  In other words Alaska will no longer have the bailout stash that has been used for years.” 

Stamps was properly concerned about what elected officials with backs pressed against a wall will do.  “What would new taxes such as a modified economic limit factor (ELF) program do to future development of fields such as Liberty, NPR-A, Meltwater, Palm, West Sak, Schrader Bluff, Borealis and others?” he asked.  “Probably cancel some and restrict the development of others.  A modification to ELF would devastate the Cook Inlet oil industry.” 

Then he suggested that, “…a moratorium on taxes is in order while the legislature focuses on the big picture and can decide on a clear path to a solid fiscal plan.”  He and other support industry leaders are planning to communicate this concern to the Legislature, set to reconvene in Juneau this coming January.  Please see Stamps' full presentation here.

"The numbers are staggering."  Senator Dave Donley, 12-13-01.  

Donley (Photo, 12-13-01) spoke partly to update the Alliance membership on budget challenges, partly to answer some of the concerns raised at an October Alliance meeting by North Slope Borough Mayor George N. Ahmaogak, Sr.  He first pointed out that as serious as the situation is now, the Legislature has reduced per capita general fund spending to $3,800, or $921 less than in FY 1979.  He displayed a chart of the Constitutional Budget Reserve Fund demonstrating that without Legislative restraint, the savings would have evaporated by last year.  At current spending rates and with current oil price projections, the fund will be exhausted before 2003.  At that time, the state could have a $1+ billion annual deficit with no savings in place.  He said the current Senate majority long-range financial plan is to: "Maintain budget discipline; Continue to utilize outcome based budgeting to increase government efficiency; Fix the Constitution by passing SJR 23 and SJR 24; and, Adopt fiscal gap reducing legislation."  The first would correct constitutionally limited spending loopholes which realistically provide no spending limitations at all.  The second would, according to Donley, "Restore the original intent of the 1990 Constitutional Budget Reserve Amendment," by withholding the ability of a small group to hold the majority hostage at budget approval time in return for pork barrel pay-offs.  He then briefed members on the intent of SB 186, the legislation opposed by Ahmaogak.  He said it would limit per capita municipal bonding to $15,000 (65 times higher than the statewide average); limit the local share of oil and gas property tax to 10 mills for any municipality exceeding this limit.  The limit would be phased in over a 10 year period; allow a municipality to refinance existing debt in excess of this limit; and allow a municipality to generate new debt in excess of this limit at an annual rate of $1,000 per capita.  This change would generate about $100 million in new revenue to the state.  From the Borough's perspective, of course, it would have an opposite effect.  (We will provide actual text here, when it becomes available.)  

Comment: "Such is the nature of political struggle as governments become highly dependent on resource revenue or government grants, when resource prices fall and/or when rates of production and/or national revenues diminish.  In such situations, political leaders should beware of becoming too tax-dependent on a few resource industries or other governments.  Industries should, in turn, be cautious about--and must discount-- investment into an economy that could become too dependent on them.  With the stroke of a tax pen, project economics can change overnight, and even retroactively, after investment dollars have been locked and frozen into a permafrost trench."  -dh  

10-25-01 Alliance Breakfast Meeting Speaker, George N. Ahmaogak, Sr., Mayor of the North Slope Borough.  (See today's news report here.)

Ahmaogak speaks from the heart, but firmly, about the responsibilities of 'partnership'.

ExxonMobil's Public Affairs Advisor to the Alaska Gas Producers Pipeline Team, Fernando Blackgoat, visits with Ahmaogak after the speech.

10/24: During last night's Alliance annual meeting at the Sheraton Anchorage Hotel, Governor Tony Knowles and National Energy Policy Development Group Executive Director, Andrew Lundquist, shared similar views.  Several hundred contractors, legislators and government officials from all over Alaska were pleased with the ANWR, gas pipeline and other messages (See full story, here).  Outgoing President, Bill Stamps of Peak Oilfield Service Company and incoming President, Bob Stinson of Conam Construction Company, closed the meeting with the Alliance's recipe for prosperity.