Writer disagrees with borough mayor on oil and gas credits

  • By Larry Smith
  • Thursday, April 13, 2017 10:51am
  • News

Last Thursday April 6, Kenai Peninsula Borough Mayor Mike Navarre, conducted a Town Hall in Homer leading a discussion on Alaska’s fiscal considerations, in which he defended oil industry credits and incentives. He said repeatedly that, from the North Slope to Cook Inlet, the industry was responding well and production was going up.

He knows a lot, and has been very consistent in his support of oil industry interests, including opposing the referendum to repeal SB 21 and supporting the re-election of Gov. Sean Parnell. He stays right on message for his chosen constituency. He is termed out as Kenai Peninsula Borough mayor, and his talk concerned statewide issues. He believes that to be competitive with other oil and gas producing places, in this country and abroad, we must incentivize more.

I, personally, have voted for him eight times (he won seven) because he is very issue-educated and a straight talker. Too bad he doesn’t agree with me on this.

He, and his chief of staff, an expert on oil and gas development in Alaska, maintain that the state is collecting a lot of revenue from the industry, this year and every year. That may be, but we pay a lot back. Just as international oil companies charge new industry players an arm and a leg for use of existing infrastructure, they have been found guilty of underpaying everything from use of the transAlaska pipeline to property taxes on that and all other facilities. The settlements led by Charlie Cole when he was attorney general, and Robin Brena and Bill Walker (then attorneys representing Fairbanks and Valdez) collected billions in overdue royalties and taxes — $10 billion over 20 years in the case of TAPS. It generally takes us 10 years and millions in legal expenses to collect from big oil.

I agree that the state should pay bonuses properly earned. The governor accepted the legislative appropriations to pay, but did not pass them along to the companies that earned them. There is a back door through which these same companies are going through for state help: The Alaska Industrial and Export Authority puts up low interest loans and grants. AIDEA actually was the major owner of “Buccaneer” through partnership in Kenai Offshore Ventures, which owned that benighted jack-up oil rig that went belly-up leaving behind a trail of unpaid service companies and government entities. AIDEA has pumped billions into questionable investments such as this.

AIDEA still has billions of state dollars and I think we would be well advised to consider asking that they provide the state budget with grants and no-interest loans to help us out. Or maybe we should just padlock their doors, take our money, and turn over residual operations to the state Department of Commerce? Perhaps we could use some of these funds to pay the bonuses we owe, directly, without delay.

I do not agree with reducing dividends. That causes worse recession. The mayor and staff agreed that the Permanent Fund must be inflation proofed. Unfortunately, the majority in the Legislature may not. The last two budgets have failed to reinvest in the fund corpus, despite the clear language in law that it shall be done at a rate derived from the two year monthly average of the U.S. Consumer Price Index for urban areas. It is a clear formula that has saved the fund from losing value; 40 percent of the our Permanent Fund (over $16 billion), is the result of inflation proofing. If there is no inflation proofing, there will soon be much less earned by investments, a downward spiral leading to the loss of Fund earnings, loss of ability to pay for services, loss of fividends.

The Permanent Fund corporation says inflation, if it continues at 2.25 percent, will reduce the Fund by at least 45 percent in 20 years — and a lot more if inflation goes higher, which has historically been the case. Every year fund investments will pump out less into the Permanent Fund Earnings Reserve Account, which is now the object of legislative finance committee changes. Heretofore, from this account, has come first transfers to the Dividend Fund and automatic inflation proofing. The clever lobbyists of the oil and gas industry, have found the chink in the constitutional armor of the Permanent Fund. Spend dividend and inflation proofing billions on state programs and we won’t be going after a “fair share” from the oil and gas industry.

The mayor advocates for a POMV (percent of market value) use of Permanent Fund dollars. I agree. Gov. Jay Hammond backed such an approach. But, there are big differences in the formulas for different POMV ideas. Some of these are just schemes to invade the Fund. The Hammond approach, and I presume Navarre’s also, would be careful to draw a sustainable percentage. The Permanent Fund Corporation warns that the high draws now contemplated by legislators would lead to necessary changes in the way the Fund is invested and would reduce its ability to earn. We should not let a bad form of POMV become, like no inflation proofing, another invasion of our Permanent Fund.

Longtime Homer resident Larry Smith is the coordinator of the Kachemak Resource Institute, an informal group interested in resource issues.

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