Rep. Beth Kerttula

Volume 2 Issue 7

Why Decoupling is a Bad Idea

Also in this Issue: Budget, Census and Broadband

March 12, 2010

 

 

Another challenge to Alaska’s current oil and gas tax structure has arisen out of the Senate Finance Committee oil and gas hearings – some legislators are exploring the idea of treating oil and gas taxes as two separate tax structures. I think this is a bad idea and I’ll tell you why in this newsletter.

Yesterday, the House passed the operating budget on to the Senate by a vote of 34 to six. The Senate has already planned hearings.

Now is your chance to get your voice heard in a big way for two things. First, it’s census time and your participation determines a lot of how our government works. Second, speak up and Juneau could be the test site for Google’s new ultrafast broadband network.

Thank you for reading my newsletter. I enjoy hearing from you, so please stop by the office, write, email or call.

 

From the Vault: Attending the AGIA hearings at the Palmer train depot with Senator Joe Thomas of Fairbanks.
From the Vault: Attending the AGIA hearings at the Palmer train depot with Senator Joe Thomas of Fairbanks.

 

Why Decoupling is a Bad Idea

 

For a good portion of this session, Senate Finance has been reviewing our oil and gas tax structure and how it relates to the gasline. About two weeks ago, the idea of treating oil and gas taxes separately (aka “decoupling”) emerged out of these hearings. This week, three bills (SB 305, SB 306 and HB 414) were introduced that would tax natural gas at a flat rate of 25% of profits, leaving oil taxes under the current ACES tax structure.

 

Sponsors of the bills believe that decoupling could result in up to a two billion dollar increase in state revenue. But that would only happen in a very narrow scenario – when the value of gas is very low and the value of oil is very high. Decoupling also ignores the fact that treating oil and gas taxes separately would deprive us from a great deal of benefit when gas is at a higher price. The absolute lowest our oil and gas tax rate can be under ACES is 25%. ACES was designed to take advantage of higher prices by using progressivity, which at high prices raises the percentage of tax owed. Without the progressivity of ACES, Alaska could potentially lose billions of dollars per year when gas prices are high.

 

The lower rates proposed by these bills would be locked in for ten years under AGIA (our gasline legislation) eliminating any opportunity to change them for different circumstances. That’s a good thing about the progressive nature of ACES – it adjusts for market conditions.

 

We should not forget that we are entering the first open season on a gasline. If these bills succeed, we would go into that open season with a brand new tax system – without any real experience on how it would work. Additionally, after the Legislature has voted a tax bill into law, the administrative branch needs some time to pull together regulations that put into place the technicalities that make the tax work. There simply wouldn’t be time to do that before the open season.

 

Another grave concern I have about decoupling is the potential confusion and game-playing over the separation of expenses between the development of gas and the development of oil. These resources come out of the ground together, so how do you accurately separate the extraction costs? Would we be allowing companies to decide which column to put those expenses in depending on what benefits them more? The current bills provide no guidance on how to do this and would require an army of state auditors to make sure everything is above board.

 

 

Last week’s House Democratic Caucus featured Reps. Mike Doogan, Berta Gardner and Chris Tuck.
Last week’s House Democratic Caucus featured Reps. Mike Doogan, Berta Gardner and Chris Tuck.

 

House Passes Operating Budget on to the Senate

 

Yesterday, the House of Representatives approved the version of the operating budget that came out of the House Finance Committee. After shaving about $100 million off the governor’s proposed budget, the total budget is about $8.1 billion, with about $1.9 billion of that coming from federal funds.

 

There was an great level of cooperation and I don’t think any other year’s operating budget has passed out of the House as smoothly or as quickly. We worked hard to strengthen Alaska’s economy and defend children and other vulnerable Alaskans.

 

There were several positive additions made to the operating budget in the house, including:

·         $5 million in domestic violence and sexual assault prevention funding;

·         Two local government specialists who provide assistance and advice to small local governments;

·         $600,000 in pre-school educational development;

·         $500,000 for additional foster care services;

·         $161,000 to help youth transition out of foster care; and

·         $125,000 (plus $125,000 federal matching funds) for SERVE Alaska, which helps bring the AmeriCorps and Learn and Serve America programs to Alaska.

 

It’s not completely rosy: I do have some grave concerns about the removal of some funding that would allow the state to continue the administrative work to get the gasline going. The committee funded only 30% of the governor’s request and made the remaining 70% contingent upon a preliminary agreement arising out of this spring’s open season. This could have serious consequences in the state’s preparedness – we need to have geologic, environmental, engineering, legal and economic model information in place so we can be ready to move the gasline forward to get our gas to market.

 

House Democrats offered two amendments on the floor, one to restore full gasline funding and another to add $8 million to the University of Alaska’s budget. This money would have been spent on their priority projects of teacher education, health/bio-medical, workforce development and engineering. These amendments unfortunately did not pass.

 

The operating budget will now move on to the Senate and I will keep you up to date on further developments.

 

Discussing letters drafted by Christopher Jenkins, an Anchorage student who spent his spring break learning about the Legislature.
Discussing letters drafted by Christopher Jenkins, an Anchorage student who spent his spring break learning about the Legislature.

Stand Up and Be Counted

 

Juneauites should begin receiving census forms in our mailboxes next week. This year’s census is going to work a little bit different than 2000’s. Everybody will receive a ten-question form that should take less than ten minutes to complete – there are no more long forms. Instead, the information that was gathered by the long forms will be gathered through the American Community Survey, which will be sent to a small sampling of American households on a monthly basis.

 

Getting an accurate census count is especially important in Alaska – and in Southeast Alaska. With such a small population, we benefit from having each and every person counted. The population figures that arise from the census will determine how federal money is parsed out for the next decade. Census data will also be used to determine the next decade’s legislative districts. With a declining population in Southeast and a rising population in the Railbelt, we could lose a Southeast legislator in the next redistricting. That would make it more difficult for Southeast Alaska to defend its interests in the legislature – including keeping the capital in Juneau.

 

You Can Help Bring Ultrafast Broadband Internet to Juneau

 

Google recently announced the intention to build and test an ultrafast broadband network and requested proposals from communities nationwide. They are expecting internet speeds of one gigabit per second. Juneau’s compact population and well-defined boundaries make us the perfect test site community.

 

Please take a minute to nominate Juneau at http://www.juneaubroadband.com/ by March 26, when the application is due. I just did it and it took me about five minutes. Of course, there’s a lot of room for more creativity than I have – Youtube submissions are encouraged.

 

 

 

Phone:  (907) 465-4766
Toll free:  (877) 465-4766
Fax:  (907) 465-4748
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Email:  rep.beth.kerttula@legis.state.ak.us
 
Website: http://kerttula.akdemocrats.org/
Alaska State Capitol
Room # 404
Juneau, AK 99801