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Alaska Editorial: Budget reflects Dems' worst nightmare: reality

Posted: January 1, 2014 - 1:01am

The following editorial first appeared in the Alaska Journal of Commerce:

State Democrats should be thanking Gov. Sean Parnell after he released his proposal for the fiscal year 2015 budget.

If they didn’t have Senate Bill 21 to kick around as a convenient cover for falling oil prices and production, they might have to explain why Alaska is not only nearing a financial day of reckoning under the tax regime known as ACES they hold near and dear, but why they didn’t do anything about it.

Instead, they get to do what they do best: put out hysterical press releases claiming that Parnell’s push to stem the production decline through lowering taxes hasn’t worked, never minding that it hasn’t even gone into effect yet.

The state rakes in cash when prices are high even as production declines, but that same progressivity formula in ACES that escalates the take bites the state in the rear as prices drop and increasing capital expenditures reduce the taxable net income.

The Democrats love to have it both ways when it comes to those capital expenses on the North Slope. On one hand, they claim that Slope spending is at an all-time high under ACES as proof that the regime works.

But when it’s time to pay the piper through reduced tax revenue because those capital expenditures come at a cost to the state, suddenly Democrats don’t trust the numbers and suggest that companies are overinflating them to reduce their tax liabilities.

It’s the height of either hypocrisy or cognitive dissonance to claim ACES has resulted in increased spending while also claiming that the numbers from the producers are being fudged depending on what day it is. That’s a feature of ACES, not a bug, and it’s a well-documented result of highly progressive tax systems.

Another popular argument among the Democrats against SB 21 is that the projects now being touted by the Parnell Administration were underway before tax reform was passed and would have happened anyway.

It is certainly true that ConocoPhillips’ Colville Delta project, CD-5, in the National Petroleum Reserve-Alaska predates SB 21 by several years. It’s also true that CP has plenty of other options worldwide to spend its capital.

As a company’s board of directors decides where to spend its cash in an upcoming year, it doesn’t hurt that the party that sounds like South American Socialists is no longer running the show in Juneau.

The revenue picture is not great at the moment for Alaska, but it is also true that private spending funding Alaska jobs is poised to fill the gap of less public spending in the capital budget.

CD-5, Point Thomson now in a second construction season, additional investment from BP on the way and ongoing exploration and development by Repsol and Brooks Range will total billions of dollars and hundreds if not thousands of jobs for the future.

South to Cook Inlet, ConocoPhillips is seeking to restart LNG exports, Agrium has begun the process of resuming business at its Peninsula fertilizer plant and Furie Operating Alaska is planning to build the first Inlet production platform in nearly 30 years thanks to past state investments that are now paying off with an improved gas supply picture.

While only the producing companies’ bottom lines stand to benefit directly from tax reform — and the recent Revenue forecast suggests it’s a wash at current prices under either formula — there is a reason that every business organization in the state along with Alaska Native corporations are backing Parnell on SB 21.

They know doing nothing has a cost, and that talk isn’t always cheap. They also know making money is a lot harder than spending money, and that’s a reality Alaska Democrats still can’t come to grips with.

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