My Turn: Alaskans unaware of their own wealth

Alaskans are being badly led, and misled. Most Alaskans have no idea how much wealth they own. I’ll share secrets those conducting the propaganda war against Alaskans do not want you to know. I’ll also detail some of the breathtaking incompetence of the Parnell administration and why a “Yes” vote for the citizen’s referendum is essential if we wish to avoid income taxes, sales taxes, and a default on the obligations we have to our public employee retirees.

 

Each and every Alaskan owns more than $1 million of oil wealth. The value of the oil underneath the North Slope exceeds $1 trillion. If one were to divide this wealth by 720,000 Alaskans this works out to about $1.4 million per Alaskan. The shale oil, heavy oil, off- shore oil, and Arctic Refuge oil isn’t counted in this example — that is extra. The value of the North Slope gas is worth trillions more. Alaskans are not just millionaires, they are multi-millionaires.

The magnitude of the plundering of our resources is not understood, even by most legislators.

Few legislators can quantify the total value of our oil that is removed from Alaska each year. At current price and throughput it is about $19.1 billion, worth $26,000 to each Alaskan. As a hypothetical alternative to SB21, if Alaska employed a 50-50 gross plan (where Alaska takes half, and the industry takes half) Alaskans would receive almost $10 billion in revenue this year. We’d have a budget surplus of around $5 billion. Under SB21 Alaska only takes $4 billion, of a total $19.1 billion. We are the owners of the oil and we have paid billions to develop North Slope infrastructure, but the industry takes the lion’s share of our wealth.

Parnell has failed to demonstrate that he understands the fundamental tenets of resource economics that are vital to ensuring Alaska has a long-term, sustainable economy. Hartwick’s rule of resource economics recognizes that oil is a finite resource. If Alaska were being properly managed we would be investing some of the revenue from the sale of our non-renewable oil into infrastructure that would bring new revenue that would offset the inevitable declines from oil. For example, we should have invested in a gas pipeline secured by long-term contracts with the Asian markets. A gas pipeline would bring $419 billion in new revenue according to the analysis we had completed by Wood Mackenzie. Alaska has spent tens of billions on capital budget expenditures that do not bring us any new revenue. The Asian LNG markets were asking for an Alaska LNG project that would have brought gas by 2019. Parnell refused, and is allowing Exxon to continue to study a project. That Exxon has multiple LNG projects that compete with Alaska makes no difference to Parnell.

SB21 is Parnell’s legislation but his administration has failed to demonstrate basic competence in other areas. For example, with a net-profits system, audits are critically important. Not only has Parnell not completed the audits, he has allowed the statute of limitations to expire for some audit years. The industry declared massively higher costs to take full advantage of this incompetence costing Alaska millions, maybe billions. Another Parnell failure is the lack of enforcement of separate accounting that allows industry to write off expenses it incurs in other countries within its Alaska filings.

The total obligation we have to PERS/TRS over the next 70 years is $136 billion dollars. How likely is it that Alaska will default on our obligation to our retirees — as Detroit did recently did through bankruptcy? In just 13 years our annual payments to this under-funded system are going to be $3 billion per year­­ — and growing. But due to the massive deficits Parnell has created — we are now spending $7 million per day from savings — our key savings accounts (the Constitutional and Statutory budget reserves) will, realistically, be empty in only five years. This makes a raid on the corpus of the Permanent Fund and the imposition of a state income tax extremely likely. Oil-rich nations that have not given away their finite resources have grown vast savings. The sovereign wealth fund of Norway is $878 billion dollars. This fund was established in 1990, 14 years after the Alaska Permanent Fund was established. Kuwait has $410 billion. Even corrupt Libya has more than we do — $66 billion — and their fund was established in 2006.

Voting “Yes” to approve the referendum is the correct thing to do.

• Merrick Peirce is a board member and CFO for the voter-created Alaska Gasline Port Authority, performed Department of Revenue transition work for former Gov. Sarah Palin and is a stockholder of Exxon and ConocoPhillips.

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